ARABIAN AMERICAN DEVELOPMENT CO - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___________ TO ________

COMMISSION FILE NUMBER 0-6247

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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
DALLAS, TEXAS 75231
(Address of principal executive offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (214) 692-7872

Securities Registered Pursuant to Section 12(b) of the Act:
NONE

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

(TITLE OF CLASS)
Common Stock, par value $0.10 per share

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Indicate by check mark whether the registrant (l) 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 [ ] No [X]

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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. [ ]

Number of shares of registrant's Common Stock, par value $0.10 per
share, outstanding as of May 31, 2002: 22,731,994.

The aggregate market value on May 31, 2002 of the registrant's voting
securities held by non-affiliates was $2,346,368.

DOCUMENTS INCORPORATED BY REFERENCE

No documents are incorporated by reference into this report.

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PART I

ITEM 1. BUSINESS.

GENERAL

Arabian American Development Company (the "Company") was organized as a
Delaware corporation in 1967. The Company's principal business activities
include refining various specialty petrochemical products and developing mineral
properties in Saudi Arabia and the United States. All of its mineral properties
are presently undeveloped and require significant capital expenditures before
beginning any commercial operations. The Company's undeveloped mineral interests
are primarily located in Saudi Arabia.

United States Activities. The Company's domestic activities are
primarily conducted through a wholly owned subsidiary, American Shield Refining
Company (the "Refining Company"), which owns all of the capital stock of Texas
Oil and Chemical Co. II, Inc. ("TOCCO"). TOCCO owns all of the capital stock of
South Hampton Refining Company ("South Hampton"), and South Hampton owns all of
the capital stock of Gulf State Pipe Line Company, Inc. ("Gulf State"). South
Hampton owns and operates a specialty petrochemical products refinery near
Silsbee, Texas that is one of the largest manufacturers of pentanes consumed
domestically. Gulf State owns and operates three pipelines which connect the
South Hampton refinery to a natural gas line, to South Hampton's truck and rail
loading terminal and to a marine terminal owned by an unaffiliated third party.
The Company also directly owns approximately 51% of the capital stock of a
Nevada mining company, Pioche-Ely Valley Mines, Inc. ("Pioche"). Pioche does not
conduct any substantial business activities. American Shield Coal Company, an
inactive wholly owned subsidiary, was merged into the Company on October 26,
2001. See Item 2. Properties.

Saudi Arabian Activities. The Company holds a thirty (30) year mining
lease (which commenced on May 22, 1993) covering an approximate 44 square
kilometer area in the Al Masane area in southwestern Saudi Arabia. The Company
has the option to renew or extend the term of the lease for additional periods
not to exceed twenty (20) years. The Company was granted exploration licenses
for the other areas in southwestern Saudi Arabia which have expired.

In 1999, the Company applied for an exploration license covering an
area of approximately 2,850 square kilometers surrounding the mining lease area,
where it has previously explored with the written permission of the Saudi
Ministry of Petroleum and Mineral Resources.

Mexico Activities. TOCCO acquired 92% of the issued and outstanding
shares of common stock of Productos Quimicos Coin, S.A. de. C.V. ("Coin"), a
specialty petrochemical products refining company, from Spechem, S.A. de. C.V.
on January 25, 2000 at a purchase

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price of $2.5 million. The refinery is located in Coatzacoalcos, on the Yucatan
Peninsula near Veracruz, Mexico. An administrative office is located in Mexico
City.

See Item 2. Properties for additional discussions regarding all of the
Company's properties and financing of the Al Masane project.

Note 12 to the Company's Consolidated Financial Statements contains
information regarding the Company's industry segments and geographic financial
information for the years ended December 31, 2001, 2000 and 1999. In addition,
see Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations for a discussion of the Company's liquidity, capital
resources and operating results.

FOREIGN OPERATIONS

Since a substantial portion of the Company's mineral properties and
related interests, and one of its specialty petrochemical refineries, are
located outside of the United States, its business and properties are subject to
foreign laws and foreign conditions, with the attendant varying risks and
advantages. Foreign exchange controls, foreign legal and political concepts,
foreign government instability, international economics and other factors create
risks not necessarily comparable with those involved in doing business in the
United States.

COMPETITION

The Company competes in both the petrochemical and mining industries.
Accordingly, the Company is subject to intense competition among a large number
of companies, both larger and smaller than the Company, many of which have
financial and other resources (including facilities and personnel) greater than
the Company. In the specialty products and solvents markets, the Refining
Company has one principal and one other competitor. Generally, good economic
conditions have meant strong demand for its specialty products and solvents. The
acquisition of Coin is intended to strengthen the Refining Company's position in
the market in Mexico and allow it to pursue increased sales volumes in the
United States. All of the Refining Company's raw materials are purchased on the
open market. The cost of these materials is a function of spot market oil and
gas prices, which were down in 1998, began rising in mid-1999 and continued to
rise dramatically throughout 2000. The prices peaked in late 2000 and then
returned to more traditional levels throughout 2001.

ENVIRONMENTAL MATTERS

In 1993, while remediating a small spill area, The Texas Natural
Resources Conservation Commission required South Hampton to drill a well to
check for groundwater contamination under the spill area. Two pools of
hydrocarbons were discovered to be floating on the groundwater at a depth of
approximately 25 feet. One pool is under the site of a former gas processing
plant owned and operated by Sinclair, Arco and others before its purchase by
South Hampton in 1981. The other pool is under the South Hampton facility. Tests
conducted at that time determined that hydrocarbons are contained on the
property and are not moving in any direction. The recovery process was initiated
in June 1998 and approximately $53,000 was spent

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setting up the system. The recovery is proceeding as planned and is expected to
continue for several years until the pools are reduced to an acceptable level.
Expenses of recovery and periodic migration testing will be recorded as normal
operating expenses. Expenses for future year's recovery are expected to
stabilize and be less per annum than the initial set up cost, although there can
be no assurance of this effect. Consulting engineers estimate that as much as
20,000 barrels of recoverable material may be available to South Hampton for use
in its refining process, but no reduction has been made in the accrual for
remediation costs due to the uncertainties relating to the recovery process.
South Hampton drilled additional wells in 2001 and in February 2002 to further
delineate the boundaries of the pools and to ensure that, with the additional
rainfall experienced in 2001, movement had not taken place. These tests
confirmed that no movement of the hydrocarbon pools had taken place. As a result
of the investigation, the current action plan was deemed acceptable. Also, see
Item 3. Legal Proceedings.

The Clean Air Act Amendments of 1990 have had a positive effect on the
Refining Company's business as plastics manufacturers are searching for ways to
use more environmentally acceptable solvents in their processes. Plastics
manufacturers have historically used C6 hydrocarbons (hexanes) as coolants and
catalyst carrying agents. There is a current trend among plastics manufacturers
toward the use of lighter and more recoverable C5 hydrocarbons (pentanes) which
are a large part of the Refining Company's product line. Management believes its
ability to manufacture high quality solvents in the C5 hydrocarbon market will
provide a basis for growth over the next few years; however, there can be no
assurance that such growth will occur. While the refinery continues to
manufacture C6 solvents, its manufacturing of these solvents is being phased
out. The Aromax(R) unit, which was jointly developed with Chevron Research
Company, has the ability to convert C6 hydrocarbons into benzene and other more
valuable aromatic compounds, which is one of the reasons the Refining Company
initially participated in the Aromax(R) development project. Also, see Item 2.
Properties.

PERSONNEL

The Company's officers who are resident in the United States are Mr.
John A. Crichton, Chairman of the Board, and Mr. Drew Wilson, Jr., Secretary and
Treasurer. Mr. Hatem El-Khalidi, the Company's President and Chief Executive
Officer, supervises the Company's 28 employees in Saudi Arabia, consisting of
the office personnel and field crews who conduct exploration and related
activities. The Refining Company employs 92 persons.

ITEM 2. PROPERTIES.

UNITED STATES SPECIALTY PRODUCTS REFINERY

South Hampton owns and operates a specialty products refinery near
Silsbee, Texas. The refinery presently consists of eight operating units which,
while interconnected, make distinct products through differing processes: (i) a
pentane-hexane unit; (ii) a catalytic reformer; (iii) an aromatics fractionation
unit; (iv) a cyclopentane unit; (v) an Aromax(R) unit; (vi) an aromatics
hydrogenation unit; and (vii) two specialty fractionation units. All of these
units are currently in operation.

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The pentane-hexane unit's design capacity is approximately 2,500
barrels per day ("BPD") of feedstock. The unit averaged 1,725 barrels per stream
day during 2001. The unit consists of a series of fractionation towers and
hydrotreaters capable of producing high purity solvents which are sold primarily
to expandable polystyrene and high density polyethylene producers. South Hampton
purchases most of its feedstock for this unit on the spot market.

The catalytic reforming unit is a standard industry design using a
platinum-rhenium catalyst which produces an aromatics concentrate sold as
feedstock for an aromatics extraction unit, as well as hydrogen which is
utilized in other processes. The design capacity of the reformer is 800 BPD. The
unit is operated as a source of hydrogen for the pentane-hexane unit and
operates in tandem with the Aromax(R) unit as feedstock balances dictate. The
unit's average production was 406 barrels per stream day in 2001.

The aromatics fractionation unit consists of two towers and has a
design capacity of 750 BPD. The unit processes an aromatic feedstock stream into
three specialized aromatic solvents used in various applications such as
pesticides, paints and coatings and adhesives. This unit is leased to a customer
for its own use pursuant to a contract providing for the payment of a minimum
daily charge.

The cyclopentane unit consists of three specialized fractionation
towers designed to produce a consistently high quality product which is used in
the expandable polystyrene industry. The design capacity of the cyclopentane
unit is 400 BPD. The unit operates according to the feedstock supplied by the
pentane-hexane unit and averaged 214 barrels of production per stream day during
2001.

The Aromax(R) unit is the world's first commercial unit using a
proprietary process of Chevron Research Company to produce a high benzene
content product which is sold as feedstock to refiners operating benzene
extraction units. The process converts petroleum naphtha into liquid
hydrocarbons having a high aromatic hydrocarbon content. The Aromax(R) unit's
design capacity is 400 BPD and uses a by-product from the pentane-hexane unit as
feedstock. The unit's average production throughput during 2001 was 97 barrels
per stream day. Chevron Research Company has agreed to continue development of
the Aromax(R) process. The unit continues to successfully operate as designed.

The aromatics hydrogenation unit was modified and expanded during the
first half of 2000 to meet the needs of a new, long-term toll processing
customer. The unit now consists of a hydro-desulphurization reactor with an
adjoining stripper tower and a new hydro-treater section with an adjoining
stripper/fractionation tower. The unit, which has a design capacity of 300 BPD,
was constructed to produce a specialty product using a proprietary process and
is under contract with the customer for a ten year period. The modifications
cost approximately $1.5 million and are expected to pay back in approximately
two years, although there can be no assurance of this effect. The unit became
operational in June 2000 and, after the normal start-up adjustments, has
performed as intended.

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The specialty fractionation unit consists of a single fractionation
tower and has a design capacity of 500 BPD. This unit was leased to a customer
for its own use pursuant to a contract providing for the payment of a minimum
daily charge. During the middle of 2001, this unit was inactivated and will be
used for other purposes in the future. Several proposed projects are being
evaluated which would make use of the existing equipment.

The specialty solvents fractionation unit consists of three
fractionation towers, two of which operate under vacuum. The design capacity of
this unit is 1,000 BPD. This unit processes a specialized high purity feedstock
into four high purity white oil solvents. This unit is leased to a customer for
its own use pursuant to a contract providing for the payment of a minimum daily
charge.

South Hampton owns approximately 100 storage tanks with a total
capacity of approximately 320,000 barrels. The refinery is situated on 125 acres
of land, approximately 70 acres of which are developed. South Hampton purchased
an additional eight acres in 2000. South Hampton also owns a truck and railroad
loading terminal consisting of eight storage tanks, a rail spur and truck and
tank car loading facilities.

As a result of various expansion programs and the toll processing
contracts, essentially all of the standing equipment at South Hampton is
operational. South Hampton has surplus equipment in storage on site with which
to assemble additional processing units, such as a hydrocracking unit with a
2,000 BPD capacity.

Gulf State owns and operates three 8 inch pipelines aggregating
approximately 50 miles in length that connect South Hampton's refinery to a
natural gas line, to South Hampton's truck and rail loading terminal and to a
marine terminal owned by an unaffiliated third party. South Hampton leases
storage facilities at the marine terminal.

MEXICO SPECIALTY PRODUCTS REFINERY

The Mexico specialty petrochemical refinery is similar to South
Hampton's refinery in Silsbee, Texas, and produces high purity solvents which
are used in the expandable polystyrene and polystyrene foam industries. These
solvents are additionally approved and used by developers of high-density
polyethylene manufacturing processes for use in their licensed units. Coin
markets its products in Mexico, Latin America and the United States. With this
acquisition, the Company believes its refining operations are a significant
supplier of high purity solvents in those markets. Coin employs 23 persons. The
Mexico refinery was shut down for most of 2000 and 2001 due to the high cost of
feedstock and low margins. During the fourth quarter of 2001, the plant began to
operate at reduced capacity and in the first quarter of 2002 is running at full
capacity. Future run rates will depend upon market conditions and feedstock
prices. Management expects the plant should average operating at 60% of capacity
in 2002, although there can be no assurances that this will occur.

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SAUDI ARABIA MINING PROPERTIES

Al Masane Project

The Al Masane project, consisting of a mining lease area of
approximately 44 square kilometers, contains extensive ancient mineral workings
and smelters. From ancient inscriptions in the area, it is believed that mining
activities went on sporadically from 1000 BC to 700 AD. The ancients are
believed to have extracted mainly gold, silver and copper.

Initial Exploration Work and Prior Feasibility Studies. The Saudi
Arabian government granted the Company exploration licenses for the Al Masane
and Wadi Qatan areas in 1971. Subsequently, the Company conducted substantial
geological and geophysical activities in these areas. Core drilling and studies
by independent consulting firms concluded that Al Masane's copper, zinc, gold
and silver prospects could be put in production sooner than the nickel prospect
at Wadi Qatan. Metallurgical tests also showed difficulty in separating the
nickel at Wadi Qatan. During 1977, a pre-feasibility mining study was conducted
at Al Masane by the mining consulting firm of Watts, Griffis and McOuat Limited
of Toronto, Canada ("WGM"). WGM recommended an extensive development program for
the Al Masane prospect.

Phase I of WGM's recommended Al Masane development program was
completed in April 1981. It involved construction of underground tunnels
parallel to the ore bodies totaling 3.9 kilometers in length from which
extensive underground core drilling was done in order to prove the quantity and
quality of the ore reserves. This work was financed primarily with an $11
million interest-free loan from the Saudi Arabian Ministry of Finance. As a
result of this work, WGM concluded that sufficient ore reserves had been
established to justify completion of a full bank feasibility study to determine
the economic potential of establishing a commercial mining and ore treatment
operation at Al Masane. WGM and SNC/GECO of Montreal, Canada conducted this
study in 1982. They concluded that the Al Masane deposits would support
commercial production of copper, zinc, gold and silver and recommended
implementation of Phase II of the Al Masane development program, which would
involve the construction of mining, ore treatment and support facilities. WGM's
September 1984 reevaluation of the project resulted in no substantial changes of
their initial conclusions and recommendations.

The Company continued its exploration work at Al Masane after 1984.
Consequently, WGM upwardly revised its reserve estimates in 1989 and again
concluded that a proposed mining operation was economically viable as well as
having high potential for the discovery of additional ore zones.

Current Feasibility Studies. The Saudi government granted the Company a
mining lease for the Al Masane area on May 22, 1993. The Company subsequently
commissioned WGM to prepare a new fully bankable feasibility study to be used to
obtain financing for commercial development of the project. The study, which was
completed in 1994, contained specific recommendations to insure that project
construction was accomplished expeditiously and economically. The engineering
design and costing portions of the study were performed by Davy International of
Toronto, Canada ("Davy"). WGM and Davy updated this study in 1996. A summary of
the studies' findings are as follows:

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The Al Masane ore is located in three mineralized zones known as
Saadah, Al Houra and Moyeath. The following table sets forth a summary of the
diluted minable, proven and probable ore reserves at the Al Masane project,
along with the estimated average grades of these reserves:

For purposes of calculating, proven and probable reserves, a dilution
of 5% at zero grade on the Saadah zone and 15% at zero grade on the Al Houra and
Moyeath zones was assumed. A mining recovery of 80% has been used for the Saadah
zone and 88% for the Al Houra and Moyeath zones. Mining dilution is the amount
of wallrack adjacent to the ore body that is included in the ore extraction
process.

Proven reserves are those mineral deposits for which quantity is
computed from dimensions revealed in outcrops, trenches, workings or drillholes,
and grade is computed from results of detailed sampling. For ore deposits to be
proven, the sites for inspection, sampling and measurement must be spaced so
closely and the geologic character must be so well defined that the size, shape,
depth and mineral content of reserves are well established. Probable reserves
are those for which quantity and grade are computed from information similar to
that used for proven reserves, but the sites for inspection, sampling and
measurement are farther apart or are otherwise less adequately spaced. However,
the degree of assurance, although lower than that for proven reserves, must be
high enough to assume continuity between points of observation.

The metallurgical studies conducted on the ore samples taken from the
zones indicated that 87.7% of the copper and 82.6% of the zinc could be
recovered in copper and zinc concentrates. Overall, gold and silver recovery
from the ore was estimated to be 77.3% and 81.3%, respectively, partly into
copper concentrate and partly as bullion through cyanide processing of zinc
concentrates and mine tailings. Further studies recommended by consultants may
improve those recoveries and thus the potential profitability of the project,
however, there can be no assurances of this effect.

The mining and milling operation recommended by WGM for Al Masane would
involve the production of 2,000 tonnes of ore per day (700,000 tonnes per year),
with a mine life of over ten years. Annual production is estimated to be 34,900
tonnes of copper concentrate (25% copper per tonne) containing precious metal
and 58,000 tonnes of zinc concentrate (54% zinc per tonne). Total output per
year of gold and silver is estimated to be 22,000 ounces of gold and 800,000
ounces of silver from the copper concentrate and bullion produced. The
construction of mining, milling and infrastructure facilities is estimated to
take 21 months to complete. Construction necessary to bring the Al Masane
project into production includes the construction of a 2,000 tonne per day
concentrator, infrastructure with a 300 man housing facility and the
installation of

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a cyanidation plant to increase the recovery of precious metals from the
deposit. Project power requirements will be met by diesel generated power.

WGM recommended that the Al Masane reserves be mined by underground
methods using trackless mining equipment. Once the raw ore is mined, it would be
subjected to a grinding and treating process resulting in three products to be
delivered to smelters for further refining. These products are zinc concentrate,
copper concentrate and dore bullion. The copper and zinc concentrates also
contain valuable amounts of gold and silver. These concentrates and the dore
bullion to be produced from the cynidization plant are estimated to be 22,000
ounces of gold and 800,000 ounces of silver and will be sold to copper and zinc
custom smelters and refineries worldwide. After the smelter refining process,
the metals could be sold by the Company or the smelter for the Company's account
in the open market.

In the feasibility study, WGM states that there is potential to find
more reserves within the lease area, as the ore zones are all open at depth.
Further diamond drilling, which will be undertaken by the Company, is required
to quantify the additional mineralization associated with these zones. A
significant feature of the Al Masane ore zones is that they tend to have a much
greater vertical plunge than strike length; relatively small surface exposures
such as the Moyeath zone are being developed into sizeable ore tonnages by
thorough and systematic exploration. Similarly, systematic prospecting of the
small gossans in the area could yield significant tonnages of new ore.

The 1996 update shows the estimated capital cost to bring the project
into operation to be $89 million. At a production rate of 700,000 tonnes per
year, the operating cost of the project (excluding concentrate freight, ship
loading, smelter charges, depreciation, interest and taxes) was estimated to be
$38.49 per tonne of ore milled.

WGM prepared an economic analysis of the project utilizing cash flow
projections. A base case was prepared that included those project elements which
are most likely to be achieved. WGM believed that a majority of the base case
assumptions used in the 1994 feasibility study remained valid, including the ore
reserves, mill feed grade, production rate, metal recoveries and concentrate
grade and smelter returns. Metal prices, capital costs, operating costs and the
corporate structure were adjusted to reflect more current information. Capital
and operating costs were adjusted in conformity with the updated estimates
prepared by Davy.

The base case assumes the corporate structure of the entity to be
formed to operate the project will be owned 50% by the Company and 50% by Saudi
Arabian investors and that the owners of this entity would contribute an
aggregate of $26 million to the cost of the project. The base case further
assumes financing for the project from commercial loans in the aggregate amount
of $25 million bearing interest at the rate of 8% per year and a loan in the
amount of $38 million from the Saudi Industrial Development Fund ("SIDF")
repayable in equal annual installments over the initial life of the mine. Cash
generated by the operation of the project would contribute the remainder of the
project financing. The base case assumes that the $11 million loan outstanding
to the Saudi Arabian government will be paid by the Company in accordance with a
repayment schedule to be agreed upon with the Saudi Arabian government from the
Company's share of the project's cash flows. Based on these assumptions, and
assuming

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the average prices of metal over the life of the mine to be $1.05 per pound for
copper, $.60 per pound for zinc, $400 per ounce of gold and $6.00 per ounce of
silver, WGM's economic analysis of the base case shows the project will realize
an internal rate of return of 13.1%, the Company's and the Saudi Arabian
investors' internal rates of return would be 27.3% and 12.1%, respectively, and
projected net cash flow (after debt repayment) from the project of $95.1
million. The 1994 feasibility study base case showed the project would realize a
14.05% internal rate of return. Cash flow under the base case is exclusive of
income tax as the base case assumes that any such tax would be paid by
individual investors and not by the project. Assuming a 10% discount rate, the
net present value of the project as shown in the update is $12.16 million
compared to the $15.5 million net present value of the project shown in the 1994
feasibility study. Based on the update, WGM believes that the economic analysis
shows that the project remains viable.

Mining Lease. As the holder of the Al Masane mining lease, the Company
is solely responsible to the Saudi Arabian government for the rental payments
and other obligations provided for by the mining lease and repayment of the
previously discussed $11 million loan. The Company's interpretation of the
mining lease is that repayment of this loan will be made in accordance with a
repayment schedule to be agreed upon with the Saudi Arabian government from the
Company's share of the project's cash flows. The initial term of the lease is
for a period of thirty (30) years from May 22, 1993, with the Company having the
option to renew or extend the term of the lease for additional periods not to
exceed twenty (20) years. Under the lease, the Company is obligated to pay
advance surface rental in the amount of 10,000 Saudi riyals (approximately
$2,667 at the current exchange rate) per square kilometer per year
(approximately $117,300 annually) during the period of the lease. In addition,
the Company must pay income tax in accordance with the income tax laws of Saudi
Arabia then in force and pay all infrastructure costs. The Saudi Arabian Mining
Code provides that income tax will not be due during the first stage of mining
operations, which is the period of five years starting from the earlier of (i)
the date of the first sale of products or (ii) the beginning of the fourth year
since the issue of the mining lease. The lease gives the Saudi Arabian
government priority to purchase any gold production from the project as well as
the right to purchase up to 10% of the annual production of other minerals on
the same terms and conditions then available to other similar buyers and at
current prices then prevailing in the free market. Furthermore, the lease
contains provisions requiring that preferences be given to Saudi Arabian
suppliers and contractors, that the Company employ Saudi Arabian citizens and
provide training to Saudi Arabian personnel.

Reference is made to the map on page 15 of this Report for
information concerning the location of the Al Masane project.

Project Financing. As detailed above, the estimated total capital cost
to bring the Al Masane project into production is $89 million. The Company does
not presently have sufficient funds to bring this project into production. Also,
see Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations for a further discussion of these matters.

Pursuant to the mining lease agreement, when the Al Masane project is
profitable the Company is obligated to form a Saudi public stock company with
the Saudi Arabian Mining

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Company, a corporation wholly owned by the Saudi Arabian government ("Ma'aden"),
as successor to and assignee of the mining interests formerly held by the
Petroleum Mineral Organization ("Petromin"). Ma'aden is the Saudi Arabian
government's official mining company. In 1994, the Company received instructions
from the Saudi Ministry of Petroleum and Mineral Resources stating that it is
possible for the Company to form a Saudi company without Petromin (now Ma'aden),
but the sale of stock to the Saudi public could not occur until the mine's
commercial operations were profitable for at least two years. The instructions
added that Petromin (now Ma'aden) still had the right to purchase shares in the
Saudi public stock company any time it desires. Title to the mining lease and
the other obligations specified in the mining lease would be transferred to the
Saudi public stock company. However, the Company would remain responsible for
the repaying the $11 million loan to the Saudi Arabian government.

In order to commercially develop the Al Masane project, the Company
entered into a joint venture arrangement with Al Mashreq Company for Mining
Investments ("Al Mashreq"), a Saudi limited liability company owned by Saudi
Arabian investors (including certain of the Company's shareholders). The
partners formed The Arabian Shield Company for Mining Industries Ltd., a Saudi
limited liability company ("Arabian Mining"), which was officially registered
and licensed in August 1998 to conduct business in Saudi Arabia and authorized
to mine and process minerals from the Al Masane lease area. Arabian Mining
received conditional approval for a $38.1 million interest-free loan from SIDF,
and deposited $26 million of equity capital into its bank account.

Due to the severe decline in the open market prices for the minerals to
be produced by the Al Masane project and the financial crisis affecting Eastern
Asia in 1998, SIDF and other potential lenders required additional guarantees
and other financing conditions which were unacceptable to the Company and Al
Mashreq. As a consequence, Al Mashreq withdrew from the joint venture and all
equity capital was returned. By letter dated May 11, 1999, the Company informed
the Ministry of Petroleum and Mineral Resources that the joint venture was
dissolved and that implementation of the project would be delayed until open
market prices for the minerals to be produced by the Al Masane project improve
to the average price levels experienced during the period from 1988 through
1997. At that time, the Company will attempt to locate a joint venture partner,
form a joint venture and, together with the joint venture partner, attempt to
obtain acceptable financing to commercially develop the project. There can be no
assurances that the Company would be able to locate a joint venture partner,
form a joint venture or obtain financing from SIDF or any other sources. In the
meantime, the Company intends to maintain the Al Masane mining lease through the
payment of the annual advance surface rental, the implementation of a drilling
program to attempt to increase proven and probable reserves and to attempt to
improve the metallurgical recovery rates beyond those stated in the feasibility
study, which may improve the commercial viability of the project at lower metal
prices than those assumed in the feasibility study. During 2001, the open market
prices for the minerals to be produced by the Al Masane project were below the
average price levels experienced during 1988 through 1997.

The Minister of Petroleum and Mineral Resources announced on April 2,
2002 that a new revised Saudi Arabian Mining Code would be issued before the end
of 2002. The Minister added that this new code will expedite the issuance of
licenses and has new incentives to encourage investment by

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the private sector, both Saudi and foreign, in the development of mineral
resources in Saudi Arabia. In light of this development, the Company is
discussing with the Ministry of Petroleum and Natural Resources its current and
future plans for its operations based on current and projected metal prices, as
well as the status of the Company's application for the exploration license for
the Greater Al Masane area.

Other Exploration Areas in Saudi Arabia

During the course of its exploration and development work in the Al
Masane area, the Company has carried on exploration work in other areas in Saudi
Arabia. In 1971, the Saudi Arabian government awarded the Company exclusive
mineral exploration licenses to explore and develop the Wadi Qatan area in
southwestern Saudi Arabia. The Company was subsequently awarded an additional
license in 1977 for an area north of Wadi Qatan at Jebel Harr. These licenses
have expired.

In 1999, the Company applied for an exploration license covering an
area of approximately 2,850 square kilometers, which surrounds the Al Masane
mining lease area and includes the Wadi Qatan and Jebel Harr areas. This area is
referred to as the Greater Al Masane area. The Company has been authorized in
writing by the Saudi Arabian government to carry out exploration work in the
area. Previous exploration work has been carried on and paid for by the Company.
The application for the new exploration licenses is still pending and is
expected to be acted upon after the new Saudi Arabian Mining Code is issued,
which is expected to be before the end of 2002.

Reference is made to the map on page 15 of this Report for information
concerning the location of the foregoing areas.

Wadi Qatan and Jebel Harr. The Wadi Qatan area is located in
southwestern Saudi Arabia. Jebel Harr is north of Wadi Qatan. Both areas are
approximately 30 kilometers east of the Al Masane area. These areas consist of
40 square kilometers, plus a northern extension of an additional 13 square
kilometers. The Company's geological, geophysical and limited core drilling
disclosed the existence of massive sulfides containing an average of 1.2%
nickel. Reserves for these areas have not yet been classified and additional
exploration work is required. When the Company obtains an exploration license
for the Wadi Qatan and Jebel Harr areas, the Company intends to continue its
exploratory drilling program in order to prove whether enough ore reserves exist
to justify a viable mining operation, however there is no assurance that a
viable mining operation could be established.

Greater Al Masane. 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 on 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.
A detailed exploration program and expenditures budget accompanied the
application. The Company indicated on its application that

13

it would welcome the participation of Ma'aden in this license. Ma'aden, which
has expressed an interest in the Greater Al Masane area, also was informed by
the Company that its participation as a joint venture partner in the license
would be welcomed.

As previously stated, the Company does not possess current formal
exploration licenses for any of the above areas. The absence of such licenses
creates uncertainty regarding the Company's rights and obligations, if any, in
these areas. The Company believes it has satisfied the Saudi Arabian
government's requirements in these areas and that the government should honor
the Company's claims. If the Saudi Arabian government does not issue the Greater
Al Masane exploration license, the Company believes that it will be entitled to
a refund of the approximately $3 million it has expended on exploration work in
the area, since the Company was authorized by the Saudi Arabian government to
carry out exploration work in this area while waiting for the exploration
license to be issued.

UNITED STATES MINERAL INTERESTS

The Company's mineral interests in the United States are its ownership
interests in Pioche. Pioche has been inactive for many years.

Nevada Mining Properties. Pioche's properties include 48 patented and 5
unpatented claims totaling approximately 1,500 acres. All the claims are located
in the Pioche Mining District, Lincoln County, Nevada. There are prospects and
mines on these claims that previously produced silver, gold, lead, zinc and
copper. The ore bodies are both oxidized and sulfide deposits, classified into
three groups: fissure veins in quartzite, mineralized granite porphyry and
replacement deposits in carbonate rocks (limestone and dolomites). There is 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.

American Shield Coal Company, an inactive wholly owned subsidiary, was
merged into the Company on October 26, 2001.

OFFICES

The Company has a year-to-year lease on space in an office building in
Jeddah, Saudi Arabia, used for office occupancy. The Company also leases a house
in Jeddah that is used as a technical office and for staff housing. The Company
continues to lease office space in Dallas, Texas on a month-to-month basis. It
also owns a base camp and accompanying facilities and equipment at the Al Masane
project site.

14

[MAP]

15

ITEM 3. LEGAL PROCEEDINGS.

South Hampton, together with several other companies, is a defendant in
five lawsuits filed in Jefferson County and Orange County, Texas filed in the
period from December 1997 to December 2000 by former employees of the southeast
Texas plants of Goodyear Tire & Rubber Company, DuPont, Atlantic Richfield and
South Hampton. In each of these suits the plaintiff claims illnesses and
diseases resulting from alleged exposure to chemicals, including benzene,
butadiene and/or isoprene, during their employment. The plaintiffs claim the
defendant companies engaged in the business of manufacturing, selling and/or
distributing these chemicals in a manner which subjected each and all of them to
liability for unspecified actual and punitive damages. One of the lawsuits
brought in Jefferson County, Texas was settled in 2001, with South Hampton
contributing $10,000 toward the settlement. Another lawsuit is presently being
settled in 2002 with South Hampton agreeing to pay a total of $60,000 in
quarterly payments by the end of the year. In February 2002, a new lawsuit was
filed in Jefferson County, Texas, which contains claims similar to the other
suits. South Hampton intends to vigorously defend itself against these lawsuits
and believes it has adequate insurance coverage to protect it financially from
any damage awards that might be incurred.

In August 1997, the Executive Director of the Texas National Resource
Conservation Commission ("TNRCC") filed a preliminary report and petition with
the TNRCC alleging that South Hampton violated various TNRCC rules, TNRCC
permits issued to South Hampton, a TNRCC 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 TNRCC's air quality rules and
the storage, processing and disposal of hazardous waste in a manner that
allegedly violates the TNRCC's industrial and hazardous waste rules. The TNRCC's
Executive Director recommends the TNRCC 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 refinery and its bulk terminal into compliance with Texas Water Code, the
Texas Health and Safety Code, TNRCC rules, permits and orders. South Hampton is,
and intends to continue to, vigorously defending itself against this proceeding.
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 has been taken.

On February 2, 2000, the TNRCC 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 TNRCC proposes that administrative
penalties be increased to approximately $765,000 and that certain corrective
action be taken. South Hampton intends to vigorously defend itself against these
additional allegations, the proposed penalties and proposed corrective actions.

On December 13, 2001, the TNRCC notified South Hampton that it found
several violations of TNRCC 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.

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

No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of 2001.

16

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

NASDAQ notified the Company in May 2000 that the Company's common stock
would be delisted in August 2000 if the Company was unable to demonstrate
compliance with the minimum bid price requirements. The Company appealed this
proposed action in August 2000 and a hearing on the appeal was held in October
2000. As a result of the hearing, the Company's common stock was delisted on
October 12, 2000. The Company then submitted an appeal request to a higher
NASDAQ authority and, at a hearing in February 2001, the prior delisting
decision was affirmed.

The Company's common stock traded on the NASDAQ National Market until
October 2000 and currently trades on OTC Bulletin Board under the symbol: ARSD.
The following table sets forth for the periods from January 1, 2000 through
October 12, 2000, the high and low sale prices for each quarter as reported on
the NASDAQ National Market and, for the period from October 13, 2000 through
December 31, 2001, the range of high and low bid prices for each quarter as
reported by the OTC Bulletin Board. The quotations from the OTC Bulletin Board
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.

At March 31, 2002, there were 732 record holders of the Company's
common stock. The Company has not paid any dividends since its inception and, at
this time, does not have any plans to pay any dividends in the foreseeable
future. The provisions of the Refining Company loan agreements restrict the
upstream declaration and payment of dividends and other distributions to the
Company during any fiscal quarter to the lesser of (i) $150,000 or (ii) 50% of
the Refining Company's earnings before interest, taxes, depreciation and
amortization less interest expense

17

for that fiscal quarter, provided there is no event of default under the
relevant loan agreement. See Note 8 to the Company's Consolidated Financial
Statements.

On November 15, 1999, the Company issued 500 shares of its common stock
to a long term employee of South Hampton in recognition of his services. In
connection with the acquisition of Coin by TOCCO, on December 23, 1999 the
Company sold 300,000 shares of its common stock to TOCCO at $1.00 per share to
assist TOCCO with the financing of the acquisition. The Company relied upon the
private offering exemption of Section 4(2) of the Securities Act of 1933 in both
of these transactions.

In March 2000, the Company issued 469,000 shares of its common stock,
valued at $1.00 per share, to Al Mashreq for the cancellation of $469,000 of
indebtedness incurred in connection with the payment of advance surface rentals
on the Al Masane project. The Company relied upon the exemption set forth in
Regulation S under the Securities Act of 1933 in this transaction.

In 2001, the Company cancelled a receivable of $128,000 from its
President and Chief Executive Officer taken in payment several years ago for the
purchase of 57,000 shares of common stock at approximately $2.25 per share. Upon
cancellation, the shares were returned to the Company. The Company's share price
at that date was $.30 which resulted in a charge to expense of approximately
$111,000.

18

ITEM 6. SELECTED FINANCIAL DATA.

The following is a five-year summary of selected financial date of the
Company (in thousands, except per share amounts):

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

GENERAL

Statements in Items 7 and 7A, as well as elsewhere in, or incorporated
by reference in, this Annual Report on Form 10-K 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 Annual Report on Form 10-K, 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 Refining 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 substantially all of the Company's internally generated cash flows.
However, significant

19

increases in the prices of feedstock and natural gas resulted in a loss from
operations in 2000 of $2.8 million which, in turn, resulted in violations of
certain loan agreement covenants and a lack of liquidity. Beginning in February
2001, the decline of feedstock and natural gas prices returned the Refining
Company to a positive cash flow, which it attained for the remainder of the
year. 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 the year and
contributed to the Refining Company's steady performance. When the economy
returns to a growth position, profitability is expected to return to the levels
seen in previous growth years. In the latter part of 2001 and in early 2002,
customer demand required that product be imported from its Mexico refinery in
order to meet sales commitments.

South Hampton entered into a $3.25 million credit agreement in
September 1999 with Southwest Bank of Texas, N.A., located in Houston, Texas
(the "Bank"). The terms and conditions of this credit agreement are discussed in
Note 8 to the Company's Consolidated Financial Statements. South Hampton is not
in compliance with certain covenants contained in the loan agreement. In the
event this segment were to undertake a major capital expenditure, such as
construction of a new facility, financing for this activity would most likely
come from some combination of internal resources, a debt placement with a
financial institution or a joint venture partner. Any major capital expenditure
requires the Bank's advance review and approval.

In connection with the acquisition of the common stock of Coin, South
Hampton and Gulf State entered into a $3.5 million credit agreement in December
1999 with Heller Financial Leasing, Inc. The credit agreement is evidenced by a
47 month promissory note bearing interest at the rate of 10.55% per annum. The
terms and conditions of this credit agreement are discussed in Note 8 to the
Company's Consolidated Financial Statements. The credit agreement is secured by
a pledge of all of the capital stock of South Hampton and Gulf State, a first
lien on all of South Hampton's and Gulf State's present and future machinery and
equipment and a ground lease relating to South Hampton's real property, and is
guaranteed by the Company, the Refining Company and TOCCO. South Hampton and
Gulf State are not in compliance with certain covenants contained in the loan
agreement.

Coin is not in compliance with certain covenants contained in its loan
agreements.

The provisions of the Refining Company loan agreements restrict the
upstream declaration and payment of dividends or other distributions to the
Company during any fiscal quarter to the lesser of (i) $150,000 or (ii) 50% of
the Refining Company's earnings before interest, taxes, depreciation and
amortization less interest expense for that fiscal quarter, provided there is no
event of default under the relevant loan agreement. See Note 8 to the Company's
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. As discussed in
Item 2. Properties, implementation of the project has been delayed until the
open market prices for the minerals to be produced by the mine improve. At that
time, the Company will attempt to locate a joint venture partner, form a joint
venture and,

20

together with the joint venture partner, attempt to obtain acceptable financing
to commercially develop the project. 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.

Management also is addressing two other significant financing issues
within this segment. These issues are the $11.0 million note payable due the
Saudi Arabian government and accrued salaries and termination benefits of
approximately $1,260,000 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 accrued salary and
termination benefits of approximately $1,049,000).

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 Ministers of Finance and Petroleum recommended that the $11.0
million note be incorporated into a loan from 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 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 were to demand immediate
repayment of this obligation, which management considers unlikely, the Company
would be unable to pay the entire amount due. If a satisfactory rescheduling
agreement could be reached, and there are no assurances that one could be, the
Company believes it could obtain the necessary resources to meet the rescheduled
installment payments by making certain changes at the Refining Company.

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 obligation as they are released from
the Company's employment.

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.

21

If the Company seeks additional outside financing, there is no
assurance that sufficient funds can 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 report of the Company's independent auditors states that the $2.1
million loss incurred in 2001, the excess of current liabilities over current
assets and the violations of certain covenants of loan agreements raise
substantial doubt about the Company's ability to continue as a going concern.

RESULTS OF OPERATIONS

Comparison of the Years 2001 to 2000

Specialty Petrochemicals Segment. Total refined product sales decreased
approximately 28% or $11.3 million in 2001, with $4.7 million of the decrease
due to the reduced revenues of Coin. Cost of sales (excluding depreciation)
decreased approximately $12.4 million or 30% in 2001, including $4.5 million
attributable to Coin. The reduction in sales was primarily due to lower sales
volumes in the weaker economy of 2001. In 2000, substantial volumes were
imported from the Mexico refinery to meet volume demands from U.S. customers. As
the economy grew weaker in 2001, the economic incentive to import product went
away and the Refining Company relied upon production from the U.S. plant to meet
U.S. sales. Average sale prices rose 4% across product lines. Even though the
volume was down, the Refining Company returned to positive cash flow in February
2001 due to the drop in feedstock prices and the return of adequate margins on
sales. Average feedstock prices dropped approximately 14% in 2001 from the prior
year.

The Refining Company arranged two financial swap agreements in July
and October 2001 to protect its feedstock prices from sudden increases.
While the swaps were looked upon as insurance against possible sudden and
extreme price increases in the market due to terrorist activity or other
unforeseen events, the actual market prices worked against the Refining
Company's position in the swaps by falling below the positions taken. The
feedstock costs for the last six months of 2001 were approximately $340,000
higher than they would have been had the swaps not been in place. With the
instability of the world political situation, management still believes it is
prudent to continue to take advantage of the protection offered by the swaps and
intends to keep them in place until at least the end of 2002. The swap
agreements arranged for the remainder of 2002 are more favorable to the
anticipated feedstock prices than those that have expired.

The toll processing business continued to be important to the segment's
business in meeting its profitability and cash flow goals. The processing fees
increased from $2.3 million in 2000 to over $3.7 million in 2001. This 59%
increase was due in part to increased throughput and also to a full year's fees
from a unit that was built and became operational in late 2000. The toll
processing customers are steadily building up the volume that is processed in
the plant and the segment has budgeted for increases in the coming year.

22

General and administrative expenses for this segment increased slightly
in 2001 from 2000. Interest expense rose in 2001 to $1,460,000 from $984,000 in
2000. This 48% increase was due primarily to the addition of debt for the
purchase of Coin in late January 2000, for Coin's existing debt, which in 2000
resulted in eleven months of expense instead of a full year and for penalty
interest on Coin's delinquent debt. The increase in miscellaneous income in 2001
of $22,200 was due primarily to reduced commission expenses.

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' share 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 periodically reviews and evaluates its mineral exploration
and development projects as well as its other mineral properties and related
assets. The recoverability of the Company's carrying values of its development
properties are assessed by comparing the carrying values to estimated future net
cash flows from each property. In 2001, for purposes of estimating future cash
flows, the price assumptions contained in the 1996 update to the Al Masane
project's feasibility study, which was prepared by WGM, have been updated by an
independent consultant. See Item 2. Properties. These price assumptions are
averages over the projected life of the Al Masane mine and are $1.04 per pound
for copper, $.60 per pound for zinc, $400 per ounce for gold, and $6.00 per
ounce for silver. For its other mineral properties and related assets, carrying
values were compared to estimated net realizable values based on market
comparables. Using these price assumptions, no asset impairments existed.

The Company intends to assess the carrying values of its assets on an
ongoing basis. Factors which may affect carrying values 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. 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.

The Company has net operating loss carryforwards of approximately $20
million at December 31, 2001, of which approximately $414,000 is limited to the
Refining Company's future taxable income. These loss carryforwards expire during
the years 2002 through 2021.

Accounting Standards Not Adopted

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," that established uniform methodology for accounting for
estimated costs associated with legal obligations related to retirement of
assets. The statement will be adopted January 1, 2003. The Company is in the
process of analyzing the effect of adoption.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The statement is effective for fiscal years beginning after December 15, 2001.
The Company does not believe that the implementation of

23

this standard will have a material effect on its financial position, results of
operations or cash flows.

Comparison of Years 2000 to 1999

Specialty Petrochemicals Segment. Total revenues increased
approximately 53% or $14.8 million in 2000. This increase was due to revenues of
Coin of $5.9 million (Coin was acquired in January 2000), an increase in sales
volume of approximately two million gallons or 6.5%, an increase in toll
processing fees of approximately $850,000 or 58% and a general increase in
product prices. However, costs increased also and were detrimental to the final
results of operations. Cost of sales (excluding depreciation) increased
approximately $13.5 million or 63% from 1999, excluding the effect of the Coin
acquisition. Average feedstock prices rose almost 70% in 2000 to $.81 per gallon
in comparison to an average of $.48 per gallon in 1999. Consequently, the gross
profit on refined product sales (excluding depreciation) for 2000 decreased by
90% to $0.5 million from $4.9 million in 1999, excluding the effect of the Coin
acquisition. With domestic operating costs rising approximately 72% due
primarily to the rapid rise in the cost of natural gas, which is used for fuel
in the refineries, the operating income of this segment fell from a $3.1 million
profit in 1999 to a loss of $2.8 million in 2000. Coin contributed $.9 million
to the operating loss. It is difficult, in a competitive market, for this
segment to raise product prices as rapidly as costs were escalating in 2000. The
refineries use natural gasoline for feedstock. Natural gasoline is the heavier
liquid produced by natural gas processing plants and by LPG fractionators.
Higher natural gas prices in 2000, in conjunction with the higher crude oil
prices experienced by the industry for much of the year, drove the cost of other
petroleum liquids to higher than historical levels. The high BTU value of the
liquids associated with natural gas production caused many gas producers to not
process their gas or to leave as much of the heavier molecules as possible in
the gas streams thereby causing a shortage of the liquids in the normal markets
and higher prices.

Toll processing continued to be a growing contributor to the segment's
business. As stated earlier, processing fees increased 58% in 2000 from 1999.
This increase in the toll processing business is indicative of the direction of
the U.S. refining and petrochemical industries. Many companies are outsourcing
smaller jobs and processes that were formerly done internally. The Refining
Company has been in the toll processing business for over 30 years, enjoys a
good reputation within the industry and believes it offers customers several
competitive advantages over other suppliers of these services. Management
intends to expand its involvement in this area as opportunities arise.
Approximately $1.5 million and $1.6 million was invested in capital projects for
toll processing in 2000 and 1999, respectively.

General and administrative expenses increased $.9 million in 2000 to
$3.5 million, primarily due to the acquisition of Coin. Interest expense and
bank fees rose in 2000 to $1,369,000 from $118,000 in 1999. This increase was
due to the addition of debt for the purchase of Coin, Coin's existing debt and
the increased use of the working capital credit line due to the rising cost of
feedstock. The increase in interest income was due to the increased amount of
excess cash, primarily restrictive cash. The 95% decrease in miscellaneous
income in 2000 of $310,601 is due primarily to reduced tank rental income.

24

High feedstock prices and high fuel costs have made it difficult to
generate acceptable margins on operations. For the approximate 11-month period
in 2000 when Coin was a subsidiary of the Company, the total refined product
sales were $5.9 million, while the costs of sales (excluding depreciation) were
$5.8 million, resulting in a gross profit of approximately $100,000. However,
after general and administrative expenses, depreciation and interest expenses,
Coin had a net loss for the period of $1.4 million. In response to these
economic anomalies, Coin shut the refinery down for several months in the fall
and winter months of 2000. Coin continued to generate sales and maintain market
share by buying product on the open market and from its U.S. parent and
reselling the product to existing customers. While the margins generated in this
manner are not sufficient to maintain the refinery's operations indefinitely,
management expects a return to normal operation once fuel and feedstock prices
return to more favorable levels. Coin's customer base remains intact and its
equipment remains in good operating condition, which should enable the refinery
to produce and ship product without undue delay once production recommences.

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' share 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 periodically reviews and evaluates its mineral exploration
and development projects as well as its other mineral properties and related
assets. The recoverability of the Company's carrying values of its development
properties are assessed by comparing the carrying values to estimated future net
cash flows from each property. In 2000, for purposes of estimating future cash
flows, the price assumptions contained in the 1996 update to the Al Masane
project's feasibility study, which was prepared by WGM, were used. See Item 2.
Properties. These price assumptions are averages over the projected life of the
Al Masane mine and are $1.05 per pound for copper, $.60 per pound for zinc, $400
per ounce for gold, and $6.00 per ounce for silver. For its other mineral
properties and related assets, carrying values were compared to estimated net
realizable values based on market comparables. Using these price assumptions, no
asset impairments existed.

The Company assesses the carrying values of its assets on an ongoing
basis. Factors which may affect carrying values 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. 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.

Due primarily to the 1988 write-off of its coal lease investments, the
Company had net operating loss carryforwards of approximately $28.0 million at
December 31, 2000, of which approximately $1.7 million is limited to the
Refining Company's future taxable income. These loss carryforwards expire during
the years 2001 through 2020.

25

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

The market risk inherent in the Company's financial instruments
represents the potential loss resulting from adverse changes in interest rates,
foreign currency rates and commodity prices. The Company's exposure to interest
rate changes results from its variable rate debt instruments which are
vulnerable to changes in short term United States prime interest rates. At
December 31, 2001 and 2000, the Company had $6.8 million and $8.9 million,
respectively, in variable rate debt outstanding. A hypothetical 10% change in
interest rates underlying these borrowings would result in annual changes in the
Company's earnings and cash flows of approximately $47,200 and $90,000 at
December 31, 2001 and 2000, respectively.

The Company is also exposed to market risk in the exchange rate of the
Saudi Arabian riyal and the Mexican peso as measured against the United States
dollar. The Company does not view these exposures as significant and has not
acquired or issued any foreign currency derivative financial instruments.

The Refining Company purchases all of its raw materials, consisting of
feedstock and natural gas, on the open market. The cost of these materials is a
function of spot market oil and gas prices. As a result, the Refining Company's
revenues and gross margins could be affected by changes in the price and
availability of feedstock and natural gas. As market conditions dictate, the
Refining Company from time to time will engage in various hedging techniques
including swap agreements. The Refining Company does not use such financial
instruments for trading purposes and is not a party to any leveraged
derivatives.

At December 31, 2001, the Refining Company had two financial swap
agreements in effect, one of which expired in January 2002 and the other of
which expires in July 2002. The Refining Company entered into another swap
agreement in February 2002 which remains in effect for the remainder of 2002.
The swap agreements cover approximately 50% of the Refining Company's average
monthly feedstock needs. Market risk is estimated as a hypothetical 10% increase
in the cost of feedstock over the market price prevailing on December 31, 2001.
Assuming 2002 total refined product sales volumes at the same rate as 2001, such
an increase would result in an increase in the cost of feedstock of
approximately $1.105 million in fiscal 2002, before considering the effect of
the swap agreements outstanding as of December 31, 2001.

At December 31, 2000, there were no such investments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements of the Company and the financial statement
schedules, including the independent auditor's report thereon, are included
elsewhere in this document.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

26

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following tables sets forth the name and age of each director of
the Company, the date of his election as a director and all other positions and
offices with the Company presently held by him.

Each director of the Company is elected annually to serve until his
successor is elected and qualified. Each person listed in the foregoing table
has served as a director since the date of election indicated. In connection
with an increase in the number of positions on the Board of Directors in 1993,
at the request of Sheik Fahad Al-Athel, the Company appointed Mohammed O.
Al-Omair, who had served as a director of the Company from November 1989 to
March 1991, to fill one of the newly-created vacancies.

The following table sets forth the name of each executive officer of
the Company, his age and all the positions and offices with the Company held by
him:

27

Each executive officer of the Company serves for a term extending until
his successor is elected and qualified. Information concerning Messrs. Crichton
and El-Khalidi is set forth above. Mr. Wilson is a certified public accountant.
Mr. Wilson has served as Secretary and Treasurer of the Company since November
1986, and has worked as an independent public accountant since 1975. Mr. Carter
has been President of TOCCO and its subsidiaries since 1987, prior to which time
he served from October 1983 as Treasurer and Controller of those companies. Mr.
Carter has been employed by TOCCO and its subsidiaries since 1977.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than 10% stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. To the best of the Company's knowledge, during the fiscal year ended
December 31, 2001, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% beneficial owners were complied with.

ITEM 11. EXECUTIVE COMPENSATION.

The following information summarizes annual compensation for services
in all capacities to the Company for the fiscal years ended December 31, 2001,
2000 and 1999 of the Chief Executive Officer and the other four most highly
compensated executive officers of the Company:

SUMMARY COMPENSATION TABLE

- ----------

(1) Except for Mr. Carter, no executive officer of the Company had total
annual salary and bonus in excess of $100,000 during the fiscal year
ended December 31, 2001.

(2) Includes $38,004, $44,904 and $61,947 in compensation for the fiscal
years ended December 31, 1999, December 31, 2000 and December 31, 2001,
respectively, that was deferred at the election of Mr. El-Khalidi. All
present deferred compensation owing to Mr.

28

El-Khalidi aggregating $788,618 is considered, and future deferred
compensation owing to Mr. El-Khalidi, if any, will be considered
payable to Mr. El-Khalidi on demand.

(3) Includes $8,000 in termination benefits for each of the fiscal years
ended December 31, 1999, December 31, 2000 and December 31, 2001,
respectively, that was accrued for Mr. El-Khalidi in accordance with
Saudi Arabian employment laws. The total amount of accrued termination
benefits due to Mr. El-Khalidi as of December 31, 2001 was $260,000.

In accordance with Saudi Arabian employment laws, the Company is
required to accrue termination benefits for Mr. El-Khalidi. The amount accrued
for the benefit of Mr. El-Khalidi is based on the number of years of service and
compensation. Accrued benefits are payable upon termination of employment.

The Company has engaged in other transactions and entered into other
arrangements, directly or indirectly, with its officers and directors, the
primary purpose of certain of which was to provide additional compensation to
such persons. See "Certain Relationships and Related Transactions."

The Company is authorized to pay its non-employee directors a fee of
$200 for each Board meeting and $100 for each committee meeting which they
attend, in addition to reimbursing them for expenses incurred in connection with
their attendance.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS/SAR VALUES

The following table shows information concerning the exercise of stock
options during the fiscal year ended December 31, 2001 by the executive officers
named in the Summary Compensation Table and the estimated value of unexercised
options held by such individuals at year-end:

- ----------

(1) Based on the closing price of $.15 of the Company's Common Stock on the
OTC Bulletin Board on December 31, 2001.

29

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth, as of March 31, 2002, information as to
the beneficial ownership of the Company's Common Stock by each person known by
the Company to beneficially own more than 5% of the Company's outstanding Common
Stock, by each of the Company's executive officers named in the Summary
Compensation Table, by each of the Company's directors and by all directors and
executive officers of the Company as a group.

30

- ----------

* Less than 1%.

(1) Unless otherwise indicated, to the knowledge of the Company, all shares
are owned directly and the owner has sole voting and investment power.

(2) Includes 400,000 shares which Mr. El-Khalidi has the right to acquire
through the exercise of presently exercisable stock options. Excludes
385,000 shares owned by Ingrid El-Khalidi, Mr. El-Khalidi's wife, and
443,000 shares owned by relatives of Hatem El-Khalidi.

(3) Includes 10,000 shares which Mr. Al-Omair has the right to acquire
through the exercise of a presently exercisable stock option.

(4) Includes 10,000 shares which Mr. Sultan has the right to acquire
through the exercise of a presently exercisable stock option.

(5) Includes 445,000 shares which certain directors and executive officers
have the right to acquire through the exercise of stock options or
other rights exercisable presently or within 60 days. Excludes 385,000
shares owned by Ingrid El-Khalidi, the wife of Hatem El-Khalidi, the
President, Chief Executive Officer and a director of the Company, and
443,000 shares owned by relatives of Hatem El-Khalidi.

Based on its stock ownership records, the Company believes that, as of
March 31, 2002, Saudi Arabian stockholders currently hold approximately 62% of
the Company's outstanding Common Stock, without giving effect to the exercise of
presently exercisable stock options held by certain of such stockholders.
Accordingly, if all or any substantial part of the Saudi Arabian stockholders
were considered as a group, they could be deemed to "control" the Company as
that term is defined in regulations promulgated by the Securities and Exchange
Commission. Although they have orally waived their rights, certain of the
Company's Saudi Arabian stockholders are parties to written agreements providing
them with the right to purchase their proportionate share of additional shares
sold by the Company.

The management of the Company has welcomed the substantial stock
investment by its Saudi stockholders. Saudi investors have contributed vitally
needed capital to the Company since 1974. Whether the Company's Saudi
stockholders will be a continuing source of future capital is not known at this
time. In confronting the need for additional funds, management of the Company
will follow the policy of considering all potential sources consistent with
prudent business practice and the best interests of all its stockholders. In the
course of considering

31

methods of future financing and other matters relating to the operations of the
Company, management of the Company anticipates that in the ordinary course of
business it will receive recommendations and suggestions from its principal
stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company directly owns approximately 51% of the outstanding capital
stock of Pioche. Mr. John A. Crichton is currently a director and President of
Pioche, and Mr. Hatem El-Khalidi is currently a director and Executive Vice
President of Pioche. The Company is providing the funds necessary to cover the
Pioche operations. During 2001 and 2000, the Company made payments of
approximately $10,300 and $22,900, respectively, for such purposes. As partial
consideration for the forgiveness of indebtedness, in July 1990 Pioche granted
the Company an option to purchase an additional 720,000 shares of its Common
Stock at an exercise price of $.20 per share, which option is exercisable until
June 1, 2002. As of December 31, 2001, Pioche owed the Company $187,361 as a
result of advances made by the Company. The indebtedness bears no interest.

Pursuant to a sharing arrangement, the Company and its subsidiaries
share personnel, office space and other overhead expenses in Dallas, Texas with
Mr. John A. Crichton, Chairman of the Board of the Company. Monthly rental on
the office space is approximately $1,600. The Company pays $1,100 per month for
rent and $980 per month for personnel and other overhead expenses pursuant to
such arrangement.

During 2001, South Hampton incurred product transportation costs of
approximately $403,900 with Silsbee Trading and Transportation Corp. ("STTC"), a
private trucking and transportation carrier in which Nicholas N. Carter, the
President of TOCCO, and Richard Crain, Vice President of TOCCO, each have a 50%
equity interest. Pursuant to a lease agreement, South Hampton leases
transportation equipment from STTC at a rate of approximately $33,300 per month,
subject to adjustment. Under the lease arrangement, STTC provides the
transportation equipment and all normal maintenance on such equipment and South
Hampton provides the drivers, fuel, management of transportation operations and
insurance on the transportation equipment. Approximately 99% of STTC's income
will be derived from such lease arrangement. The Company believes that the terms
of the lease arrangement are no less favorable in any material respect than
those which could be obtained from an unaffiliated third party. The lease
agreement is currently operating on a month-to-month basis while renewal options
are being evaluated.

In September 2001, the Company acknowledged the receipt and
cancellation of 57,000 partially paid shares of the Company's Common Stock from
Mr. Hatem El-Khalidi, President, Chief Executive Officer and a director of the
Company, in consideration for the cancellation of $126,000 of indebtedness owed
to the Company, which constituted a portion of the original purchase price paid
by Mr. El-Khalidi to the Company for such shares, and a return of the remaining
$2,000 of the original purchase price paid by him.

During 2001, the Company borrowed $100,000 from the wife of Mr.
El-Khalidi, which amount bears interest at the rate of 9% per annum and is due
upon demand.

32

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) 1. The following financial statements are filed with
this Report:

Reports of Independent Certified Public Accountants.

Consolidated Balance Sheets dated December 31, 2001
and 2000.

Consolidated Statements of Operations for the three
years ended December 31, 2001.

Consolidated Statement of Stockholders' Equity for
the three years ended December 31, 2001.

Consolidated Statements of Cash Flows for the three
years ended December 31, 2001.

Notes to Consolidated Financial Statements.

2. The following financial statement schedules are filed with
this Report:

Schedule II -- Valuation and Qualifying Accounts for the three
years ended December 31, 2001.

3. Independent Auditors' Report covering the financial statements
of Productos Quimicos Coin, S.A. de C.V.

4. 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)).

33

EXHIBIT
NUMBER DESCRIPTION

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) - 1987 Non-Employee Director Stock Plan
(incorporated by reference to Exhibit 10(e)
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 (File
No. 0-6247)).

10(f) - Phantom Stock Plan of Texas Oil & Chemical
Co. II, Inc. (incorporated by reference to
Exhibit 10(f) to the Company's Annual Report
on Form 10-K for the year ended December 31,
1999 (File No. 0-6247)).

10(g) - Agreement dated March 10, 1988 between
Chevron Research Company and South Hampton
Refining Company, together with related form
of proposed Contract of Sale by and between
Chevron Company and South Hampton Refining
Company (incorporated by reference to
Exhibit 10(g) to the Company's Annual Report
on Form 10-K for the year ended December 31,
1999 (File No. 0-6247)).

10(h) - Addendum to the Agreement Relating to
AROMAX(R) Process - Second Commercial
Demonstration dated June 13, 1989 by and
between Chevron Research Company and South
Hampton Refining Company (incorporated by
reference to Exhibit 10(h) to the Company's
Annual Report on Form 10-K for the year
ended December 31, 1999 (File No. 0-6247)).

34

EXHIBIT
NUMBER DESCRIPTION

10(i) - Vehicle Lease Service Agreement dated
September 28, 1989 by and between Silsbee
Trading and Transportation Corp. and South
Hampton Refining Company (incorporated by
reference to Exhibit 10(i) to the Company's
Annual Report on Form 10-K for the year
ended December 31, 1999 (File No. 0-6247)).

10(j) - 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(k) - 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(l) - 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(m) - 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(n) - 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)).

10(o) - Letter Agreement dated November 30, 1996
between Sheikh Fahad Al-Athel and the
Company.

10(p) - Stock Purchase Agreement dated as of January
25, 2000 between Spechem, S.A. de. C.V. and
Texas Oil and Chemical Co. II, Inc.
(incorporated by reference to Exhibit 10(p)
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 (File
No. 0-6247)).

35

EXHIBIT
NUMBER DESCRIPTION

10(q) - Loan and Security Agreement dated as of
December 30, 1999 by and among Heller
Financial Leasing, Inc., South Hampton
Refining Company and the Gulf State Pipe
Line Company, Inc., together with related
Promissory Note, Guaranty made by the
Company, Guaranty made by American Shield
Refining Company, Guaranty made by Texas Oil
and Chemical Co. II, Inc., Pledge Agreement
made by Texas Oil and Chemical Co. II, Inc.,
Pledge Agreement made by South Hampton
Refining Company, Ground Lease, Sub-Ground
Lease and Hazardous Materials Indemnity
Agreement (incorporated by reference to
Exhibit 10(q) to the Company's Annual Report
on Form 10-K for the year ended December 31,
1999 (File No. 0-6247)).

- (a) Agreement dated as of April 1, 2001
among South Hampton Refining Company, Gulf
State Pipe Line Company and Heller Financial
Leasing, Inc., together with Amended and
Restated Promissory Note (incorporated by
reference to Exhibit 10(a) to the Company's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001 (File No.
0-6247)).

10(r) - Loan Agreement dated as of September 30,
1999 between South Hampton Refining Company
and Southwest Bank of Texas, N.A., together
with related Promissory Note, Security
Agreement, Arbitration Agreement and
Guaranty Agreement made by Texas Oil and
Chemical Co. II, Inc. (incorporated by
reference to Exhibit 10(r) to the Company's
Annual Report on Form 10-K for the year
ended December 31, 1999 (File No. 0-6247)).

- (a) First Amendment to Loan Agreement dated
June 20, 2000 between South Hampton Refining
Company and Southwest Bank of Texas, N.A.,
together with related Promissory Note,
Security Agreement, Arbitration Agreement
and Guaranty Agreement made by Texas Oil and
Chemical Co. II, Inc. (incorporated by
reference to Exhibit 10(a) to the Company's
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001 (File No.
0-6247)).

- (b) Second Amendment to Loan Agreement dated
as of May 31, 2001 between South Hampton
Refining Company and Southwest Bank of
Texas, N.A., together with related
Promissory Note (incorporated by reference
to Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 2001 (File No. 0-6247)).

36

EXHIBIT
NUMBER DESCRIPTION

- (c) Third Amendment to Loan Agreement dated
as of July 31, 2001 between South Hampton
Refining Company and Southwest Bank of
Texas, N.A., together with related
Promissory Note (incorporated by reference
to Exhibit 10(a) to the Company's Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2001 (File No. 0-6247)).

- (d) Fourth Amendment to Loan Agreement dated
as of October 31, 2001 between South Hampton
Refining Company and Southwest Bank of
Texas, N.A., together with related
Promissory Note.

- (e) Fifth Amendment to Loan Agreement dated
as of December 31, 2001 between South
Hampton Refining Company and Southwest Bank
of Texas, N.A., together with related
Promissory Note.

21 - Subsidiaries.

(b) No reports on Form 8-K were filed during the last quarter of
the period covered by this Report.

37

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each of Arabian American
Development Company, a Delaware corporation, and the undersigned directors and
officers of Arabian American Development Company, hereby constitutes and
appoints John A. Crichton its or his true and lawful attorney-in-fact and agent,
for it or him and in its or his name, place and stead, in any and all
capacities, with full power to act alone, to sign any and all amendments to this
Report, and to file each such amendment to the Report, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as it or he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent may lawfully do or cause
to be done by virtue hereof.

38

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

ARABIAN AMERICAN DEVELOPMENT COMPANY

By: /s/ HATEM EL-KHALIDI
--------------------------------------
Hatem El-Khalidi
President and Chief Executive Officer

Dated: July 2, 2002

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
Company in the capacities indicated on July 2, 2002.

39

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
Arabian American Development Company

We have audited the accompanying consolidated balance sheets of Arabian American
Development Company and Subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Productos Quimicos Coin
S.A. de. C.V. (Coin), a majority-owned subsidiary, as of December 31, 2001, or
for the year then ended, the statements of which reflect total assets and
revenues constituting ten percent and five percent, respectively, of the
consolidated totals. These statements were audited by other auditors whose
report thereon has been furnished to us and our opinion, insofar as it relates
to amounts included for Coin, is based solely on the report of the other
auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above, present fairly, in all material
respects, the consolidated financial position of Arabian American Development
Company and Subsidiaries as of December 31, 2001 and 2000, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a loss of $2,095,128 in 2001 and had an excess of current
liabilities over current assets at December 31, 2001. As discussed in Notes 2
and 8 to the financial statements, the Company was not in compliance with
certain covenants in its loan agreements. If resolution with the lender is not
achieved, and the Company does not generate positive cash flow adequate for its
operations and loan obligations, the Company will have to raise debt or equity
capital. There is no assurance that capital would be available. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

GRANT THORNTON LLP

Dallas, Texas
April 10, 2002

F-1

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

F-2

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these statements.

F-3

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31,

The accompanying notes are an integral part of this statement.

F-4

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these statements.

F-5

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31,

The accompanying notes are an integral part of these statements.

F-6

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BUSINESS AND OPERATIONS OF THE COMPANY

Arabian American Development Company (the "Company") was organized as a
Delaware corporation in 1967. The Company's principal business activities
include refining various specialty petrochemical products (also referred to
as the "Refining Segment") and developing mineral properties in Saudi Arabia
and the United States (also referred to as the "Mining Segment"). All of its
mineral properties are presently undeveloped and require significant capital
expenditures before beginning any commercial operations (see Notes 2, 6 and
7).

The Company's Refining Segment activities are primarily conducted through a
wholly-owned subsidiary, American Shield Refining Company (the "Refining
Company"), which owns all of the capital stock of Texas Oil and Chemical Co.
II, Inc. ("TOCCO"). TOCCO owns all of the capital stock of South Hampton
Refining Company ("South Hampton"), and 92% of the capital stock of
Productos Quimicos Coin S.A. de. C.V. ("Coin"), which was acquired on
January 25, 2000 for $2.5 million. South Hampton owns all of the capital
stock of Gulf State Pipe Line Company, Inc. ("Gulf State"). South Hampton
owns and operates a specialty petrochemical products refinery near Silsbee,
Texas that is one of the largest domestic manufacturers of pentanes. Gulf
State owns and operates three pipelines that connect the South Hampton
refinery to a natural gas line, to South Hampton's truck and rail loading
terminal and to a marine terminal owned by an unaffiliated third party. Coin
owns and operates a specialty petrochemical products refinery in
Coatzacoalcos, on the Yucatan Peninsula near Veracruz, Mexico. The Company
also owns approximately 51% of the capital stock of a Nevada mining company,
Pioche-Ely Valley Mines, Inc. ("Pioche"), which does not conduct any
substantial business activity. On October 26, 2001, American Shield Coal
Company, a wholly-owned subsidiary, was merged into the Company. Pioche and
the Company's mineral properties in Saudi Arabia constitute its Mining
Segment.

The Company consolidates all subsidiaries for which it has majority
ownership or voting control that is other than temporary. All material
intercompany accounts and transactions are eliminated.

NOTE 2 - LIQUIDITY MATTERS, REALIZATION OF ASSETS AND BUSINESS RISKS

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America,
which contemplate the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company incurred a loss of $2,095,128 in 2001 and had an
excess of current liabilities over current assets of $24,402,044 at December
31, 2001. As discussed in Note 8, the Company was not in compliance with
certain covenants in its loan agreements. If resolution with the lender is
not achieved, and the Company does not continue to generate positive cash
flow adequate for its operations and loan obligations, the Company will have
to raise debt or equity capital. There is no assurance that capital would be
available.

Historically, the Company's cash flows from operating activities have been
insufficient to meet its operating needs, planned capital expenditures and
debt service requirements. The Company has continually sought additional
debt and equity financing in order to fund its mineral development and other
investing activities and experienced difficulties obtaining additional
financing. The Company presently needs additional financing in order to fund
its planned mineral development activities and other activities.

F-7

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 2 - LIQUIDITY MATTERS, REALIZATION OF ASSETS AND BUSINESS RISKS - CONTINUED

The Company's mining 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. As
discussed in Note 6, the Company intends to take steps to finance commercial
development of the Al Masane mining project. However, there is no assurance
the Company will be able to arrange financing.

Management is also addressing two other significant financing issues within
this segment. These issues are the $11.0 million note payable due the Saudi
Arabian government and accrued salaries and termination benefits of
approximately $1,260,000 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 accrued
salaries and termination benefits of approximately $1,049,000). The note
payable was originally due in ten annual installments beginning in 1984.
While the Company has not made any repayments, it has not received any
payment demands or other communications from the Saudi government regarding
the note payable. This is despite the fact 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 as long as the Company diligently
attempts to explore and develop the Al Masane project that 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 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
operating cash flows generated by the commercial development of the Al
Masane project, which would result in a long-term installment repayment
schedule. In the event the Saudi government were to demand immediate
repayment of this obligation, which management considers unlikely, the
Company would be unable to pay the entire amount due.

The second issue is 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 obligation as they are
released from the Company's employment.

A significant component of the Company's assets consists of undeveloped
mineral deposits. There is no assurance that the Company will ultimately
successfully develop either the Al Masane project or any of the other
properties discussed in Notes 6 and 7, and if, developed, whether the
mineral acquisition, development and development costs incurred will be
recovered. The recovery of these costs is dependent upon a number of factors
and future events, many of which are beyond the Company's control.
Furthermore, the Company's ability to develop and realize its investment in
these properties is dependent upon (i) obtaining significant additional
financing and (ii) attaining successful operations from one or more of these
projects.

F-8

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 2 - LIQUIDITY MATTERS, REALIZATION OF ASSETS AND BUSINESS RISKS - CONTINUED

The Company assesses the carrying values of its assets on an ongoing basis.
Factors which may affect carrying values 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 recoverability, based on
production to begin no sooner than 2004, are $1.04 per pound for copper and
$.60 per pound for zinc. Zinc and copper comprise in excess of 80% of the
expected value of production. 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.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - The Company's principal
bank and short-term investing activities are with local and national
financial institutions. Short-term investments with an original maturity of
three months or less are classified as cash equivalents. At December 31,
2001 and 2000, there were no cash equivalents or short-term investments.

INVENTORIES - Refined products and feedstock are recorded at the lower of
cost, determined on the last-in, first-out method (LIFO), or market.

MINERAL EXPLORATION AND DEVELOPMENT COSTS - All costs related to the
acquisition, exploration, and development of mineral deposits are
capitalized until such time as (1) the Company commences commercial
exploitation of the related mineral deposits at which time the costs will be
amortized, (2) the related project is abandoned and the capitalized costs
are charged to operations, or (3) when any or all deferred costs are
permanently impaired. At December 31, 2001, none of the projects had reached
the commercial exploration stage. No indirect overhead or general and
administrative costs have been allocated to any of the projects.

REFINERY PLANT, PIPELINE AND EQUIPMENT - Refinery plant, pipeline and
equipment are stated at cost. Depreciation is provided over the estimated
service lives using the straight-line method. Gains and losses from
disposition are included in operations in the period incurred.

OTHER ASSETS - Other assets include catalysts used in refinery operations,
prepaid expenses, a note receivable and certain refinery assets, which are
being leased to a third party.

ENVIRONMENTAL LIABILITIES - Remediation costs are accrued based on estimates
of known environmental remediation exposure. Ongoing environmental
compliance costs, including maintenance and monitoring costs, are expensed
as incurred.

DEFERRED REVENUE - Deferred revenue represents funds advanced by two
suppliers and customers to defray development and processing costs and are
being amortized over five year and 15 year periods.

F-9

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

STATEMENTS OF CASH FLOWS - In the statements of cash flows, cash includes
cash held in the United States and Saudi Arabia. Significant noncash
investing and financing activities in 2001 include the cancellation of
57,000 shares of common stock in exchange for a $128,000 receivable from an
officer of the Company. Transactions in 2000 include the issuance of 469,000
shares of common stock at $1.00 per share for the conversion of $469,000 of
indebtedness.

NET INCOME (LOSS) PER SHARE - The Company computes basic income (loss) per
common share based on the weighted-average number of common shares
outstanding. Diluted income (loss) per common share is computed based on the
weighted-average number of common shares outstanding plus the number of
additional common shares that would have been outstanding if dilutive
potential common shares, consisting of stock options and shares issuable
upon conversion of debt, had been issued (Note 13).

FOREIGN CURRENCY AND OPERATIONS - The functional currency for each of the
Company's subsidiaries is the US dollar. Transaction gains or losses as a
result of remeasuring from the subsidiaries local currency to US dollar are
reflected in the statement of operations as a foreign exchange transaction
gain or loss. The Company does not employ any practices to minimize foreign
currency risks.

The Company's foreign operations have been, and will continue to be,
affected by periodic changes or developments in the country's political and
economic conditions as well as changes in their laws and regulations. Any
such changes could have a material adverse effect on the Company's financial
condition, operating results or cash flows.

Saudi Arabian investors, including certain members of the Company's board of
directors, own approximately 62% of the Company's outstanding common stock
at December 31, 2001.

MANAGEMENT ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

STOCK-BASED COMPENSATION - The Company accounts for employee stock options
under the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25 and has adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123 (Statement No. 123). Accordingly, the
compensation expense of any employee stock options granted is the excess, if
any, of the quoted market price of the Company's common stock at the grant
date over the amount the employee must pay to acquire the stock.

F-10

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

DERIVATIVES - Statement of Financial Accounting Standard (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," establishes
accounting and reporting standards for derivative instruments and hedging
activities. SFAS No. 133 requires all derivative financial instruments to be
reported on the balance sheet at fair value. Changes in fair value are
recognized either in earnings or equity, depending on the nature of the
underlying exposure being hedged and the effectiveness of the hedge.

As required, the Company adopted SFAS No. 133 on January 1, 2001. As
discussed in Note 16, all of the Company's derivatives are designated as
cash flow hedges. Therefore, the effective portions of changes in the fair
value of the derivatives are recorded in other comprehensive income (loss)
and are recognized in the statement of operations when the hedged item
affects income. Ineffective portions of changes in the fair value of cash
flow hedges are immediately recognized in earnings. Effectiveness of hedges
is determined by their success in offsetting the variability of cash flows
associated with the hedged item. Hedge ineffectiveness had no effect on
results of operation for 2001.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company's financial instruments
include cash and cash equivalents, notes payable and long-term debt. The
carrying amount of cash and cash equivalents approximates fair value at
December 31, 2001 and 2000 due to the short-term maturity of these items.
The Company's long-term debt is variable rate debt, and as a result, fair
value approximates carrying value. It is not practical to estimate the fair
value of the Company's notes payable because quoted market prices do not
exist for similar type debt instruments, and there are no available
comparative instruments as a basis to value the notes.

NOTE 4 - CONCENTRATIONS OF REVENUES AND CREDIT RISK

The refining segment sells its products and services to companies in the
chemical and plastics industries. It performs periodic credit evaluations of
its customers and does not require collateral from its customers. The
largest customer accounted for 12% of the total product sales in 2001, 10%
in 2000 and 11% in 1999. Minimal credit losses have been incurred. The
carrying amount of accounts receivable approximates fair value at December
31, 2001.

NOTE 5 - INVENTORIES

Inventories include the following at December 31:

At December 31, 2001 the LIFO inventory approximated current cost. At
December 31, 2000, current cost exceeded the LIFO value by approximately
$178,000.

F-11

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 6 - MINERAL EXPLORATION AND DEVELOPMENT COSTS IN SAUDI ARABIA

In the accompanying consolidated financial statements, the deferred
exploration and development costs have been presented based on the related
projects' geographic location within Saudi Arabia. This includes the "Al
Masane Project" (the "Project") and "Other Interests in Saudi Arabia" which
primarily pertains to the costs of rentals, field offices and camps, core
drilling and labor incurred at the Wadi Qatan and Jebel Harr properties.

In 1971, the Saudi Arabian government awarded the Company exclusive mineral
exploration licenses to explore and develop the Wadi Qatan area in
southwestern Saudi Arabia. The Company was subsequently awarded an
additional license in 1977 for an area north of Wadi Qatan at Jebel Harr.
These licenses have expired. On June 22, 1999, the Company submitted a
formal application for a five-year exclusive exploration license for the
Greater Al Masane Area of approximately 2,850 square kilometers that
surrounds the Al Masane mining lease area and includes the Wadi Qatan and
Jebel Harr areas. Although a license has not been formally granted for the
Greater Al Masane area, the Company has been authorized in writing by the
Saudi Arabian government to carry out exploration work on the area. The
Company previously worked 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. The application for
the new exploration license is still pending and is expected to be acted
upon after the new Saudi Arabian Mining Code is published, which is expected
before the end of 2002. Geophysical and geochemical work and diamond core
drilling on the Greater Al Masane area has revealed mineralization similar
to that discovered at Al Masane. The Company intends to formalize its claims
in these areas.

The Al Masane project, consisting of a mining lease area of approximately 44
square kilometers, contains extensive ancient mineral workings and smelters.
From ancient inscriptions in the area, it is believed that mining activities
went on sporadically from 1000 BC to 700 AD. The ancients are believed to
have extracted mainly gold, silver and copper. The Project includes various
quantities of proved zinc, copper, gold and silver reserves.

As the holder of the Al Masane mining lease, the Company is solely
responsible to the Saudi Arabian government for the rental payments and
other obligations provided for by the mining lease and repayment of the
previously discussed $11 million loan. The Company's interpretation of the
mining lease is that repayment of this loan will be made in accordance with
a repayment schedule to be agreed upon with the Saudi Arabian government
from the Company's share of the project's cash flows. The initial term of
the lease is for a period of thirty (30) years from May 22, 1993, with the
Company having the option to renew or extend the term of the lease for
additional periods not to exceed twenty (20) years. Under the lease, the
Company is obligated to pay advance surface rental in the amount of 10,000
Saudi Riyals (approximately $2,667 at the current exchange rate) per square
kilometer per year (approximately $117,300 annually) during the period of
the lease. At December 31, 2001, approximately $308,000 of rental payments
were in arrears. In addition, the Company must pay income tax in accordance
with the income tax laws of Saudi Arabia then in force and pay all
infrastructure costs. The Saudi Arabian Mining Code provides that income tax
will not be due during the first stage of mining operations, which is the
period of five years starting from the earlier of (i) the date of the first
sale of products or (ii) the beginning of the fourth year since the issue of
the mining lease. The lease gives the Saudi Arabian government priority to
purchase any gold production from the project as well as the right to
purchase up to 10% of the annual production of other minerals on the same
terms and conditions then available to other similar buyers and at current
prices then prevailing in the free market. Furthermore, the lease contains
provisions requiring that preferences be given to Saudi Arabian suppliers
and contractors, that the Company employ Saudi Arabian citizens and provide
training to Saudi Arabian personnel.

F-12

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 6 - MINERAL EXPLORATION AND DEVELOPMENT COSTS IN SAUDI ARABIA - CONTINUED

Pursuant to the mining lease agreement, when the Al Masane project is
profitable the Company is obligated to form a Saudi public stock company
with the Saudi Arabian Mining Company, a corporation wholly owned by the
Saudi Arabian government (Ma'aden), as successor to and assignee of the
mining interests formerly held by the Petroleum Mineral Organization
("Petromin"). Ma'aden is the Saudi Arabian government's official mining
company. In 1994, the Company received instructions from the Saudi Ministry
of Petroleum and Mineral Resources stating that it is possible for the
Company to form a Saudi company without Petromin (now Ma'aden), but the sale
of stock to the Saudi public could not occur until the mine's commercial
operations were profitable for at least two years. The instructions added
that Petromin (now Ma'aden) still had the right to purchase shares in the
Saudi public stock company any time it desires. Title to the mining lease
and the other obligations specified in the mining lease will be transferred
to the Saudi public stock company. However, the Company would remain
responsible for the repaying the $11 million loan to the Saudi Arabian
government.

When open market prices for the minerals to be produced by the Al Masane
project improve to the average price levels experienced during the period
from 1988 through 1997, the Company will attempt to locate a joint venture
partner, form a joint venture and, together with the joint venture partner,
attempt to obtain acceptable financing to commercially develop the project.
There can be no assurances that the Company would be able to locate a joint
venture partner, form a joint venture or obtain financing from SIDF or any
other sources. In the meantime, the Company intends to maintain the Al
Masane mining lease through the payment of the annual advance surface
rental, the implementation of a drilling program to attempt to increase
proven and probable reserves and improve the metallurgical recovery rates,
which may improve the commercial viability of the project.

F-13

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 6 - MINERAL EXPLORATION AND DEVELOPMENT COSTS IN SAUDI ARABIA - CONTINUED

Deferred exploration and development costs of the Al Masane Project at
December 31, 2001, 2000 and 1999, and the changes in these amounts for each
of the three years then ended are detailed below:

The deferred exploration and development costs of the "Other Interests in
Saudi Arabia," in the total amount of approximately $2.4 million, consist of
approximately $1.5 million associated with the Greater Al Masane area and
the balance of approximately $900,000 is associated primarily with the Wadi
Qatan and Jebel Harr areas. In the event exploration licenses for these
areas are not granted, then all or a significant amount of deferred
development costs relating thereto may have to be written off. However, the
Company believes it would be entitled to a refund of the amounts expended
for development costs.

NOTE 7 - MINERAL PROPERTIES IN THE UNITED STATES

The principal assets of Pioche are an undivided interest in 48 patented and
5 unpatented mining claims totaling approximately 1,500 acres, and a 300
ton-per-day mill located on the aforementioned properties in the Pioche
Mining District in southeast Nevada. In August 2001, 75 unpatented claims
were abandoned since they were deemed to have no future value to Pioche. Due
to the lack of capital , the properties held by Pioche have not been
commercially operated for approximately 35 years. The Company has an option
(which expires in June 2002) to buy 720,000 shares (approximately 10% of the
outstanding shares) of Pioche common stock at $0.20 per share.

F-14

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 8 - NOTES PAYABLE, LONG-TERM DEBT AND LONG-TERM OBLIGATIONS

Notes payable, long-term debt and long-term obligations at December 31 are
summarized as follows:

(A) 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 have been made. Pursuant to the mining lease
agreement covering the Al Masane Project, the Company intends to 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.

(B) Represents loans payable to a shareholder of the Company for $445,000,
and the Company's President for $53,000. The loans are due on demand
with interest payable at the LIBOR rate plus 2%. Each loan provides
for an option to convert the loan amount to shares of the Company's
common stock at $1.00 per share anytime within five years from the
date of the loan. Also includes new loans payable in 2001 to a
shareholder of the Company for $20,000 and to the wife of the
Company's President for $100,000, both of which are due on demand with
interest at 9%.

(C) Represents two loans payable to banks of $1,253,306 and $2,044,095,
respectively. The first loan is payable in monthly payments through
2004. The second loan is payable in quarterly payments through 2007.
The first loan bears interest at 5% and the second loan bears interest
at the LIBOR rate plus seven points (LIBOR was 1.88% at December 31,
2001). Both loans are collateralized by all of the assets of Coin
including the plant located in Coatzacoalcos, near Veracruz. Coin is
in default of the loan covenants as a result of not having made its
monthly and quarterly payments and has therefore classified the loans
as current in the financial statements. Unpaid interest and penalty
interest of $1,251,386 has been accrued and is included in accrued
liabilities.

F-15

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 8 - NOTES PAYABLE, LONG-TERM DEBT AND LONG-TERM OBLIGATIONS - CONTINUED

(D) South Hampton entered into a $2.25 million revolving credit agreement
with a Houston, Texas bank in September 1999 that is collateralized by
a first security interest in certain of its assets. Interest (at the
bank's prime rate plus .5%) is payable monthly. An amended agreement
was entered into on June 30, 2000, which increased the total amount to
$3.25 million. A second amended agreement was entered into on May 31,
2001, which extended the due date from May 31, 2001 to July 31, 2001.
The debt was not paid on July 31, 2001. A third amended agreement was
entered into on July 31, 2001, which extended the due date to October
31, 2001. The debt was not paid on October 31, 2001. A fourth amended
agreement was entered into on October 31, 2001, which extended the due
date to December 31, 2001. The debt was not paid on December 31, 2001.
A fifth amended agreement was entered into on December 31, 2001, which
extended the due date to April 30, 2002. The agreement contains
various restrictive covenants including the maintenance of various
financial ratios, net worth and parent company distribution
limitations. At December 31, 2001, South Hampton was not in compliance
with the covenant relating to distributions to the parent company, and
therefore, the debt is classified as current in the financial
statements.

(E) The Company entered into a $3.5 million loan agreement with a
commercial lending company in December 1999 that is collateralized by
a first security interest in all of its assets, except those dedicated
to the bank mentioned in Note D above. Interest is at 10.55% per
annum. Principal and interest was payable in the original agreement in
47 consecutive monthly installments of $89,696 from February 1, 2000
through January 2004. In January 2001, the Company advised the lender
that certain events of default had occurred and requested the lender
to suspend borrower's principal payments for the months of December
2000, January, February, March and April of 2001. During this period,
interest only payments were made. For the months of May and June 2001,
principal payments of $25,000 each plus interest were made. With the
lender's approval, the principal payments were adjusted at that time
to fully amortize the outstanding principal balance during or prior to
the initial term of the loan. The new agreement dated April 1, 2001
provides for principal and interest payments in the amount of $58,340
on a monthly basis beginning July 1, 2001 and continuing until January
2004. At December 31, 2001, the Company was not in compliance with a
covenant relating to distributions to the parent company, and
therefore, the debt is classified as current in the financial
statements.

Interest of $975,102, $977,216 and $118,145 was paid in 2001, 2000, and
1999, respectively.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

The Company's Refining Segment leases various vehicles and equipment from a
related party on a month to month basis at a monthly cost of approximate
$33,300. The Company's total rental costs were approximately $418,000 in
2001, $405,000 in 2000 and $373,000 in 1999.

The Refining Segment has guaranteed a note payable of $160,000 of a limited
partnership in which South Hampton has a 19% interest.

F-16

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 9 - COMMITMENTS AND CONTINGENCIES - CONTINUED

South Hampton, together with several other companies, is a defendant in five
lawsuits filed in Jefferson County and Orange County, Texas in the period
from December 1997 to December 2000 by former employees of the southeast
Texas plants of Goodyear Tire & Rubber Company, Dupont, Atlantic Richfield
and South Hampton. The suits claim illness and disease resulting from
alleged exposure to chemicals, including benzene, butadiene and/or isoprene,
during their employment. 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. One of the lawsuits brought in Jefferson County, Texas was
settled in 2001, with South Hampton contributing $10,000 toward the
settlement. Another lawsuit is presently being settled in 2002 with South
Hampton agreeing to pay a total of $60,000 in quarterly payments by the end
of the year. In February 2002, a new lawsuit was filed in Jefferson County,
Texas, which contains claims similar to the other suits. South Hampton
intends to vigorously defend itself against these lawsuits.

South Hampton spends a considerable amount of time and expense on
environmental and regulatory functions and compliance. It is South Hampton's
policy to accrue costs associated with regulatory compliance when those
costs are reasonably determinable. At December 31, 2001 and 2000, $216,840
was accrued. Amounts charged to expense were approximately $227,000 in 2001,
$338,000 in 2000 and $186,000 in 1999.

In 1993, while remediating a small spill area, the Texas Natural Resources
Conservation Commission ("TNRCC") requested South Hampton to drill a well to
check for groundwater contamination under the spill area. Based on the
results, two pools of hydrocarbons were discovered in the groundwater. The
recovery process was initiated in June 1998, and is expected to continue for
several years until the pools are reduced to an acceptable level. In August
1997, the TNRCC notified South Hampton that it had violated various rules
and procedures. It proposed administrative penalties totaling $709,408 and
recommended the South Hampton undertake certain actions necessary to bring
its refinery operations into compliance. The violations generally relate to
various air and water quality issues. Appropriate modifications have been
made by South Hampton where it appeared there were legitimate concerns.
South Hampton feels the penalty is greatly overstated and intends to
vigorously defend itself against it. On February 2, 2000, the TNRCC amended
its pending administrative 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 TNRCC proposes
that administrative penalties be increased to approximately $765,000 and
that certain corrective actions be taken. A further amendment was made by
the TNRCC on December 13, 2001 for further violations relating to air
quality control and waste requirements. The TNRCC proposed that the
administrative penalties be increased another $59,000. South Hampton settled
this particular claim with the TNRCC in April 2002 for approximately $5,900.
South Hampton believes the original penalty and the additional allegations
are greatly overstated and intends to vigorously defend itself against these
additional allegations, the proposed penalties and proposed corrective
actions.

F-17

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 10 - STOCK OPTIONS

STOCK OPTIONS - The Company's Employee Stock Option Plan (the "Employee
Plan") provides for the grant of incentive options at the market price of
the stock on the date of grant and non-incentive options at a price not less
than 85% of the market price of the stock on the date of grant. The Company
has reserved up to 500,000 shares of common stock for grant pursuant to the
Employee Plan. At December 31, 2001, 393,000 shares were reserved for grant.
The options vest at such times and in such amounts as is determined by the
Compensation Committee of the Board of Directors at the date of grant. The
Employee Plan is registered with the Securities and Exchange Commission and
expires May 16, 2003.

The Company has periodically granted stock options to various parties,
including certain officers and directors, who have made loans to or
performed critical services for the Company. Most of these options allow the
parties to purchase common stock for $1.00 per share.

Additional information with respect to all options outstanding at December
31, 2001, and changes for the three years then ended was as follows:

F-18

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 10 - STOCK OPTIONS - CONTINUED

Additional information about stock options outstanding at December 31, 2001
is summarized as follows:

NOTE 11 - INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 2001, 2000,
and 1999 differs from the amount computed by applying the applicable U.S.
corporate income tax rate of 34% to net income before income taxes. The
reasons for this difference are as follows:

F-19

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 11 - INCOME TAXES - CONTINUED

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities were as
follows:

The Company has provided a valuation allowance against the deferred tax
assets because of uncertainties regarding their realization.

At December 31, 2001, the Company had approximately $20,300,000 of net
operating loss carryforwards. These carryforwards expire during the years
2002 through 2021. In addition, the Company has minimum tax credit
carryforwards of approximately $212,000 that may be carried over
indefinitely. Approximately $414,000 of the net operating loss carryforwards
are limited to the income of TOCCO, and approximately $2,010,000 are limited
to the income of Coin. During 2001, net operating loss carryforwards of
approximately $6,975,000 expired.

The Company has no Saudi Arabian or Mexican tax liability.

F-20

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 12 - 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, miscellaneous income and minority interest.
Information on segments is as follows:

Information regarding foreign operations for the years ended December 31,
2001, 2000 and 1999 follows (in thousands). Revenues are attributed to
countries based upon the origination of the transaction.

F-21

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 12 - SEGMENT INFORMATION - CONTINUED

NOTE 13 - NET INCOME (LOSS) PER COMMON SHARE

Net income (loss) per share has been calculated as follows:

In 2001, 2000 and 1999, options for 872,000, 872,000 and 1,180,000 shares,
respectively were excluded from diluted shares outstanding because their
effect was antidilutive.

F-22

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 14 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

A summary of the Company's quarterly results of operations for the years
ended December 31, 2001 and 2000 are as follows (in thousands, except per
share data):

NOTE 15 - RELATED PARTY TRANSACTIONS

In 2001, the Company cancelled a receivable of $128,000 from its President
and Chief Executive Officer taken in payment several years ago for the
purchase of 57,000 shares of common stock at approximately $2.25 per share.
Upon cancellation, the shares were returned to the Company. The Company's
share price at that date was $.30 which resulted in a charge to expense of
approximately $111,000.

Pursuant to a sharing arrangement, the Company shares personnel, office
space and other overhead expenses in Dallas, Texas with the Company's
Chairman of the Board. The Company paid approximately $26,000, $25,000 and
$23,000 in 2001, 2000 and 1999, respectively, pursuant to such arrangement.

South Hampton incurred product transportation costs of approximately
$404,000, $391,000 and $359,000 in 2001, 2000 and 1999, respectively, with a
trucking and transportation company owned by two of TOCCO's officers.

F-23

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 16 - NATURAL GASOLINE SWAP AGREEMENTS

In July and October 2001, the Company entered into two swap agreements to
limit the effect of significant fluctuations in natural gasoline prices. The
agreements expire in January and July 2002. These agreements are designated
as cash flow hedges. The Company's primary source of feedstock is natural
gasoline. The effect of these agreements is to limit the Company's exposure
by fixing the natural gasoline price of approximately 25,000 barrels
(1,050,000 gallons) of feedstock per month over the term of the agreements.
This amount of material approximates 50% of the Company's average monthly
feedstock requirements. The agreements had no cost to the Company. During
the year ended December 31, 2001, the Company recognized $339,507 in
additional expenses attributable to the difference between the actual
natural gasoline prices and the fixed prices under the swap agreements. At
December 31, 2001, the agreements had a total negative fair value of
approximately $506,000.

NOTE 17 - RESTATEMENT

During 2002, the Company became aware of an unrecorded accrual that existed
at December 31, 2000 relating to fees payable to a lending institution as a
result of one of the Company's subsidiaries being in default on its debt.
The recording of the accrual resulted in an increase to the net loss of
$385,146 for the year ended December 31, 2000. As a result, the Company's
financial statements as of December 31, 2000 and for the year then ended
have been restated to correct this omission.

F-24

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES

Board of Directors and Stockholders
Arabian American Development Company

In connection with our audit of the consolidated financial statements of Arabian
American Development Company and Subsidiaries referred to in our report dated
April 10, 2002, which is included in the annual report to stockholders in Part
II of this Form 10-K, we have also audited Schedule II at December 31, 2001,
2000, and 1999 and for the years then ended. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.

GRANT THORNTON LLP

Dallas, Texas
April 10, 2002

F-25

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

Three years ended December 31, 2001

- ----------

(a) Expiration of carryforwards

(b) Utilization of carryforwards

F-26

[DESPACHO FREYSSINIER MORIN, S.C. LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

TO THE SHAREHOLDERS OF
PRODUCTOS QUIMICOS COIN, S.A. DE C.V.
MEXICO CITY, MEXICO

We have audited the statement of financial position of Productos Quimicos Coin,
S.A. de C.V. as of December 31, 2001, and the related statements of income
(loss) and comprehensive income (loss), changes in equity (deficit) and cash
flows for the year then ended. These financial statements (not presented herein)
are the responsibility of Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards
in Mexico. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of materiel
misstatement and prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audit provides a reasonable basis for our opinion.

As described by the Company in note 2A1 to the financial statements are
presented using accounting principles generally accepted in the United States of
America and translated into U.S. dollars to comply with specific request by the
shareholders. Separately, the Company has issued financial statements as of
December 31, 2001 and for the year then ended in conformity with accounting
principles generally accepted in Mexico and are expressed in Mexican currency as
to which we have issued a qualified opinion on April 19, 2002.

As discussed in note 1 to the financial statements, the Company has reported
accumulated losses for $8,538,339, and the statement of financial position shows
excess of current liabilities over current assets for $5,510,943. Moreover, the
Company has defaulted in meeting scheduled payments of principal and interest
under certain loan agreements, as discussed in notes 8 and 9 to the financial
statements. Accumulated losses exceed capital stock, which in conformity with
the provisions of Mexican General Corporate Law, these losses may represent
cause for dissolution of the Company as a result of legal action followed by any
business-related third party. During the period January through October 2001, no
production activities were carried out. These activities were partially resumed
in November. As a result of the preceding issues, and despite the fact that
Company's holding company decided to capitalize intercompany debt in the amount
of $1,077,823 (purchase of inventory and working capital), the Company may be
unable to continue its operations. The financial statements have been prepared
on the basis applicable to a going concern and, accordingly, do not purport to
give effect to adjustments relating to the valuation and reclassification of
recorded liabilities that may be necessary in the event the Company could not
continue its operations.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Productos Quimicos Coin, S.A.
de C.V. as of December 31, 2001, the results of its operations and cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.

Despacho Freyssinier Morin, S.C.

/s/ C.P. JUAN PABLO SOTO

C.P. Juan Pablo Soto
Partner

[MRI LOGO]
Mexico City, Mexico
April 19, 2002

INDEX TO EXHIBITS