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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
COMMISSION FILE NUMBER 0-6247
ARABIAN AMERICAN DEVELOPMENT COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 75-1256622
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
10830 NORTH CENTRAL EXPRESSWAY, SUITE 175 75231
DALLAS, TEXAS (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 692-7872
Former name, former address and former fiscal year, if
changed since last report.
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
Number of shares of the Registrant's Common Stock (par value $0.10 per share),
outstanding at September 30, 2004: 22,731,994.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2004 2003
-------------- --------------
ASSETS
CURRENT ASSETS
Cash $ 163,456 $ 177,716
Trade Receivables, Net 3,342,434 2,810,858
Financial Contracts 1,657,294 --
Inventories 1,475,120 656,481
-------------- --------------
Total Current Assets 6,638,304 3,645,055
REFINERY PLANT, PIPELINE AND EQUIPMENT 19,129,123 18,406,665
Less: Accumulated Depreciation (10,510,827) (9,659,837)
-------------- --------------
Net Refinery Plant, Pipeline and Equipment 8,618,296 8,746,828
AL MASANE PROJECT 36,441,175 36,165,120
OTHER INTERESTS IN SAUDI ARABIA 2,431,248 2,431,248
MINERAL PROPERTIES IN THE UNITED STATES 1,057,989 1,211,674
OTHER ASSETS 482,587 472,572
-------------- --------------
TOTAL ASSETS $ 55,669,599 $ 52,672,497
============== ==============
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 2,608,530 $ 7,587,963
Accrued Interest 885,383 756,851
Accrued Liabilities 1,083,510 832,236
Accrued Liabilities in Saudi Arabia 2,796,142 2,671,840
Notes Payable 11,025,833 11,025,780
Notes Payable to Stockholders 718,000 718,000
Current Portion of Long-Term Debt 1,026,236 --
Long-term Debt in Default, including accrued interest of
$3,213,156 and $2,710,806 respectively 6,369,199 5,880,627
-------------- --------------
Total Current Liabilities 26,512,833 29,473,297
LONG-TERM DEBT 5,128,431 --
DEFERRED REVENUE 189,556 166,543
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 818,274 834,956
STOCKHOLDERS' EQUITY
COMMON STOCK-authorized 40,000,000
shares of $.10 par value; issued and
outstanding, 22,431,994 shares in 2004
and 2003 2,243,199 2,243,199
ADDITIONAL PAID-IN CAPITAL 36,512,206 36,512,206
ACCUMULATED DEFICIT (15,734,900) (16,557,704)
-------------- --------------
Total Stockholders' Equity 23,020,505 22,197,701
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 55,669,599 $ 52,672,497
============== ==============
See notes to consolidated financial statements.
1
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
REVENUES
Refined Product Sales $ 14,993,334 $ 9,679,757 $ 37,551,005 $ 26,492,207
Processing Fees 967,277 1,023,153 2,783,845 3,000,254
------------ ------------ ------------ ------------
15,960,611 10,702,910 40,334,850 29,492,461
OPERATING COSTS AND EXPENSES
Cost of Refined Product
Sales and Processing 12,382,652 9,881,694 34,610,570 27,190,253
General and Administrative 1,064,118 1,015,639 2,980,516 3,058,379
Depreciation 247,627 344,380 859,258 1,031,689
------------ ------------ ------------ ------------
13,694,397 11,241,713 38,450,344 31,280,321
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 2,266,214 (538,803) 1,884,506 (1,787,860)
OTHER INCOME (EXPENSE)
Interest Income 6,268 7,367 20,736 24,520
Interest Expense (371,921) (388,782) (1,178,916) (1,165,359)
Minority Interest 3,100 3,988 7,700 7,480
Foreign Exchange Transaction Gain (Loss) (28,830) 150,226 33,023 144,262
Miscellaneous Income (Expense) 28,142 19,726 55,755 107,426
------------ ------------ ------------ ------------
(363,241) (207,475) (1,061,702) (881,671)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 1,902,973 $ (746,278) $ 822,804 $ (2,669,531)
============ ============ ============ ============
Basic and Diluted Net Income (Loss)
per Common Share $ 0.08 $ (0.03) $ 0.04 $ (0.12)
============ ============ ============ ============
Basic and Diluted Weighted Average Number
of Common Shares Outstanding 22,731,994 22,731,994 22,731,994 22,731,994
============ ============ ============ ============
See notes to consolidated financial statements.
2
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
COMMON STOCK ADDITIONAL
----------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ---------- ----------- ------------ -----------
DECEMBER 31, 2003 22,431,994 $2,243,199 $36,512,206 $(16,557,704) $22,197,701
Net Income -- -- -- 822,804 822,804
---------- ---------- ----------- ------------ -----------
SEPTEMBER 30, 2004 22,431,994 $2,243,199 $36,512,206 $(15,734,900) $23,020,505
========== ========== =========== ============ ===========
See notes to consolidated financial statements.
3
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2004 2003
------------ ------------
OPERATING ACTIVITIES
Net Income (Loss) $ 822,804 $ (2,669,531)
Adjustments to Reconcile Net Income (Loss)
To Net Cash Provided by Operating Activities:
Depreciation 859,258 1,031,689
(Decrease) Increase in Deferred Revenue 23,013 (11,749)
Unrealized Gain on Financial Contracts (1,657,294) --
Minority Interest/Other (16,682) (7,481)
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Trade Receivables (531,576) 2,128,246
(Increase) Decrease in Inventories (818,639) 338,817
(Increase) Decrease in Other Assets (10,015) 31,069
Increase in Accounts Payable and Accrued Liabilities 1,293,330 2,357,496
Increase in Accrued Interest 630,882 737,340
Increase in Accrued Liabilities in Saudi Arabia 124,302 30,443
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 719,383 3,966,339
------------ ------------
INVESTING ACTIVITIES
Additions to Al Masane Project (276,055) (175,487)
Additions to Refinery Plant, Pipeline and Equipment (593,850) (118,750)
(Additions to) Reduction in Mineral Properties in the United States 153,685 (20)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (716,220) (294,257)
------------ ------------
FINANCING ACTIVITIES
Reduction of Notes Payable and Long-Term Obligations (17,423) (3,788,229)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (17,423) (3,788,229)
------------ ------------
NET DECREASE IN CASH (14,260) (116,147)
CASH AT BEGINNING OF PERIOD 177,716 319,171
------------ ------------
CASH AT END OF PERIOD $ 163,456 $ 203,024
============ ============
NON-CASH FINANCING ACTIVITIES:
Acquisition of equipment with capital lease $ 136,876 $ --
============ ============
See notes to consolidated financial statements.
4
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements reflect all adjustments (consisting
only of normal and recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of Arabian American
Development Company and Subsidiaries financial position and operating
results for the interim period. Interim period results are not necessarily
indicative of the results for the calendar year. For additional
information please refer to the consolidated financial statements and
footnotes thereto and to Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's December 31,
2003 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 approximately 93% of the capital stock of Productos
Quimicos Coin, S.A. de. C.V. ("Coin"), a specialty petrochemical products
refining company located near Coatzacoalcos, Mexico. South Hampton owns
all of the capital stock of Gulf State Pipe Line Company, Inc. ("Gulf
State"). The Company also owns approximately 55% of the capital stock of a
Nevada mining company, Pioche-Ely Valley Mines, Inc. ("Pioche"), which
does not conduct any substantial business activity. The 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:
SEPTEMBER 30, 2004 DECEMBER 31, 2003
------------------ -----------------
Feedstock $ 764,888 $ --
Refined products 710,232 656,481
------------------ -----------------
$ 1,475,120 $ 656,481
================== =================
Inventories are recorded at the lower of cost, determined on the last-in,
first-out method (LIFO), or market, for inventory in the United States,
and on the average cost method, or market, for inventory held in Mexico.
At September 30, 2004, current cost exceeded LIFO value by approximately
$432,000. At December 31, 2003, current cost exceeded the LIFO value by
approximately $256,000.
3. NET INCOME (LOSS) PER COMMON SHARE
The following table (in thousands, except per share amounts) sets forth
the computation of basic and diluted net income (loss) per share for the
three and nine months ended September 30, 2004 and 2003, respectively.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net Income (Loss) $ 1,903 $ (746) $ 823 $ (2,670)
========== ========== ========== ==========
Weighted Average Shares Outstanding:
Basic and Diluted 22,732 22,732 22,732 22,732
========== ========== ========== ==========
Net Loss Per Share:
Basic and Diluted $ 0.08 $ (0.03) $ 0.04 $ (0.12)
========== ========== ========== ==========
5
For the three and nine months ended September 30, 2004 and 2003, options
for 400,000 shares and 445,000, respectively, were excluded from diluted
shares outstanding because their effect was antidilutive.
4. SEGMENT INFORMATION
As discussed in Note 1, the Company has two business segments. The Company
measures segment profit or loss as operating income (loss), which
represents income (loss) before interest, minority interest, miscellaneous
income and foreign exchange transaction gain or loss. Information on the
segments is as follows:
THREE MONTHS ENDED SEPTEMBER 30, 2004 REFINING MINING TOTAL
------------------------------------- ------------ ------------ -----------
Revenue from external customers $ 15,960,611 $ -- $15,960,611
Depreciation 247,525 102 247,627
Operating income (loss) 2,422,083 (155,869) 2,266,214
Total assets $ 15,673,677 $ 39,995,922 $55,669,599
THREE MONTHS ENDED SEPTEMBER 30, 2003 REFINING MINING TOTAL
------------------------------------- -------- ------ -----
Revenue from external customers $ 10,702,910 $ -- $ 10,702,910
Depreciation 343,906 474 344,380
Operating loss (437,617) (101,186) (538,803)
Total assets $ 12,576,481 $ 39,692,618 $ 52,269,099
NINE MONTHS ENDED SEPTEMBER 30, 2004 REFINING MINING TOTAL
------------------------------------ ------------ ------------ -----------
Revenue from external customers $ 40,334,850 $ -- $40,334,850
Depreciation 858,952 306 859,258
Operating income (loss) 2,361,048 (476,542) 1,884,506
NINE MONTHS ENDED SEPTEMBER 30, 2003 REFINING MINING TOTAL
------------------------------------ ------------ ------------ -------------
Revenue from external customers $ 29,492,461 $ -- $ 29,492,461
Depreciation 1,030,267 1,422 1,031,689
Operating loss (1,459,761) (328,099) (1,787,860)
Information regarding foreign operations for the three and nine months
ended September 30, 2004 and 2003 follows (in thousands). Revenues are
attributed to countries based upon the origination of the transaction.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
REVENUES
United States $ 14,895 $ 9,806 $ 38,193 $ 28,355
Mexico 1,066 897 2,142 1,137
Saudi Arabia -- -- -- --
-------- -------- -------- --------
$ 15,961 $ 10,703 $ 40,335 $ 29,492
======== ======== ======== ========
LONG-LIVED ASSETS
United States $ 5,371 $ 5,600
Mexico 4,305 4,654
Saudi Arabia 38,872 38,425
-------- --------
$ 48,548 $ 48,679
======== ========
6
5. LEGAL PROCEEDINGS
South Hampton is involved in a number of lawsuits. Three of the lawsuits
have been filed by former employees, two alleging asbestos exposure and a
third alleging unsafe working conditions causing injury. The dates of
alleged exposure or injury range from 1961 to 2002. The settlement offers
in the asbestos claims range from $2,500 to $100,000 and the demands by
the plaintiffs range from $35,000 to $200,000. No trial date has been set
in one, and in another suit the trial date has been changed several times
but currently stands at January 2005. The third suit was settled for
$60,000 in October 2004 with the settlement paid by the insurance carrier.
South Hampton, along with about 70 other parties, is also a defendant in
seven lawsuits filed in Madison County, Illinois by plaintiffs alleging
that the defendant companies engaged in the business of manufacturing,
selling and/or distributing benzene in a manner which subjected them to
liability for unspecified actual and punitive damages. South Hampton has
no known connection with any of the plaintiffs. An additional similar suit
was dropped by the plaintiff in July 2004 for lack of connection with the
defendant. The consolidated financial statements contain a provision for
estimated legal expenses in conjunction with the lawsuits. There are no
assurances that the amounts required for defense will not be different
than the amounts accrued.
In August 1997, the Texas Commission on Environmental Quality ("TCEQ")
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 relate to various air
and water quality issues. On February 2, 2000, the TCEQ amended its
pending administrative enforcement action against South Hampton to add
allegations dating through May 21, 1998 of 35 regulatory violations
relating to air quality control and industrial solid waste requirements.
The TCEQ proposed that administrative penalties be increased to
approximately $765,000 and that certain corrective actions be taken. On
April 11, 2003, the TCEQ reduced the proposed penalties to approximately
$690,000. On May 25, 2003, a settlement hearing with the TCEQ was held and
additional information was submitted to the TCEQ in June, October, and
November 2003 and June 2004. South Hampton believes the original proposed
penalties and the additional allegations are greatly overstated and
intends to continue to vigorously defend itself against these allegations,
the proposed penalties, and certain of proposed corrective actions. All
corrective actions that South Hampton agreed were appropriate were
completed timely and in accordance with TCEQ recommendations. Management
believes the penalties will be settled for amounts less than those
proposed and has accrued an estimate for a proposed settlement. There are
no assurances that the amounts settled will not be different than the
amounts accrued. Negotiations between South Hampton and the TCEQ are
expected to continue in order to reach a final settlement. The most recent
previous settlement with the TCEQ was dated December 13, 2001. The TCEQ
notified South Hampton that it had found several violations of its rules
during a record review in October 2001 and proposed a settlement of
$59,375. South Hampton settled this particular claim in April 2002 for
approximately $5,900. It cannot be assumed, however, that the current
outstanding proposed penalty can be resolved in the same proportion as
this previous settlement.
On February 23, 2004, by court order, a creditor was awarded Coin's plant
facilities as a result of a mortgage foreclosure proceeding. Coin
continues to operate the plant and due to the vagaries of Mexican law, the
final disposition and timing of the court action is undetermined at this
time. See Note 8.
6. LONG-TERM DEBT
The Company has an interest-free loan of $11,000,000 from the Saudi Arabia
Ministry of Finance and National Economy, the proceeds of which were used
to finance the development phase of the Al Masane project. The loan was
repayable in ten equal annual installments of $1,100,000, with the initial
installment payable on December 31, 1984. None of the ten scheduled
payments has been made. Pursuant to the mining lease agreement covering
the Al Masane project, the Company intends to repay the loan in accordance
with a repayment schedule to be agreed upon with the Saudi Arabian
government from its share of cash flows. An agreement has not yet been
reached regarding either the rescheduling or source of these payments. The
loan is collateralized by all of the Company's "movable and immovable"
assets in Saudi Arabia.
On July 29, 2003, a Purchase and Sale Agreement was negotiated with a bank
whereby the bank will purchase the accounts receivable of South Hampton at
a 15% discount. The discounted amount is returned to South Hampton, less
fees, when the invoice is collected. Under this factoring agreement, the
bank agreed to purchase up to $4.5 million of invoices. Management expects
the fees and interest charged by the bank in this arrangement will equate
to an effective interest rate of approximately 9.0%. In July 2004, the
limit of purchases was raised to $6.0 million by the bank. At September
30, 2004, approximately $4,457,000 of receivables had been sold and, due
to the revolving nature of the agreement, also remained outstanding. The
7
agreement restricts the payment of any dividends to the Company by South
Hampton to an amount not to exceed $50,000 a month, provided that South
Hampton is not in default under the agreement. The agreement is
collateralized by a security interest in South Hampton's accounts
receivable. At September 30, 2004, South Hampton was in compliance with
the provisions of the agreement.
In connection with the acquisition of the common stock of Coin, South
Hampton and Gulf State entered into a $3.5 million loan agreement with a
commercial lending company in December 1999 that was collateralized by a
first security interest in all of their assets, except those pledged to
the bank under the revolving credit agreement mentioned in the preceding
paragraph. The loan was paid in full in 2003.
A contract was signed on June 1, 2004 between South Hampton and a supplier
for the purchase of 65,000 barrels per month of natural gasoline on open
account for the period from June 1, 2004 through May 31, 2006 and year to
year thereafter with 30 days written notice of termination by either
party. A provision of the contract states that South Hampton will begin
reducing the current debt to the supplier by $250,000 per quarter
beginning July 1, 2004. Therefore, $1.0 million of the balance of
approximately $6.0 million has been classified as current at September 30,
2004. The supplier is currently the sole provider of the refinery's
feedstock supply.
On August 1, 2004, South Hampton entered into a $164,523 capital lease
with Silsbee Trading and Transportation for the purchase of a diesel
powered manlift. The lease is for five years with title transferring to
South Hampton at the end of the term. At September 30, 2004, approximately
$25,000 represents interest, resulting in a present value of $136,876 of
which $26,536 is classified as current.
At September 30, 2004, Coin had two loans payable to Mexican banks in the
outstanding principal amounts of $1,111,948 and $2,044,096. The first loan
was payable in monthly payments through October 2004 and the second loan
is payable in quarterly payments through March 2007. The first loan bears
interest at 5% and the second loan bears interest at the LIBOR rate plus
seven points (LIBOR was 1.84% at September 30, 2004). Both loans are
collateralized by all of the assets of Coin, including the plant located
near Coalzacoalcos. At September 30, 2004, Coin was in default of the loan
covenants under both loans as a result of not having made its monthly and
quarterly payments. As a result, the loans are classified as current in
the financial statements. Unpaid interest on the two loans consists of
$875,006 and $2,338,150, respectively, at September 30, 2004. As discussed
in Notes 5 and 8, the creditor of the first loan initiated a mortgage
foreclosure proceeding that resulted in a court ordered public auction of
the plant facilities on February 23, 2004. Coin continues to operate the
plant and due to the vagaries of Mexican law, the final disposition and
timing of the court action is undetermined at this time. The debt is
secured solely by the assets of Coin and there are no cross
collateralization or guarantee agreements with other Refining Company
subsidiaries.
At September 30, 2004, the Company has a liability to its President and
Chief Executive Officer of approximately $1,182,000 for accrued salary and
termination benefits, a loan payable to him of $53,000 and a loan payable
to his wife of $100,000. There are also loans payable to two stockholders
of the Company of $465,000 and $100,000.
7. DERIVATIVE INSTRUMENTS
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS Nos.
138 and 149, establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at
its fair value. The statement requires that changes in the derivative
instrument's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative instrument's gains and losses to
offset related results on the hedged item in the income statement, to the
extent effective, and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting treatment. SFAS No. 133, as amended, was adopted by the Company
on January 1, 2001 and SFAS No. 149 was adopted on June 30, 2003.
On January 30, 1992, the Board of Directors of TOCCO adopted a resolution
authorizing the establishment of a commodities trading account to take
advantage of opportunities to lower the cost of feedstocks and natural gas
for its subsidiary, South Hampton. The policy adopted by the Board
specifically prohibits the use of the account for speculative
transactions. The operating guidelines adopted by management generally
limit exposures to 50% of the monthly feed volumes to the refinery for up
to six months forward and up to 100% of the natural gas requirements.
Except in rare cases, the account
8
uses options and financial swaps to meet the targeted goals. These
derivative agreements are not designated as hedges per SFAS 133, as
amended. The Company had approximately 29 option contracts outstanding as
of September 30, 2004 covering various natural gas price movement
scenarios through March of 2005 and covering from 50% to 100% of the
natural gas requirements for each month. As of the same date, the Company
had committed to 18 financial swap contracts for up to 50% of its required
monthly feed stock volume with settlement dates through March of 2005. For
the nine months ended September 30, 2004, the net realized gain from the
derivative agreements was $685,844 as compared with a net loss of $71,492
during the same period in 2003. There was an estimated unrealized gain for
the nine months ended September 30, 2004 and 2003 of approximately
$1,657,294 and $0, respectively.
NOTE 8 - COIN ASSETS SUBJECT TO FORECLOSURE
A creditor of Coin initiated a mortgage foreclosure proceeding that
resulted in a court ordered public auction of the plant facilities in
Mexico on February 23, 2004. As a result, the court awarded the plant
facilities to the creditor. The court order required legal transfer of the
assets to the creditor within three days, however, the transfer has yet to
occur and the Company, management of Coin and Coin's legal counsel are
unable to determine a date certain for the legal transfer of ownership. As
a result, the consolidated financial statements do not include any
adjustments that may result. The following summarizes the proforma effect
of the foreclosure on the September 30, 2004 consolidated financial
statements:
PRO FORMA
AS REPORTED ADJUSTED
SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
2004 ADJUSTMENT 2004
------------- --------- -------------
ASSETS
Current assets $ 4,981,010 $ - $ 4,981,010
Refinery plant, pipeline and equipment, net 8,618,296 (4,305,436) 4,312,860
Other assets 42,070,293 - 42,070,293
------------- ------------ -------------
Total assets $ 55,669,599 $ (4,305,436) $ 51,364,163
============= ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 26,512,833 $ (1,986,954) $ 24,525,879
Long-term debt 5,128,431 5,128,431
Deferred revenue 189,556 - 189,556
Minority interest in consolidated subsidiaries 818,274 - 818,274
Stockholders' equity 23,020,505 (2,318,482) 20,702,023
------------- ------------ -------------
Total liabilities and stockholders' equity $ 55,669,599 $ (4,305,436) $ 51,364,163
============= ============ =============
Revenues $ 40,334,850 $ - $ 40,334,850
Operating costs and expenses 38,450,344 - 38,450,344
------------- ------------ -------------
Operating income 1,884,506 - 1,884,506
Other income (expense) (1,061,702) (2,318,482) (3,380,184)
------------- ------------ -------------
Income (loss) before income taxes 822,804 (2,318,482) (1,495,678)
Income tax expense - - -
------------- ------------ -------------
Net income (loss) $ 822,804 $ (2,318,482) $ (1,495,678)
============= ============ =============
Basic and diluted net income (loss) per common
share $ 0.04 $ (0.10) $ (0.07)
============= ============ =============
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Statements in Part 1, Item 2 as well as elsewhere in, or incorporated by
reference in, this Quarterly Report on Form 10-Q regarding the Company's
financial position, business strategy and plans and objectives of the Company's
management for future operations and other statements that are not historical
facts, are "forward-looking statements" as that term is defined under applicable
Federal securities laws. In some cases, "forward-looking statements" can be
identified by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "contemplates," "proposes," believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms and other comparable
terminology. Forward-looking statements are subject to risks, uncertainties and
other factors that could cause actual results to differ materially from those
expressed or implied by such statements. Such risks, uncertainties and factors
include, but are not limited to, general economic conditions domestically and
internationally; insufficient cash flows from operating activities; difficulties
in obtaining financing; outstanding debt and other financial and legal
obligations; competition; industry cycles; feedstock, specialty petrochemical
product and mineral prices; feedstock availability; technological developments;
regulatory changes; environmental matters; foreign government instability;
foreign legal and political concepts; and foreign currency fluctuations, as well
as other risks detailed in the Company's filings with the U.S. Securities and
Exchange Commission, including this Quarterly Report on Form 10-Q, all of which
are difficult to predict and many of which are beyond the Company's control.
LIQUIDITY AND CAPITAL RESOURCES
The Company operates in two business segments, specialty petrochemicals
(which is composed of the entities owned by the 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. After a difficult year in 2000, the decline of feedstock
prices in early 2001 returned the Company to a positive cash flow, which it
attained for the remainder of 2001 and throughout 2002. During 2003, the Company
experienced tighter margins resulting from the rise in feedstock prices. These
prices remained at historically high levels throughout 2003, which, coupled with
slow demand, resulted in operating losses for the segment in 2003. Feedstock
prices continued to steadily climb in 2004 but demand increased and product
prices were raised to stay ahead of the escalating costs resulting in a positive
cash flow position year to date. The hedging program has contributed
significantly to the results (see Note 7 to the consolidated financial
statements.)
South Hampton obtains its feedstock requirements from a sole source
vendor. On May 7, 2004, South Hampton and the supplier signed a letter of intent
whereby the supplier will purchase up to $1,800,000 of capital equipment for use
by South Hampton to facilitate the execution of a new processing agreement
between a large customer and South Hampton. The equipment purchased by the
supplier will remain the property of the supplier who will enter into a ground
lease for the land upon which the capital equipment is located. South Hampton
and the supplier will also enter into a throughput arrangement whereby South
Hampton will agree to throughput product (utilizing the purchased capital
equipment) from the supplier at a rate and volume to be negotiated based upon
the new agreement with the customer. The terms of both the throughput
arrangement and the ground lease with the supplier will be five years. As
security for the funds used to purchase the capital equipment and to secure
outstanding debts for feedstock purchased from the supplier, South Hampton
executed a mortgage in June 2004 covering most of the refinery's equipment. A
contract was signed on June 1, 2004 between South Hampton and the supplier for
the purchase of 65,000 barrels per month of natural gasoline on open account for
the period from June 1, 2004 through May 31, 2006 and year to year thereafter
with 30 days written notice of termination by either party. A provision of the
contract states that South Hampton will begin reducing the current debt to the
supplier by $250,000 per quarter beginning July 1, 2004. Therefore, $1 million
of this debt has been classified as current at September 30, 2004. The supplier
is currently the sole provider of the refinery's feedstock supply. At September
30, 2004, South Hampton owed the supplier approximately $6.0 million.
10
On August 1, 2004, South Hampton entered into a capital lease with Silsbee
Trading and Transportation for the purchase of a diesel powered manlift. The
lease is for five years with title transferring to South Hampton at the end of
the term.
As mentioned in Note 6 to the consolidated financial statements, Coin was
not in compliance with certain covenants contained in its loan agreements at
September 30, 2004, and therefore, its creditors have the right to declare the
debt to be immediately due and payable. If this were to occur, Coin would
currently be unable to pay the entire amount due. On February 23, 2004, the Coin
plant facilities were awarded to a creditor in a foreclosure hearing. See Note 8
to the consolidated financial statements. Coin continues to operate the plant
and due to the vagaries of Mexican law, the final disposition and timing of the
court action is undetermined at this time. Management intends to continue such
operation until that option is no longer legally available to the Company. The
debt is secured solely by the assets of Coin and there are no cross
collateralization or guarantee agreements with other Refining Company
subsidiaries.
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.
On February 23, 2004, the Company's President received a letter from the
Deputy Minister of Petroleum and Mineral Resources stating that the Council of
Ministers had issued a resolution, dated November 17, 2003, which directed the
Minister, or whomever he may designate, to discuss with the President of the
Company the implementation of a work program, similar to that which is attached
to the Company's mining lease, to start during a period not to exceed two years,
and also the payment of the past due surface rentals. If agreeable, a document
is to be signed to that effect. The resolution stated further that, if no
agreement is reached, the Ministry of Finance will give the Council of Ministers
its recommendation regarding the $11 million loan granted to the Company.
After discussions with the Deputy Minister, the Company President
responded, in a letter to the Minister dated March 23, 2004, that the Company
will agree to abide by the resolution and will start implementing the work
program to build the mine, treatment plant and infrastructure within two years
from the date of the signed agreement. The work program was prepared by the
Company's technical consultants and was attached to the letter. The Company also
will agree to pay the past due surface rentals, which now total approximately
$586,000, in two equal installments, the first on December 31, 2004 and the
second on December 31, 2005 and will continue to pay the surface rentals as
specified in the Mining Lease Agreement. On May 15, 2004, an agreement was
signed with the Ministry covering these provisions. In the event the Company
does not start to implement the program during the two-year period, the matter
will be referred to the concerned parties to seek direction in accordance with
the Mining Code and other concerned codes.
The Company intends to make preparations to start to implement the work
program, which will take approximately twenty-two months to complete, after
which commercial production can begin. The Company plans to update the
feasibility study, and, if positive, will attempt to locate a joint venture
partner to manage the project and attempt to obtain acceptable financing to
commercially develop the program now that the prices of zinc, copper, gold and
silver have increased significantly. 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.
The Minister of Petroleum and Mineral Resources announced on April 2, 2002
that a new revised Saudi Arabian Mining Code would be issued, which would
expedite the issuance of licenses and has new incentives to encourage investment
by the private sector, both Saudi and foreign, in the development of mineral
resources in Saudi Arabia. The mining code has been revised and was recently
approved by the Council of Ministers, and is expected to be issued by Royal
Decree by the end of the year.
On June 22, 1999, the Company submitted a formal application for a
five-year exclusive mineral exploration license for the Greater Al Masane Area
of approximately 2,850 square kilometers, which surrounds the Al Masane mining
lease area and includes the Wadi Qatan and Jebel Harr areas. The Company
previously worked in the Greater Al Masane Area after obtaining written
authorization from the Saudi Ministry of Petroleum and Mineral Resources, and
has expended over $3 million in exploration work. Geophysical, geochemical and
geological work and diamond core drilling on the Greater Al Masane area has
revealed mineralization similar to that discovered at Al Masane. The application
for the new exploration license is still pending and is expected to be acted
upon after the proposed new Saudi Arabian Mining Code is approved. 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
11
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.
Management also is addressing two other significant financing issues
within this segment. These issues are the $11 million note payable due the Saudi
Arabian government and accrued salaries and termination benefits of
approximately $933,000 due employees working in Saudi Arabia (this amount does
not include any amounts due the Company's President and Chief Executive Officer
who also primarily works in Saudi Arabia and is owed approximately $1,182,000).
Regarding the note payable, this loan was originally due in ten annual
installments beginning in 1984. The Company has not made any repayments nor has
it received any payment demands or other communications regarding the note
payable from the Saudi government. By memorandum to the King of Saudi Arabia in
1986, the Saudi Ministry of Finance and National Economy recommended that the
$11 million note be incorporated into a loan from the Saudi Industrial
Development Fund ("SIDF") to finance 50% of the cost of the Al Masane project,
repayment of the total amount of which would be made through a mutually agreed
upon repayment schedule from the Company's share of the operating cash flows
generated by the project. The Company remains active in Saudi Arabia and
received the Al Masane mining lease at a time when it had not made any of the
agreed upon repayment installments. Based on its experience to date, management
believes that as long as the Company diligently attempts to explore and develop
the Al Masane project no repayment demand will be made. The Company has
communicated to the Saudi government that its delay in repaying the note is a
direct result of the government's lengthy delay in granting the Al Masane lease
and has requested formal negotiations to restructure this obligation. Based on
its interpretation of the Al Masane mining lease and other documents, management
believes the government is likely to agree to link repayment of this note to the
Company's share of the operating cash flows generated by the commercial
development of the Al Masane project and to a long-term installment repayment
schedule. In the event the Saudi government was to demand immediate repayment of
this obligation, which management considers unlikely, the Company would be
unable to pay the entire amount due.
With respect to the accrued salaries and termination benefits due
employees working in Saudi Arabia, the Company plans to continue employing these
individuals until it is able to generate sufficient excess funds to begin
payment of this liability. Management will then begin the process of gradually
releasing certain employees and paying its obligations as they are released from
the Company's employment.
The Company's mineral interests in the United States are its ownership
interest in Pioche, which has been inactive for many years. Its properties
include 48 patented and 5 unpatented claims totaling approximately 1,500 acres
in Lincoln County, Nevada. There are prospects and mines on these claims that
previously produced silver, gold, lead, zinc and copper. There is also a
300-ton-a-day processing mill on property owned by Pioche. The mill is not
currently in use and a significant expenditure would be required in order to put
the mill into continuous operation, if commercial mining is to be conducted on
the property. In August 2004, the Company exercised its option to purchase
720,000 shares of the common stock of Pioche at $0.20 a share for a total amount
of $144,000. Pioche agreed to accept payment for the stock purchase by the
cancellation of $144,000 of debt it owed to the Company. This purchase increased
the Company's ownership interest in Pioche to approximately 55.01%.
At this time, the Company has no definitive plans for the development of
its domestic mining assets. It periodically receives proposals from outside
parties who are interested in possibly developing or using certain assets.
Management will continue to review these proposals as they are received, but at
this time does not anticipate making any significant domestic mining capital
expenditures or receiving any significant proceeds from the sale or use of these
assets.
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 September 30, 2004,
total refined product sales (including Coin) increased approximately $5,314,000
or 55%, while the cost of sales (excluding depreciation) increased approximately
$2,501,000 or 25% from the same period in 2003. Consequently, the total gross
profit margin on product sales in the third quarter of 2004 increased
approximately $2,812,000 or 1393% compared to the same period in 2003. Coin's
sales for the quarter increased approximately $168,000 or 19%, while its cost of
sales (excluding depreciation) decreased approximately $80,000 or 8%. Coin had a
positive gross profit margin on product sales in this quarter of approximately
$160,000, compared to a
12
negative gross profit margin of approximately $89,000 in the same quarter in
2003.
In the nine months ended September 30, 2004, total refined product sales
increased approximately $11,059,000 or 42%, while the cost of sales (excluding
depreciation) increased approximately $7,420,000 or 27% from the same period in
2003. Consequently, the total gross profit margin on product sales in the first
nine months of 2004 increased approximately $3,638,000 or 521% compared to the
same period in 2003. The cost of sales and gross profit margin for the nine
months ended September 30, 2004 include an estimated unrealized gain of
approximately $1,657,000 on the derivative agreements. Coin's sales increased
approximately $1,004,000 or 88%, while its cost of sales (excluding
depreciation) increased approximately $600,000 or 48%. Coin had a gross profit
margin on product sales for the nine months of approximately $282,000, compared
to a negative gross profit margin of approximately $122,000 for the same period
in 2003.
The first quarter of 2004 was a difficult period for the Company and the
petrochemical industry in general. Feedstock prices rose to record highs for the
Company and, with feedstock prices rising rapidly, the Company was unable to
raise product prices quickly enough to cover the increased costs resulting in
severe losses in January and, to a lesser extent, February. By March, the
Company had raised its product prices and adjusted its business to cover the
increases, which enabled it to attain a positive cash flow position again.
Feedstock prices moderated early in the second quarter but by the end of the
quarter and throughout the third quarter the prices were again on the upswing.
The Company has been able to keep product prices high enough to maintain a
positive cash flow and cover the higher fuel gas and transportation costs. Sales
demand has remained high during the period even with the constant price
increases to the customers. The Company has again entered into derivative
agreements to control the sudden price spikes and to provide price protection.
Management believes that if the derivative agreements can moderate or slow any
changes in the overall cost of feedstock, product prices can be raised over time
to avoid the large losses experienced in the past. Generally, approximately 50%
of the monthly feedstock requirements are covered at any one time. This ratio
cushions the price increases and allows the Company to experience some benefit
when the price drops. In the third quarter of 2004, the natural gasoline
derivative agreements had a realized gain of approximately $140,500 and an
estimated unrealized gain of approximately $1,373,400 for a total positive
effect of approximately $1,513,900.
The price of natural gas (fuel gas), which is the refining operation's
largest single expense, continued to be high during the third quarter of 2004
compared to historical levels. The Company has entered into option contracts for
fuel gas through the first quarter of 2005, which have been effective so far in
helping minimize the impact of price fluctuations in the market. The Company has
also been able to pass through the price increases as they have occurred. In the
third quarter of 2004, the natural gas derivative agreements had a realized gain
of approximately $39,000 and an estimated unrealized gain of approximately
$161,000 for a total positive effect of approximately $200,000.
The toll processing fee revenue for the third quarter of 2004 of
approximately $967,000 was a decrease of approximately $56,000 or 5% under the
fees for the same period in 2003. The toll processing fee revenue for the first
nine months of 2004 of approximately $2,784,000 was a decrease of approximately
$216,000 or 7% under the fees for the same period in 2003. Some of the decrease
in fees was caused by the loss of a customer in the fourth quarter of 2003. The
customer's feedstock changed and the Company's equipment was no longer suitable
to produce the products needed by the customer. Other customers are very active
and remain on long-term contracts. While there are some fluctuations in the
tolling volumes handled, toll processing has developed into a very steady
business over the last five years. Toll processing fees are expected to rise in
the second half of 2005 as contract negotiations are nearly complete for
expanded facilitates for one of the major customers. The contract is expected to
be signed prior to the end of 2004 with the expanded operations to commence
within eight months of the signing of the agreement.
Interest expense increased as the debt of the Company increased due to the
rising feedstock prices and inadequate cash flow. Other expenses of the Company
remained flat or decreased during the first nine months of 2004. The Company's
largest supplier of feedstock asked for security on the account because of the
large increase in the amounts owed for feedstock purchases. While the volume of
feedstocks purchased has remained relatively consistent, the significant price
changes in the petroleum markets have increased the dollar amount of such
purchases. The Company negotiated a security agreement with the supplier, which
has solidified the supply of feedstock to the Company at favorable terms
compared to what is otherwise available in the market. Under the security
agreement, the supplier has a first lien on most of South Hampton's assets.
Coin restarted production in the first quarter of 2004 after having been
shut down during the latter part of 2003 for economic reasons. Coin recently
procured a sales contract with the largest user of pentanes in Mexico, which has
given the operation sufficient volume to justify operating on a daily basis.
Cash flow was negative in the first half of the year, due primarily to start-up
costs and the weak exchange value of the dollar versus the peso. The refinery
currently continues to move product at a substantial
13
rate into both the Mexican and U.S. markets. The plant facilities of Coin have
been foreclosed by a creditor (See Note 8 to the consolidated financial
statements). Coin continues to operate the plant and due to the vagaries of
Mexican law, the final disposition and timing of the court action is
undetermined at this time. Management intends to continue such operation until
that option is no longer legally available to the Company.
MINING SEGMENT AND GENERAL CORPORATE EXPENSES. None of the Company's other
operations generate significant operating or other revenues. The minority
interest amount represents the Pioche and Coin minority stockholders' shares of
the losses from the Pioche and Coin operations. Pioche losses are primarily
attributable to the costs of maintaining the Nevada mining properties.
The Company assesses the carrying values of its assets on an ongoing
basis. Factors which may affect the carrying values of the mining properties
include, but are not limited to, mineral prices, capital cost estimates, the
estimated operating costs of any mines and related processing, ore grade and
related metallurgical characteristics, the design of any mines and the timing of
any mineral production. Prices currently used to assess the recoverability of
the Al Masane project costs, based on production to begin no sooner that 2004,
are $1.04 per pound for copper and $.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 September 30, 2004. There are no
assurances that, particularly in the event of a prolonged period of depressed
mineral prices, the Company will not be required to take a material write-down
of its mineral properties in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Other than as disclosed, there have been no material changes in the
Company's exposure to market risk from the disclosure included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
ITEM 4. CONTROLS AND PROCEDURES.
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's President and
Chief Executive Officer and Treasurer, of the effectiveness of the Company's
disclosure controls and procedures, as of the end of the period covered by this
report. Based upon that evaluation, the President and Chief Executive Officer
and Treasurer concluded that, as of the end of the period covered by this
report, the Company's disclosure controls and procedures were effective such
that information relating to the Company (including its consolidated
subsidiaries) required to be disclosed in the Company's Securities and Exchange
Commission reports (i) is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission rules and
forms and (ii) is accumulated and communicated to the Company's management,
including the President and Chief Executive Officer and Treasurer, as
appropriate, to allow timely decisions regarding required disclosure.
During the period covered by this report, there were no changes in the
Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to Note 5 to the consolidated financial statements
contained in this Report for a discussion of material pending legal proceedings.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
ISSUER PURCHASES OF EQUITY SECURITIES
The following table sets forth information about the Company's Common
Stock repurchases during the three months ended September 30, 2004:
(c) (d)
(a) Total Number of Shares Maximum Number of
Total Number of (b) Purchased as Part of Shares that May Yet be
Shares Average Price Publicly Announced Purchased Under the
Period Purchased Paid Per Share Plans or Programs Plans or Programs
- ----------------------------- --------------- -------------- ---------------------- ----------------------
July 1, 2004 through
July 31, 2004 -- $ -- -- --
August 1, 2004 through
August 31, 2004 -- $ -- -- --
September 1, 2004 through
September 30, 2004 -- $ -- -- --
--------- -------------- ---------------------- ----------------------
Total -- $ -- -- --
========= ============== ====================== ======================
RESTRICTIONS ON PAYMENT OF DIVIDENDS
In 2003 South Hampton entered into a Purchase and Sale Agreement with a bank to
sell its accounts receivable. The agreement contains restrictions on dividends
payable to the Company by South Hampton. (See Note 6 to the consolidated
financial statements). Also, in June 2004, South Hampton entered into a Security
Agreement and Deed of Trust with its sole supplier of feedstock to secure
outstanding debts to the supplier. The Deed of Trust contains a provision to
restrict the payment of dividends to the Company by South Hampton to an amount
not to exceed $50,000 a month with further provisions on dividend payments to
the Company to be effective when a new processing agreement with a large
customer is executed and operations have commenced.
ITEM 3. DEFAULTS ON SENIOR SECURITIES.
Reference is made to Notes 5, 6 and 8 to the consolidated financial
statements and Part I. Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in this Report for a discussion of
the $11 million note payable to the Saudi Arabian government and the loans
payable by Coin to Mexican banks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE.
15
ITEM 5. OTHER INFORMATION.
A shareholder of the Company who is interested in submitting a proposal
for inclusion in the Company's proxy materials for the annual meeting of
shareholders, which is tentatively scheduled sometime in May 2005, must submit
the proposal to the Company at its principal executive office no later than
February 1, 2005. Any such proposal must also comply with the other requirements
of the proxy solicitation rules of the Securities and Exchange Commission. The
Company intends to exercise discretionary voting authority granted under any
proxy, which is executed and returned to the Company on any matter that may
properly come before the annual meeting of shareholders, unless written notice
of the matter is delivered to the Company at its principal executive office no
later than February 1, 2005.
ITEM 6. EXHIBITS.
The following documents are filed or incorporated by reference as exhibits
to this Report. Exhibits marked with an asterisk (*) are management
contracts or a compensatory plan, contract or arrangement.
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3(a) - Certificate of Incorporation of the Company as amended through the
Certificate of Amendment filed with the Delaware Secretary of State on July
19, 2000 (incorporated by reference to Exhibit 3(a) to the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 (File No. 0-6247)).
3(b) - Bylaws of the Company, as amended through March 4, 1998 (incorporated by
reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 (File No. 0-6247)).
10(a) - Contract dated July 29, 1971 between the Company, National Mining
Company and Petromin (incorporated by reference to Exhibit 10(a) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1999
(File No. 0-6247)).
10(b) - Loan Agreement dated January 24, 1979 between the Company, National
Mining Company and the Government of Saudi Arabia (incorporated by reference
to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 (File No. 0-6247)).
10(c) - Mining Lease Agreement effective May 22, 1993 by and between the
Ministry of Petroleum and Mineral Resources and the Company (incorporated by
reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 (File No. 0-6247)).
10(d) - Stock Option Plan of the Company, as amended (incorporated by reference
to Exhibit 10(d) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 (File No. 0-6247)).*
10(e) - 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)).
16
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10(f) - 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)).
10(g) - 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(h) - 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(i) - 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(j) - 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(k) - 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(l) - Letter Agreement dated November 30, 1996 between Sheikh Fahad Al-Athel
and the Company (incorporated by reference to Exhibit 10(o) to the Company's
Annual Report on Form 10-K for the year ended December 31, 2001 (File No.
0-6247)).
10(m) - Purchase and Sale Agreement/Security Agreement dated July 29, 2003
between Southwest Bank of Texas, N.A. and South Hampton Refining Company,
together with related Restricted Payments Letter Agreement and Guaranty of
Texas Oil & Chemical Co. II, Inc. (incorporated by reference to Exhibit
10(s) to the Company's Annual Report on Form 10-K for the year ended
December 31, 2002 (File No. 0-6247)).
10(n) - Equipment Lease Agreement dated November 14, 2003, between Silsbee
Trading and Transportation Corp. and South Hampton Refining Company
(incorporated by reference to Exhibit 10(o) to the Company's Annual Report
on Form 10-K for the year ended December 31, 2003 (File No. 0-6247)).
10(o) - Pledge Agreement dated as of May 15, 2001, by Arabian American
Development Company, American Shield Refining Company, Fahad Al-Athel, Hatem
El-Khalidi, Ingrid El-Khalidi and Preston Peak (incorporated by reference to
Exhibit 10(p) to the Company's Annual Report on Form 10-K for the year ended
December 31, 2003 (File No. 0-6247)).
10 (p) - Security Agreement and Deed of Trust dated June 1, 2004 between South
Hampton Refining Company and Martin Operating Partnership, L.P. (incorporated
by reference to Exhibit 10p to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2004 (File No. 0-6247)).
17
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10(q) - Addendum to Equipment Lease Agreement dated August 1, 2004, between
Silsbee Trading and Transportation Corp. and South Hampton Refining Company.
31.1 - Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 - Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 - Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 - Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
18
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: November 12, 2004 ARABIAN AMERICAN DEVELOPMENT COMPANY
------------------------------------
(Registrant)
By: /s/ NICHOLAS CARTER
-----------------------------
Nicholas Carter Secretary/Treasurer
(Authorized Officer and Principal
Financial Officer)
19