ARABIAN AMERICAN DEVELOPMENT CO - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-Q

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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

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FOR QUARTER ENDING MARCH 31, 2002

COMMISSION FILE NUMBER 0-6247

ARABIAN AMERICAN DEVELOPMENT COMPANY
(Exact name of registrant as specified in its charter)

DELAWARE 75-1256622
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)

10830 NORTH CENTRAL EXPRESSWAY, SUITE 175 75231
DALLAS, TEXAS (Zip code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (214) 692-7872

Former name, former address and former fiscal year, if
changed since last report.
NONE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

YES X NO
----- -----

Number of shares of the Registrant's Common Stock (par value $0.10 per share),
outstanding at March 31, 2002: 22,731,994.

ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
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See notes to consolidated financial statements.

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ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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See notes to consolidated financial statements.

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ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2002
================================================================================

See notes to consolidated financial statements.

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ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
================================================================================

See notes to consolidated financial statements.

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ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. BASIS OF PRESENTATION

The consolidated financial statements reflect all adjustments (consisting
only of normal and recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of Arabian American Development
Company and Subsidiaries financial position and operating results for the
interim period. Interim period results are not necessarily indicative of the
results for the calendar year. Please refer to Management's Discussion and
Analysis of Financial Condition and Results of Operations for additional
information in the Company's December 31, 2001 Annual Report on Form 10-K.

These financial statements include the accounts of Arabian American
Development Company (the "Company") and its wholly-owned subsidiary, American
Shield Refining Company (the "Refining Company"), which owns all of the
capital stock of Texas Oil and Chemical Company II, Inc. ("TOCCO"). TOCCO
owns all of the capital stock of South Hampton Refining Company ("South
Hampton") and South Hampton owns all of the capital stock of Gulf State Pipe
Line Company, Inc. ("Gulf State"). TOCCO also owns 92% of the capital stock
of Productos Quimicos Coin, S.A. de. C.V. ("Coin"), a specialty petrochemical
products refining company located near Veracruz, Mexico, which was purchased
on January 25, 2000 for $2.5 million. 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.
The Refining Company and its subsidiaries constitute the Company's Specialty
Petrochemicals or Refining Segment. Pioche and the Company's mineral
properties in Saudi Arabia constitute its Mining Segment.
`
2. INVENTORIES

Inventories include the following:

Inventories are recorded at the lower of cost, determined on the last-in,
first-out method (LIFO), or market. At March 31, 2002, current cost exceeded
LIFO value by approximately $45,000. At December 31, 2001, LIFO inventory
approximated current cost.

3. NET INCOME (LOSS) PER COMMON SHARE

The following table (in thousands, except per share amounts) sets forth the
computation of basic and diluted net income (loss) per share for the three
months ended March 31, 2002 and 2001, respectively.

In the three months ended March 31, 2002 and 2001, options for 810,000 shares
and 872,000 shares, respectively, were excluded from diluted shares
outstanding because their effect was antidilutive. Options for 62,000 shares
expired in March 2002.

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4. SEGMENT INFORMATION

As discussed in Note 1, the Company has two business segments. The Company
measures segment profit or loss as operating income (loss), which represents
income (loss) before interest, miscellaneous income and minority interest.
Information on the segments is as follows:

Information regarding foreign operations for the three months ended March
31, 2002 and 2001 follows (in thousands). Revenues are attributed to
countries based upon the origination of the transaction.

5. LEGAL PROCEEDINGS

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 has been 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.

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In August 1997, the Texas Natural Resource Conservation Commission ("TNRCC")
notified South Hampton that it had violated various rules and procedures. It
proposed administrative penalties totaling $709,408 and recommended that
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. 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 that the administrative penalties be increased another $59,000.
South Hampton settled this particular claim 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.

6. LONG-TERM DEBT

South Hampton entered into a $2.25 million revolving credit agreement with a
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, 200l. 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 debt was not
paid on April 30, 2002. A sixth amended agreement was entered into on April
30, 2002, which extended the due date to August 31, 2002. At March 31, 2002,
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.

In connection with the acquisition of the common stock of Coin, South
Hampton and Gulf State entered into the $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 the preceding paragraph. Interest is at 10.55% per annum.
A 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 March 31, 2002, South Hampton was not
in compliance with certain covenants contained in the loan agreement;
therefore this debt is classified as current in the financial statements.

Coin has two loans payable to banks in Mexico, which are collateralized by
all of the assets of Coin. The first loan is payable in monthly payments
through 2004, while 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 March 31, 2002). At
March 31, 2002, 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 $1,592,960 has been accrued and is included in accrued
liabilities.

By not being in compliance with the loan agreement covenants, the creditors
have the right to declare the debt to be immediately due and payable. If
this were to occur, the Company would currently be unable to pay the entire
amounts due.

7. NATURAL GASOINE SWAP AGREEMENTS

Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and hedging activities. SFAS No. 133
requires all derivative financial instruments to be recorded 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.

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All of the Company's derivatives are designated as cash flow hedges.
Therefore, the effective portions of changes in the fair value of the
derivative 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 the
results of operation for the quarter ended March 31, 2002.

In July 2001, October 2001 and February 2002, the Company entered into swap
agreements to limit the effect of significant fluctuations in natural
gasoline prices. The first two agreements expired in January and July 2002.
The third agreement expires in December 2002. 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 quarter ended March 31, 2002, the Company recognized
$191,835 in additional expenses attributable to the difference between the
actual natural gasoline prices and the fixed prices under the swap
agreements. At March 31, 2002, the agreements had a total positive fair
value of approximately $702,000.

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ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

GENERAL

Statements in Part 1, Item 2 as well as elsewhere in, or incorporated by
reference in, this Quarterly Report on Form 10-Q regarding the Company's
financial position, business strategy and plans and objectives of the Company's
management for future operations and other statements that are not historical
facts, are "forward-looking statements" as that term is defined under applicable
Federal securities laws. In some case, "forward-looking statements" can be
identified by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "contemplates," "proposes," believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms and other comparable
terminology. Forward-looking statements are subject to risks, uncertainties and
other factors that could cause actual results to differ materially from those
expressed or implied by such statements. Such risks, uncertainties and factors
include, but are not limited to, general economic conditions domestically and
internationally; insufficient cash flows from operating activities; difficulties
in obtaining financing; outstanding debt and other financial and legal
obligations; competition; industry cycles; feedstock, specialty petrochemical
product and mineral prices; feedstock availability; technological developments;
regulatory changes; environmental matters; foreign government instability;
foreign legal and political concepts; and foreign currency fluctuations, as well
as other risks detailed in the Company's filings with the U.S. Securities and
Exchange Commission, including this Quarterly Report on Form 10-Q, all of which
are difficult to predict and many of which are beyond the Company's control.

LIQUIDITY AND CAPITAL RESOURCES

The Company operates in two business segments, specialty petrochemicals
(which is composed of the entities owned by the 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 from
operating activities and its primary sources of revenue are the specialty
products refineries owned and operated by South Hampton near Silsbee, Texas and
by Coin in Mexico. Significant increases in the prices of feedstock and natural
gas resulted in a loss from operations in 2000 of $2.8 million and in 2001 of
$199,629, 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 2001 and the first quarter of
2002. Management took steps, beginning in July 2001, to protect the operations
from extreme fluctuations in the price of its feedstock purchases by hedging
approximately 50% of its needs through December 2002. In addition, the purchase
price of natural gas, which is used as fuel gas, has been fixed by agreement for
the period from July 2001 through February 2003.

As mentioned in Note 6, South Hampton and Coin were not in compliance with
certain covenants contained in their loan agreements at March 31, 2002, and
therefore, the creditors have the right to declare the debt to be immediately
due and payable. If this were to occur, the Company would currently be unable to
pay the entire amount due.

MINING SEGMENT. This segment is in the development stage. Its most
significant asset is the Al Masane mining project in Saudi Arabia, which is a
net user of the Company's available cash and capital resources. Implementation
of the project has been delayed 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, 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. Financing plans
for the above are currently being studied. 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 March 31, 2002, unpaid annual rental
payments total approximately $308,000.

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

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the Saudi Ministry of Petroleum and Mineral Resources, and has expended over $3
million in exploration work. 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 application for the new exploration license is
still pending and is expected to be acted upon after the new Saudi Arabian
Mining Code is issued, which is expected before the end of 2002. If the Saudi
Arabian government does not issue the exploration license, the Company believes
that it will be entitled to a refund of the monies expended, 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.

The Company's mineral interest in the United States is represented by its
ownership interest in Pioche, which has been inactive for many years. Its
properties include 48 patented and 5 unpatented claims totaling approximately
1,500 acres in Lincoln County, Nevada. There are prospects and mines on these
claims that previously produced silver, gold, lead, zinc and copper. There is
also a 300-ton-a-day processing mill on property owned by Pioche. The mill is
not currently in use and a significant expenditure would be required in order to
put the mill into continuous operation, if commercial mining is to be conducted
on the property.

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 approximately $1,065,000).
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 has requested formal negotiations to restructure this
obligation. Based on its interpretation of the Al Masane mining lease and other
documents, management believes the government is likely to agree to link
repayment of this note to the Company's share of the operating cash flows
generated by the commercial development of the Al Masane project and to a
long-term installment repayment schedule. In the event the Saudi government were
to demand immediate repayment of this obligation, which management considers
unlikely, the Company would be unable to pay the entire amount due.

With respect to the accrued salaries and termination benefits due employees
working in Saudi Arabia, the Company plans to continue employing these
individuals until it is able to generate sufficient excess funds to begin
payment of this liability. Management will then begin the process of gradually
releasing certain employees and paying its obligations as they are released from
the Company's employment. The salary and social security benefits for these
employees currently total approximately $108,000 per year.

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.

If the Company seeks additional outside financing, there is no assurance
that sufficient funds could be obtained. It is also possible that the terms of
any additional financing that the Company would be able to obtain would be
unfavorable to the Company and its existing shareholders.

RESULTS OF OPERATIONS

SPECIALTY PETROCHEMICALS SEGMENT. In the quarter ended March 31, 2002, total
refined product sales increased approximately $385,000 ($173,000 attributable to
Coin) or 5%, while the cost of sales (excluding depreciation) decreased
approximately $1,031,000 ($65,000 attributable to Coin) or 13% from the same
period in 2001. Consequently, the total gross profit

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margin on sales in the first quarter of 2002 increased approximately $1,415,000
or 216% compared to the same period in 2001. This includes Coin's gross profit
margin, which increased approximately $107,000 or 223%.

The gross profit margins of the refining operations were much improved for
the first quarter of 2002 from what was seen a year earlier. In the first
quarter of 2001, the petroleum/petrochemical industry was just coming out of one
of the more short-lived, yet shocking periods in the history of the business.
During most of 2000, prices for petroleum products and natural gas rose
steadily. Coming from a period of some ten years of reasonable price and supply
stability, by the end of 2000 prices for natural gasoline (South Hampton's
feedstock) were approximately double the previous ten year average. On top of
that event, the price of natural gas, the most commonly used fuel in the
industry, was more than four times the average price of the previous ten years.
The Company and the petrochemical industry in general were not prepared for such
dramatic pricing changes, and the economics of most facilities were dramatically
affected. While some companies were forced to shut down their operations
temporarily, South Hampton managed to reduce its fuel usage, use alternate
fuels, raise product prices, and otherwise adjust its business to weather the
period of instability. The first quarter results of 2001 were still negative due
to the size of the loss in January, and the quarter ended with a net loss and a
negative cash flow. While South Hampton operations suffered a severe loss in the
month of January 2001, by February 2001 a positive cash flow was established, a
result which has been maintained since then.

The first quarter of 2002 reflects the economics of the Company, which
developed starting in the second quarter of 2001, and has continued through the
present time. As pricing on feedstock and natural gas fell closer to historic
levels the profitability and stability of earnings have returned. Sales volume
in the first quarter of 2002 was approximately 21% higher than in 2001 and
average cost of feedstock was 30% lower. Toll processing fees, which are earned
when the Company manufactures products on a fee basis for others, remained
fairly stabile for the 2001 quarter at approximately $960,000 as compared to
approximately $1,065,000 in the prior year. Manufacturing costs were down by
approximately 11%, which reflects natural gas prices falling from a high of
$9.94 per MMBTU in January 2001 to an average of $3.25 for the first quarter of
2002. Natural gas is the Company's single largest manufacturing cost and
dramatic price changes in this fuel cost, as occurred in late 2000 and early
2001, can have a dramatic effect on the economics of the operation. Since
September 2001, the Company has entered into purchase contracts for
approximately 90% of its normal monthly requirements for natural gas. Since the
cost of fuel gas so directly and immediately affects the cost of the refined
product, it is felt that a predictable price is more important than taking the
risk of a moving market. Natural gas prices have become so volatile that simply
having a stable supply and price is an acceptable goal. Administrative expenses
in the first quarter of 2002 for this segment were higher than in the same prior
year period by approximately $176,000.

To prevent the fluctuations in the market from affecting the profitability
of the refining operation to such a degree as was seen in the 2000 or early 2001
time frame, the Company has put a hedging program in place for both feedstock
and natural gas. The policy of the Company is to keep approximately 50% of its
normal feedstock requirements covered by a future hedge for a six to nine month
period. Management considers that this time frame allows the Company adequate
time to respond if the market price of feedstock rises significantly and stays
at the higher levels for several months. The program is not designed to play the
market to attempt to pay the lowest possible price for feedstock but to insure
against any sudden and extreme price fluctuations.

The Mexico refinery has continued to struggle economically even though the
feedstock costs and markets in Mexico have adjusted as they have in the U.S. The
market for product remains weak and under priced but Coin has made progress in
changing its product mix to better match the needs of its domestic markets. It
has also been able to reduce expenses by reducing the number of personnel needed
for its operations. For the first quarter of 2002, the refinery operated
virtually full time, with the excess product being exported into the U.S. to
handle the overflow demand created by the South Hampton marketing efforts. By
contrast, during the first quarter of 2001, the Mexico refinery was shut down
and Coin survived by buying and reselling product. It is expected that on an
ongoing basis for 2002, this facility will operate approximately 70% of the time
which will be sufficient to fulfill the market needs in the country and to
export to the U.S. to assist South Hampton in meeting its needs. Progress is
being made in developing outlets in South America for additional product and
Coin sees this area as an important market for the future of its operation.

The outlook for the refining operation remains good for 2002. Sales volume
remains steady even as the economy of the nation appears to be in a state of
fluctuation. Stability of feedstock and natural gas prices remains an important
issue but the Company feels it has sufficient safeguards in place to prevent a
recurrence of the losses, which occurred in late 2000 and early 2001. Toll
processing remains an important part of the manufacturing operation and the
Company intends to remain alert for opportunities to increase that portion of
the business. While the development of the Mexico operation has taken longer
than was anticipated when the facility was purchased in early 2000, Management
believes it is making progress in arranging the business to make full use of its
potential. With all of the pieces in place, it is believed that profitability
and positive cash flow will be maintained near current levels for the remainder
of the year 2002.

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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 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 that 2004, are $1.04 per pound for copper, $.60 per pound for
zinc. Copper and zinc comprise in excess of 80% of the expected value of
production. Using these price assumptions, there were no asset impairments at
March 31, 2002. There are no assurances that, particularly in the event of a
prolonged period of depressed mineral prices, the Company will not be required
to take a material write-down of its mineral properties in the future.

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ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

PART II. OTHER INFORMATION

ITEM 5. OTHER INFORMATION

SHAREHOLDER PROPOSALS

Any proposal by a shareholder of the Company intended to be presented at the
2002 annual meeting of shareholders, which is tentatively scheduled sometime in
November 2002, must be received by the Company at its principal executive office
no later than September 9, 2002 for inclusion in the Company's Proxy Statement
and form of proxy. Any such proposal must also comply with the other
requirements of the proxy solicitation rules of the Securities and Exchange
Commission. The Company intends to exercise discretionary voting authority
granted under any proxy, which is executed and returned to the Company on any
matter that may properly come before the 2002 annual meeting of shareholders,
unless written notice of the matter is delivered to the Company at its principal
executive office no later than September 27, 2002.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

10 (a) - Sixth Amendment to Loan Agreement dated as of April 30, 2002
between South Hampton Refining Company and Southwest Bank of Texas, N.A.,
together with related Promissory Note.

99.1 - Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

99.2 - Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

(b) REPORTS ON FORM 8-K

No Reports on Form 8-K were filed during the quarter ended March 31, 2002.

------------------------

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

DATE: August 13, 2002
ARABIAN AMERICAN DEVELOPMENT COMPANY
------------------------------------
(Registrant)

/s/ J. A. CRICHTON
------------------
J. A. Crichton, Chairman of the
Board of Directors

/s/ DREW WILSON, JR.
--------------------
Drew Wilson, Jr. Secretary/Treasurer

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