<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------
FORM 10-Q
---------------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------
FOR QUARTER ENDING MARCH 31, 1995
COMMISSION FILE NUMBER 0-6247
ARABIAN SHIELD DEVELOPMENT COMPANY
State of Delaware 75-1256622
10830 North Central Expressway, Suite 175
Dallas, Texas 75231
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 twelve 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
ninety days.
Yes X No
------- -------
Number of shares of the Registrant's Common Stock par value $0.10 per share,
outstanding at March 31, 1995 20,028,494
<PAGE> 2
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
ITEM I - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1995
1995 DECEMBER 31,
(Unaudited) 1994
--------------- ------------
<S> <C> <C>
ASSETS
- - ------
CURRENT ASSETS
Cash and Cash Equivalents in U.S. $ 704,379 $ 1,326,119
Accounts Receivable (Net) 1,821,114 1,402,982
Inventories 632,458 471,074
------------ ------------
Total Current Assets 3,157,951 3,200,175
CASH IN SAUDI ARABIA 257,156 430,976
PLANT, PIPELINE & EQUIPMENT (AT COST)
Refinery Plant, Pipeline & Equip. 5,453,807 5,440,208
Less: Accumulated Depreciation (2,275,464) (2,187,256)
------------ ------------
Net Equipment 3,178,343 3,252,952
AL MASANE PROJECT & SURROUNDING
PROPERTIES 30,222,461 30,112,132
OTHER INTERESTS IN SAUDI ARABIA 2,431,248 2,431,248
INVESTMENT IN AND ADVANCES TO
PIOCHE-ELY VALLEY MINES, INC. 246,301 247,052
GOODWILL 608,130 678,206
OTHER ASSETS (NET) 665,807 704,035
------------ ------------
TOTAL ASSETS $ 40,767,397 $ 41,056,776
============ ============
LIABILITIES
- - -----------
CURRENT LIABILITIES
Accounts Payable $ 855,632 $ 944,007
Accrued Liabilities 521,828 616,459
Accrued Liabilities in Saudi Arabia 785,743 785,743
Notes Payable 15,743,783 15,945,393
Current Portion of Long-Term Debt 64,614 67,968
Current Portion of Long-Term
Obligations 19,184 18,805
------------ ------------
Total Current Liabilities 7,990,784 18,378,375
LONG-TERM DEBT 182,888 195,386
LONG-TERM OBLIGATIONS 201,083 206,013
ACCRUED LIABILITIES IN SAUDI ARABIA 591,566 585,918
DEFERRED REVENUE 156,817 160,693
STOCKHOLDERS' EQUITY
- - --------------------
Common Stock-40,000,000 shares of $0.10
par value authorized: 20,028,494
shares issued and outstanding 2,002,849 2,002,849
Additional Paid-in Capital 32,899,119 32,899,119
Receivables from Stockholders (226,000) (276,000)
Accumulated Deficit (13,031,709) (13,095,577)
------------ ------------
Total Stockholders' Equity 21,644,259 21,530,391
------------ ------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 40,767,397 $41,056,776
============ ============
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 3
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
REVENUES:
Refined Product Sales $ 4,461,593 $ 4,250,620
Processing Fees 85,978 52,277
------------ ------------
4,547,571 4,302,897
OPERATING COSTS AND EXPENSES:
Cost of Refined Product
Sales and Processing 3,724,470 3,233,660
General and Administrative 570,754 454,012
Depreciation and Amortization 166,711 169,461
------------ ------------
4,461,935 3,857,133
------------ ------------
OPERATING INCOME (LOSS) 85,636 445,764
OTHER INCOME (EXPENSES):
Interest Income 11,832 16,045
Interest Expense (97,032) (84,848)
Equity in Income (Loss)
of Affiliate (1,350) (3,558)
Other Income 67,293 48,198
------------ ------------
Income (Loss) Before Income Taxes 66,379 421,601
Income Tax Expense 2,511 --
------------ ------------
NET INCOME (LOSS) $ 63,868 $ 421,601
============ ============
NET INCOME (LOSS)
PER COMMON SHARE $ .01 $ .02
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 20,028,494 20,023,827
============ ============
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 4
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RECEIVABLES
------------ PAID-IN FROM ACCUMULATED
SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT TOTAL
------ ------ ------- ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 20,028,494 $2,002,849 $32,899,119 $ (276,000) $(13,095,577) $21,530,391
Payment on Receivables 50,000 50,000
Net Income (Loss) 63,868 63,868
---------- ---------- ----------- ---------- ------------ -----------
Balance, March 31, 1995 20,028,494 $2,002,849 $32,899,119 $ (226,000) $(13,031,709) $21,644,259
========== ========== =========== ========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss) $ 63,868 $ 421,601
Adjustments for Non-Cash Transactions:
Depreciation and Amortization 166,711 169,461
Equity in (Income) Loss of Affiliate 1,350 3,558
(Decrease) Increase in Deferred Revenue (3,876) (3,876)
Decrease (Increase) in Accounts
Receivable (418,132) (109,393)
Decrease (Increase) in Inventories (161,384) (9,404)
(Decrease) Increase in Accounts
Payable and Accrued Liabilities (183,006) 45,143
Decrease (Increase) in Other Assets 38,228 77,616
Other (9,026) (96,019)
---------- ---------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES (505,267) 498,687
---------- ---------
INVESTING ACTIVITIES:
Additions to Al Masane Project
and Surrounding Properties (110,329) (376,940)
Additions to Other Interests
in Saudi Arabia -- (15,247)
Additions to Plant, Pipeline & Equipment (13,599) (20,541)
(Increase) Decrease in Cash in
Saudi Arabia 173,820 502,909
Increase (Decrease) in Accrued
Liabilities in Saudi Arabia 5,648 13,500
---------- ---------
NET CASH USED FOR INVESTING ACTIVITIES 55,540 103,681
---------- ---------
FINANCING ACTIVITIES:
Common Stock Issued for Cash -- 14,000
Decrease in Receivables from
Stockholders 50,000 --
Additions to Notes Payable &
Long-Term Obligations -- --
Reductions to Notes Payable &
Long-Term Obligations (222,013) (141,823)
---------- ---------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (172,013) (127,823)
---------- ---------
NET INCREASE (DECREASE) IN CASH (621,740) 474,545
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,326,119 118,828
---------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 704,379 $ 593,373
========== =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. REPORTING POLICIES
The consolidated financial statements include the accounts of Arabian
Shield Development Company (the "Company") and its wholly-owned
subsidiaries, American Shield Refining Company (the "Refining
Company") and American Shield Coal Company (the "Coal Company"). The
accounts of the Refining Company include its wholly owned subsidiary,
Texas Oil and Chemical Company II, Inc. ("TOCCO") and TOCCO's accounts
include its wholly owned subsidiaries, South Hampton Refining Company
("South Hampton") and Gulf States Pipeline Company, Inc. ("Gulf
States"). The Company accounts for its 46% ownership interest in
Pioche-Ely Valley Mines, Inc. ("Pioche") by the equity method. In
1992, the Company began to fully consolidate the Al Masane Project
(see Note 3). Previously, the Company accounted for the Project by
the equity method.
2. GOING CONCERN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company's current
primary source of revenue attributable to its wholly owned subsidiary,
South Hampton Refining Company, is fully dedicated to repayment of
debt and funding refining operations. Additionally, the Company is
not generating cash flow from any of its other activities.
Management of Arabian Shield Development Company plans to fund its
future operations through sales of its common stock, borrowings, and
from the anticipated profits of its mining operations in Saudi Arabia,
which are anticipated to commence in 1996.
The Company currently has in its treasury approximately $200,000 from
which funds are being used for the Implementation Plan for the Al
Masane mining project (now that the Company has been granted its
mining lease by the Saudi government) and for meeting all the
Company's expenditures in the United States and Saudi Arabia, which
amount should be sufficient until the middle of 1995.
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<PAGE> 7
In the event the Company is unable to finance the Al Masane mining
project or realize cash flow from its refining operations, or through
the further sale of stock, or reach a final agreement on the repayment
of the $11,000,000 loan from the Saudi government, there will then be
substantial doubt about the Company's ability to continue as a going
concern past the middle of 1995. These financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
3. AL MASANE PROJECT
The Company and National Mining Company ("NMC"), a Saudi Arabian
Company, entered into an agreement in 1971 to explore and develop
certain areas in Saudi Arabia. The Company and NMC jointly entered
into an interest-free loan agreement for $11,000,000 in January 1979,
with the Saudi Arabian Ministry of Finance and National Economy, the
proceeds of which loan were required to be used for the underground
development program at Al Masane. Repayment of the loan was to begin
December 31, 1984, in ten equal annual installments. None of the
scheduled payments have been made.
On April 13, 1992, the Company and National Mining Company signed an
agreement whereby NMC transferred to the Company all of its rights and
interests in the Al Masane Area in return for the Company assuming
sole responsibility for the repayment of the $11 million loan obtained
from the Saudi Arabian government in 1979. The loan is to be
rescheduled so that repayment would be made from the profits of mining
after the mining lease is issued. On April 30, 1992, the Minister of
Petroleum and Mineral Resources was informed by the Company about the
agreement with NMC and that the Company would not ask for the loan
which was approved by the Saudi Arabian government in 1984. On
October 4, 1992, the Company and the Minister of Petroleum and Mineral
Resources initialed approval of a new mining lease which was submitted
to the Council of Ministers for approval.
On April 26, 1993, the Council of Ministers passed the resolution
granting the Company the mining lease, and on May 22, 1993, a Royal
Decree was issued by the King. The initial period of the mining lease
is 30 years, which can be renewed for another period or periods, not
to exceed 20 years. The lease area is 44 square kilometers in size.
An amendment was made in the loan agreement which stipulates that,
when the profitability of the project is demonstrated, a Saudi public
stock company will be formed, in which the Company will contribute its
interest in the Al Masane Project in return for 50% of the stock. The
Petroleum and Mineral Organization ("PETROMIN"), a company
wholly-owned by the Saudi government, has an option to acquire up to
25% of the stock with the remaining interest to be put out for public
subscription to Saudi citizens. In the Al Masane Lease area, proven
and probable reserves of the ore of copper, zinc, silver and gold,
which the Company discovered and developed, are estimated to be 7.2
million tonnes, and the exploration potential to increase these
reserves at the mine site and in the area remain excellent, as
reported by the Company's geological and engineering consultant.
A 1994 report on the Al Masane Project by the consulting firm, Watts,
Griffis and McOuat, which was begun in 1993 subsequent to the granting
of the mining lease was completed in July 1994. The purpose of this
report is to provide a feasibility study for the Project to be used in
obtaining financing, as well as an implementation plan for the
Project. The report
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<PAGE> 8
projects production of the proven and probable ore reserves of 7.2
million tonnes over a ten year period commencing in 1996. The total
capital cost of the Project is estimated to be $81.3 million. The
cash flow projection was made based on the assumption that 50% of the
financing of the project's cost will come from loans from the Saudi
Industrial Development Fund, 25% from bank loans, and 25% from equity
financing in connection with the public subscription in Saudi Arabia.
This financing is anticipated to be completed in 1995. Revenues were
estimated utilizing projected mineral prices from a third party
pricing expert. Since positive net cash flows are indicated in the
report, the consultants have recommended that the mine be brought into
production, and the Company can now form a Saudi public stock company
to operate the Project.
In March 1995, the Company entered into an agreement with Carlyle SEAG
("Carlyle"), whereby Carlyle has been retained as the Company's
financial advisor in connection with the Al Masane mining project.
Carlyle's services will include, but not be limited to, (1) advising
on the capitalization structure of the proposed Saudi company to be
established for the project; (2) the raising of capital funds for the
project implementation; and (3) assisting the Company in the filing of
all licenses and necessary documents for regulatory purposes. In
addition to compensation for their services, including the grant of an
option allowing Carlyle to purchase 2,000,000 shares of the Company's
common stock at $1 per share, Carlyle will nominate one member to the
board of directors at the Company's next board meeting and will
nominate a second board member upon the closing of the financing for
the Al Masane project.
4. OTHER PROJECTS IN SAUDI ARABIA
In December 1993, the Company commissioned Sherritt Ltd. of Fort
Saskatchawan, Canada, to prepare a conceptual engineering design for a
proposed zinc refinery based on Sherritt's two stage pressure leach
process, to be built by the Company and Saudi partners at the Red Sea
port of Yanbu, Saudi Arabia, for a refinery to have the capacity to
produce 100,000 tonnes of slab zinc per year, with elevated sulfur as
a by-product. Sherritt Ltd. has completed the study, and in it the
proposed flow sheet has been commercialized and represents a state of
the art zinc refinery. Sherritt's zinc pressure leach technology
provides significant advantages over the other existing zinc
production processes, including being known as the most favored
technology for environmental considerations. Sherritt Ltd. in its
study, concluded that all the elements of the project that could be
identified to date are included in this study, and these offer a
strong potential for the project, enhance the concept and encourage
the Company to proceed to carry out further studies toward the
implemention of the project.
In May 1993, the Company had discussions with Chevron Chemical Company
regarding the Company's proposal to purchase 5,000 barrels per day of
mixed pentanes from an Aromax petrochemical project to be built in
Saudi Arabia by Chevron Chemical in joint venture with Saudi Venture
Capital Group (SVCS). The Company and some Saudi joint venture
partners, all of whom are stockholders of the Company, contemplate
building a processing plant located next to the Aromax plant in Saudi
Arabia. On July 6, 1993, the Company received a letter from Chevron
Chemical stating that Chevron Chemical and SVCS have jointly agreed to
commit to supply the Company's proposed pentane project with up to
5,000 barrels per day of mixed pentane feedstock. Subsequently,
engineering and marketing studies were made for the project by outside
consultants which reflected positive results. The Company, Chevron
Chemical and SVCS have been waiting for new regulations
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<PAGE> 9
from the Saudi government regarding private investments in
petrochemical projects before proceeding further with these projects.
These regulations were recently issued and planning has begun toward
the construction and operation of the Chevron Aromax plant and the
Company's processing plant. Construction is estimated to be completed
in late 1996. The Company will begin applying to the Saudi government
for a license for the project when the Aromax project receives final
approval from the Saudi government.
5. MINERAL EXPLORATION AND DEVELOPMENT PROJECTS IN THE UNITED STATES
A major component of the Company's activities relates to the
acquisition, exploration, and development of mineral deposits. All
direct costs incurred in these activities are capitalized as mineral
exploration and development costs until such time as (1) the Company
commences commercial exploitation of the related mineral deposits, at
which time that project's costs will be amortized, (2) the related
project is abandoned, at which time the capitalized costs will be
written off, or (3) when any or all deferred costs are permanently
impaired. The Coal Company defaulted in 1988 under its lease
agreement and forfeited its interests in the coal properties. The
Coal Company was required by the Colorado Mined Land Reclamation
Division to complete reclamation work on the property. The
reclamation work was secured by a letter of credit in favor of the
Division which was backed by a certificate of deposit for $36,000. In
March 1994 the Division exercised its right under the letter of
credit, and the $36,000 was paid to the Division. This action
concludes the Coal Company's involvement in the reclamation project.
The Coal Company has a tax loss carry-forward of approximately $14.8
million which is limited to its net income. The Coal Company is
currently negotiating with a company toward the possible use of this
amount.
In August 1993, Pioche-Ely Valley Mines, Inc. ("Pioche") entered into
a new lease of the Wide Awake mine property with the same joint
venturer it had previously leased to in 1990. The new agreement
stipulates a 6% royalty on net smelter returns with no annual rental
required. The lease commenced on October 1, 1993, for a primary term
of twenty-seven months, and will continue as long as minerals are
produced in commercial quantities or unless terminated by the parties.
A significant core hole is planned to be drilled on the Wide Awake
claim in mid 1995.
Based on geophysical work of the mining claims in 1989 by a major
mining company, Pioche drilled a test hole in September 1994 in search
of zinc deposits similar to those found and mined by another company
on its claims between 1924-1958, which amounted to 2.6 million tons of
ore containing 11.8% zinc, 4.6% lead and 4.8 ounces of silver per ton.
The nearest ore body of the above mined ore is located only 2,500 feet
to the west of the Pioche claims. The drill hole, which was to go
down to 1,500 feet, encountered formation problems at 700 feet and
further drilling had to be abandoned. A new site will be selected and
a second hole is expected to be drilled in 1995.
6. REFINERY OPERATIONS
The principal assets of the Refining Company are a special products
refinery located near Beaumont, Texas, and 45 miles of pipelines to
the Gulf of Mexico. South Hampton, the Company's only revenue
producing asset, sells its products primarily to companies in the
petroleum industry. Downturns in the industry could negatively impact
the refinery operations in the future.
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<PAGE> 10
Various refinery upgrade and expansion projects initiated in 1988 and
1989 were completed in 1989 and early 1990. South Hampton's source of
funds for these projects included advances by the Company of proceeds
from the sale of additional shares of the Company's common stock. All
of the amounts advanced by the Company to South Hampton are
subordinated to the liens securing the indebtedness of South Hampton
to Den norske Bank.
7. LEGAL PROCEEDINGS
In 1990 and 1991, Cajun Energy, Inc. and E-Z Mart Stores, Inc.,
respectively, each filed a lawsuit against South Hampton alleging that
South Hampton manufactured and sold defective gasoline and/or failed
to properly test its product prior to sale. Before the initiation of
the lawsuit by Cajun, claims in excess of $906,000 were paid by South
Hampton's insurance carrier under a $1 million liability policy. The
plaintiffs were seeking to recover all claims and related costs paid.
In May 1994, the E-Z Mart lawsuit went to trial and a judgement was
entered against South Hampton. In consideration of the judgement and,
since the issues were identical to the claims asserted in the Cajun
lawsuit, there has been a dismissal by Cajun of its lawsuit against
South Hampton. At the trial, South Hampton consented to a settlement
agreement whereby the plaintiffs took a judgement against South
Hampton for the amounts sought and the plaintiffs signed a
"nonexecution agreement" not to execute upon the judgement in return
for the assignment by South Hampton of certain claims against its
insurance carrier. South Hampton also agreed not to pursue its 1992
lawsuit against the insurance company. The total judgement granted to
the plaintiffs was approximately $5.5 million, after credit of
approximately $1 million was given to the plaintiffs by another
defendant in the causes of action. This concludes the claims and
actions against South Hampton in these matters.
South Hampton, together with over twenty-five other companies, is a
defendant in two proceedings pending in the 60th Judicial District
Court in Jefferson County, Texas, and in the 136th Judicial District
Court in Jefferson County, Texas, respectively, brought on July 21,
1993 and July 18, 1994, respectively, by two former employees of the
Goodyear Tire & Rubber Company plant located in Beaumont, Texas,
claiming illness and diseases resulting from alleged exposure to
chemicals, including benzene, butadiene and/or isoprene, during their
employment with Goodyear. Plaintiffs claim that the defendant
companies engaged in the business of manufacturing, selling and/or
distributing these chemicals in a manner which subjects each and all
of them to liability for unspecified actual and punitive damages.
South Hampton intends to vigorously defend against these lawsuits.
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<PAGE> 11
8. INVENTORIES
Inventories include the following:
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
Refinery feedstock $ 265,675 $ 226,265
Refined products 366,783 244,809
--------- ---------
Total inventories $ 632,458 $ 471,074
========= =========
</TABLE>
Refined products and feedstock are recorded at the lower of cost,
determined on the last-in, first-out method (LIFO), or market. The
market value of the inventory at March 31, 1995 was below the LIFO
value by approximately $11,000 and at December 31, 1994, the market
value exceeded the LIFO value by approximately $193,000.
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<PAGE> 12
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Effective January 1, 1988, the Company determined it had ceased to be
a development stage Company due to the significant revenues generated
by the Refining Company. The Refining Company generates
substantially all of the revenues of the Company.
The Company had net income of $63,868 for the three months ending
March 31, 1995, compared to net income of $421,601 for the same period
in 1994, resulting in a net income decrease of $357,733 in 1995 from
the comparable period in 1994. For the three months ending March 31,
1995, the Refining Company had gross operating income of $223,841 and
net income of $202,587. The Refining Company cash flow during the
period was a positive $390,417. The gross operating income in 1995
includes processing fees of $85,978, compared to processing fees of
$52,277 in 1994. The Refining Company had gross operating income for
the same period in 1994 of $477,690 and net income of $421,601. The
amount of gross sales in 1995 was $210,000 higher than in 1994 due to
higher volumes and prices; however, the margins were not as good due
to higher feedstock prices. The cost of product sales in 1995 was
$490,810 higher and amounted to 83% of gross sales compared to 76% in
1994. Feedstock prices in the first quarter of 1995 were $.10 per
gallon higher than in the same period a year ago. This rise in the
cost of feed is having a significant difference in the performance so
far in 1995. It is expected that this cost will come down as the
warmer months approach. The refinery has been running at its full
capacity of 2,200 barrels per day since July 1994 and will continue to
do so in the coming months. Processing fees in 1995 were higher than
in 1994 by $33,701. Negotiations were completed in February on a toll
processing agreement with a large chemical company which began
operating in April, after equipment modifications were made by the
refinery. Minimum monthly fees of $16,000 are expected which are
anticipated to increase up to $50,000 per month within nine months if
their markets develop as they expect. A toll processing contract for
racing fuel blending was renewed in February for a three year term and
another contract is up for an annual renewal in May. The refinery has
been spending more time and effort in replacing old pipes and
equipment and in cleaning up and selling scrap materials. A
continuous effort is being made to control and reduce all expenses.
General and administrative expenses for the first three months in 1995
were higher by $99,921 than for the same period in 1994. The expenses
and time demands of regulatory and environmental compliance and
reporting continue to increase and are reflected in the higher G & A
costs. Interest expense in 1995 and 1994 was practically all
attributable to the debt of the refinery and increased by $12,184 in
1995. The equity in loss of affiliate of $1,350 for the three months
in 1995 was attributable to Pioche-Ely Valley Mines, Inc. A charge
for amortization of goodwill of
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<PAGE> 13
$207,855 for the same period in 1995 and 1994 relates to the goodwill
recognized on the purchase of the refinery in 1987. Interest income
in both periods was primarily from time deposits of the refinery
operation and from excess cash invested in Saudi Arabia. Other income
in both periods primarily includes income from leases, rentals, and
miscellaneous items at the refinery. A provision for income taxes in
1995 of $2,511 has been recorded, since the Company estimates an
alternative minimum tax liability for the period.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the acquisition in June 1987 of the refinery in Silsbee,
Texas, the Company had substantially no significant operating revenues
since 1972. Because of the lack of operating revenues, it has been
necessary for the Company continually to seek additional debt and
equity financing in order to have funds to continue operations. The
Company has required additional debt or equity financing in order to
continue development activities on its various projects and to fund
its general and administrative costs.
Due to the granting by Saudi Arabia of the Al Masane mining lease in
May 1993, the Company has begun planning for the mobilization program
and financing to implement the construction and commissioning of the
mining treatment plant and housing facilities for the mine. The firm
of Watts, Griffis and McOuat of Toronto, Canada, has been appointed as
owner's agent and project manager. The Company will also soon start
an intensive exploration program to increase the reserves at the mine
site and elsewhere in the lease area. In addition, the Company is now
actively engaged in studies for the feasibility of the establishment
of a petrochemical plant in Saudi Arabia similar to the one owned by
it in Silsbee, Texas. The products to be manufactured would be
solvents for the plastics industry and they are anticipated to be sold
in the Middle East, Europe and the Far East.
Since the coal leases in Colorado were relinquished in 1988, there is
only a small amount of overhead expenses incurred regarding the Coal
Company. Primarily as a result of the write-off of the coal leases in
1988, the Company has net operating loss tax carryforwards of
approximately $27.3 million, of which approximately $14.8 million is
limited to the net income of the Coal Company. These carryforwards
expire during the years 1994 through 2008. Additionally,
approximately $1.1 million of this amount is limited to the net income
of TOCCO. The Company is actively seeking a means of utilizing this
tax loss carryforward.
The refinery completed an expansion project in early 1990 which
increased the processing capacity from 1,500 to 2,200 barrels a day.
The cost of the total refinery upgrade and expansion was approximately
$2.5 million. The Company advanced funds for some of these
expenditures and put them in the form of a note from the refinery.
This note, in the principal amount of $1,363,355 at March 31, 1995, is
secured by a second lien on the refinery assets, and was approved by
the Den norske Bank AS.
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<PAGE> 14
On March 31, 1995, the outstanding principal amount under the
Amended and Restated Credit Agreement with Den norske Bank AS was
$2,716,951. The entire balance under the Amended and Restated Credit
Agreement facility, including amounts drawn under the letter of credit
facility, is due on June 30, 1995. South Hampton has agreed to make
minimum quarterly principal payments of $200,000, and the Company has
committed to use its best efforts to obtain new equity financing of at
least $1,500,000 by June 30, 1995, to be remitted to the bank.
In July 1994, South Hampton established a hedging program to help
decrease the volatility of the price of fuel gas to the refinery.
South Hampton has purchased several commodity based derivative futures
contracts. Gains and losses related to these contracts are recognized
when the contracts expire and are reflected in the fuel gas costs in
the statement of operations. The natural gas market suffered severe
price declines in the last few months of 1994 and into 1995, and the
contracts held by South Hampton showed concurrent price declines. The
first month of these recognized losses was in October 1994, and there
was a total net recognized loss of $117,000 in 1994. The first three
months of 1995 reflected losses of $83,600. Management believes the
program is good and will achieve the expected stabilization of fuel
prices in the future.
In 1994, the Company (1) negotiated an extension until June 30, 1995
of the maturity of the Amended and Restated Credit Agreement with Den
norske Bank AS, (2) issued 14,000 shares of its Common Stock of $1.00
per share pursuant to an option exercised by the Company's Chairman of
the Board in exchange for the cancellation of certain indebtedness,
(3) consolidated two notes payable by the Company's President and
Chief Executive Officer, in the amounts of $99,000 and $27,000, which
matured on December 31, 1993 and January 31, 1994, respectively, into
one note for $126,000 having a December 31, 1995 maturity date and
bearing interest at the rate of six percent per annum, (4) received
$50,000 from a 1993 sale of its Common Stock to a private Saudi
company controlled by a director of the Company pursuant to a partial
option exercise and (5) offset $30,000 in unpaid compensation due to
the Company's Chairman of the Board against amounts owed to the
Company by four companies owned by the Chairman of the Board.
In the first quarter of 1995, the Company received an additional
$50,000 pursuant to the partial option exercise of the 1993 sale to a
private Saudi company. The balance of $100,000 is to be paid in equal
amounts of $50,000 in May and August 1995. Efforts are currently
being made for the sale of up to one million shares of Company stock,
which was authorized by the Board of Directors in July 1994. These
funds will be used to cover present and future cash requirements for
continued operations.
In February 1993, South Hampton entered into an agreement to lease to
a third party a building with a net book value at December 31, 1993 of
$341,868 which South Hampton did not use in its operations. The lease
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<PAGE> 15
provides for an option to the lessee to purchase the building after
three or five years. The lease is recorded as an operating lease and
the building cost is included in Other Assets. The leased building is
pledged as collateral for a note payable. Rental income to the
Company pursuant to this lease totalled $93,170 in 1994 and $25,410
for the three months ending March 31, 1995.
South Hampton Refining Company entered into a five-year lease
agreement beginning in October 1989 with Silsbee Trading and
Transportation Corp., a company owned by the President and Vice
President of TOCCO. Under the terms of the agreement, South Hampton
will lease vehicles and equipment for use in its operations for
$24,140 per month, including vehicle maintenance and other executory
costs. South Hampton incurred costs under the lease agreement of
approximately $341,000, $320,000,and $291,000 in 1994, 1993, and 1992,
respectively. The costs for the first three months of 1995 were
$72,420. At March 31, 1995, South Hampton owed $5,854 for unpaid
truck expenses. The agreement expired in September 1994 and is
currently continuing on a month to month basis.
In July 1991, a partnership in which Silsbee Trading and
Transportation Corp. and M. A. Bomer, the former owner of the
refinery, each owned a 50% interest, obtained a line of credit with a
bank in Silsbee, Texas to facilitate the purchase of feedstock by
South Hampton. Under this arrangement, feedstock was purchased by the
partnership and, at the expense of South Hampton transported and
stored until such time as the feedstock was needed by South Hampton in
its operations. South Hampton purchased the feedstock from the
partnership at a price equal to the cost of the feedstock to the
partnership plus two cents per gallon. South Hampton personnel
arranged all purchases, transportation and testing of the feedstock
and the partnership provided the financing for the feedstock
purchases. On June 1, 1992 the arrangement with the partnership was
terminated. On July 1, 1992, South Hampton entered into a new
agreement whereby Silsbee Trading will assist South Hampton in
maintaining its refinery throughput rate by providing feedstock
inventory for pipeline fill in its eight-inch pipeline. Silsbee
Trading will provide the feedstock inventory at a price to South
Hampton of one-half cent per gallon. The volume of feedstock to be
carried for this purpose is 453,600 gallons which is the capacity of
the pipeline. The agreement expired in December 31, 1993, and is
currently continuing on a month to month basis. The fees paid to
Silsbee Trading under the agreement were $21,525 in 1992, $88,974 in
1993, $103,212 in 1994, and $29,634 in the first three months of 1995.
At March 31, 1995, accrued unpaid salaries and termination benefits to
Company employees in Saudi Arabia, and to Hatem El- Khalidi, the
Company's President and Chief Executive Officer, were $645,724 and
$591,566, respectively. The payment of these amounts has been
deferred until the Company's working capital position improves.
A major component of the Company's activities relates to the
acquisition, exploration and development of mineral deposits. There
can be no assurance that the Company will successfully develop any of
its properties, and if
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<PAGE> 16
developed, whether the mineral acquisition, exploration and
development costs incurred will ultimately be recovered. The recovery
of such costs is dependent upon a number of future events, some of
which are beyond the control of the Company. The ability of the
Company to develop any of these properties is dependent upon obtaining
additional financing as may be required and, ultimately, its financial
success depends on its ability to attain successful operations from
one or more of its projects.
The Company management is currently devoting a significant amount of
its attention to addressing the Company's immediate and longer term
needs for the funds required to continue its business, and maintain
and develop its properties. Management believes that, with the
expected improved cash flows from expanded refinery operations,
adequate financing can be arranged.
-15-
<PAGE> 17
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
ITEM III - OTHER INFORMATION
Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ending March 31, 1995.
----------------------------------------
The information in this report is unaudited, but, in the opinion of Management,
all adjustments for a fair statement of the results for the interim period have
been made.
DATED: 5/10/95 SIGNATURES
ARABIAN SHIELD DEVELOPMENT COMPANY
/s/ J. A. CRICHTON
------------------------------------
J. A. Crichton, Chairman of the
Board of Directors
/s/ DREW WILSON
-------------------------------------
Drew Wilson, Secretary/Treasurer
-16-
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description Page
- - ----------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 704,379
<SECURITIES> 0
<RECEIVABLES> 1,950,731
<ALLOWANCES> 129,617
<INVENTORY> 632,458
<CURRENT-ASSETS> 3,157,951
<PP&E> 5,453,807
<DEPRECIATION> 2,275,464
<TOTAL-ASSETS> 40,767,397
<CURRENT-LIABILITIES> 17,990,784
<BONDS> 0
<COMMON> 2,002,849
0
0
<OTHER-SE> 19,641,410
<TOTAL-LIABILITY-AND-EQUITY> 40,767,397
<SALES> 4,461,593
<TOTAL-REVENUES> 4,547,571
<CGS> 3,724,470
<TOTAL-COSTS> 4,461,535
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,032
<INCOME-PRETAX> 66,379
<INCOME-TAX> 2,511
<INCOME-CONTINUING> 66,379
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,868
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
