<PAGE> 1
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 QUARTER ENDING MARCH 31, 1997
COMMISSION FILE NUMBER 0-6247
ARABIAN SHIELD DEVELOPMENT COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 75-1256622
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
10830 NORTH CENTRAL EXPRESSWAY, SUITE 175
DALLAS, TEXAS 75231
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (214) 692-7872
Former name, former address and former fiscal year, if
changed since last report.
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Number of shares of the Registrant's Common Stock (par value $0.10 per share),
outstanding at March 31, 1997: 20,656,494.
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<PAGE> 2
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31,1997 DECEMBER 31,
(UNAUDITED) 1996
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents in U.S. $ 223,953 $ 209,251
Short-term Investments 298,731 298,726
Accounts Receivable (Net) 2,788,437 2,643,691
Inventories 731,296 565,346
------------ ------------
Total Current Assets 4,042,417 3,717,014
CASH IN SAUDI ARABIA 302,257 176,039
REFINERY PLANT, PIPELINE & EQUIPMENT (AT COST)
Refinery Plant, Pipeline & Equip 5,782,401 5,758,852
Less: Accumulated Depreciation (3,010,448) (2,911,823)
------------ ------------
Net Equipment 2,771,953 2,847,029
AL MASANE PROJECT 33,037,559 32,882,838
OTHER INTERESTS IN SAUDI ARABIA 2,431,248 2,431,248
MINERAL PROPERTIES IN THE U.S. 1,385,358 1,418,615
GOODWILL 46,162 117,598
OTHER ASSETS 452,269 505,566
------------ ------------
TOTAL ASSETS $ 44,469,223 $ 44,095,947
============ ============
LIABILITIES
CURRENT LIABILITIES:
Accounts Payable $ 1,968,830 $ 1,408,677
Accrued Liabilities 492,943 520,445
Accrued Liabilities in Saudi Arabia 1,174,229 1,174,229
Notes Payable 11,375,780 11,375,780
Current Portion of Long-Term Debt 1,028,253 992,729
Current Portion of Long-Term
Obligations 151,351 150,904
------------ ------------
Total Current Liabilities 16,191,386 15,622,764
LONG-TERM DEBT 3,460,773 3,544,112
LONG-TERM OBLIGATIONS 29,178 35,009
ACCRUED LIABILITIES IN SAUDI ARABIA 729,519 714,143
DEFERRED REVENUE 125,809 129,685
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 984,259 1,003,590
STOCKHOLDERS' EQUITY
COMMON STOCK-authorized 40,000,000
shares of $.10 par value; 21,306,494
shares issued and outstanding 2,130,649 2,095,649
ADDITIONAL PAID-IN CAPITAL 35,247,700 34,932,700
RECEIVABLES FROM STOCKHOLDERS (126,000) (126,000)
ACCUMULATED DEFICIT (14,304,050) (13,855,705)
------------ ------------
Total Stockholders' Equity 22,948,299 23,046,644
------------ ------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 44,469,223 $ 44,095,947
============ ============
</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, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
REVENUES:
Refined Product Sales $ 5,892,422 $ 4,712,505
Processing Fees 108,142 197,142
-------------- --------------
6,000,564 4,909,647
OPERATING COSTS AND EXPENSES:
Cost of Refined Product
Sales and Processing 5,699,704 4,154,163
General and Administrative 543,978 482,187
Depreciation and Amortization 174,948 205,569
-------------- --------------
6,418,630 4,841,919
-------------- --------------
OPERATING INCOME (LOSS) (418,066) 67,728
OTHER INCOME (EXPENSE):
Interest Income 4,956 8,111
Interest Expense (107,099) (88,573)
Minority Interest 17,432 1,285
Miscellaneous Income 54,432 54,220
-------------- --------------
INCOME (LOSS) BEFORE
INCOME TAXES (448,345) 42,771
Income Tax Expense -- (1,689)
-------------- --------------
NET INCOME (LOSS) $ (448,345) $ 41,082
============== ==============
PER COMMON SHARE:
NET INCOME (LOSS) $ (.02) $ .01
============== ==============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 22,089,827 20,206,494
============== ==============
</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, 1997
- -------------------------------------------------------------------------------
<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, 1996 20,956,494 $ 2,095,649 $ 34,932,700 $ (126,000) $(13,855,705) $ 23,046,644
Common Stock and Common
Stock Subscriptions Sold 350,000 35,000 315,000 350,000
Net Income (Loss) (448,345) (448,345)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 31, 1997 21,306,494 $ 2,130,649 $ 35,247,700 $ (126,000) $(14,304,050) $ 22,948,299
============ ============ ============ ============ ============ ============
</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 31,1997 MARCH 31.1996
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss) $ (448,345) $ 41,082
Adjustments for Non-Cash Transactions:
Depreciation and Amortization 174,948 205,569
Recognition of Deferred Revenue (3,876) (3,876)
Effect of Changes in:
Decrease (Increase) in Accounts
Receivable (144,746) (554,897)
Decrease (Increase) in Inventories (165,950) (355,277)
Decrease (Increase) in Other Assets 53,297 50,469
(Decrease) Increase in Accounts
Payable and Accrued Liabilities 532,651 (392,450)
Other (24,218) (48,957)
-------------- --------------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES (26,239) (273,437)
-------------- --------------
INVESTING ACTIVITIES:
Additions to Short-Term Investments (5) --
Additions to Al Masane Project (154,721) (121,590)
Additions to Plant, Pipeline & Equipment (23,549) (4,035)
Reduction in mineral properties in U.S. 33,257 --
(Increase) Decrease in Cash in
Saudi Arabia (126,218) 179,706
Increase (Decrease) in Accrued
Liabilities in Saudi Arabia 15,376 13,400
-------------- --------------
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES (255,860) 57,481
-------------- --------------
FINANCING ACTIVITIES:
Common Stock Issued for Cash 350,000 --
Additions to Notes Payable &
Long-Term Obligations 50,000 --
Reductions of Notes Payable &
Long-Term Obligations (103,199) (50,044)
-------------- --------------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 296,801 (50,044)
-------------- --------------
NET INCREASE (DECREASE) IN CASH 14,702 (266,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 209,251 596,649
-------------- --------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 223,953 $ 330,649
============== ==============
</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. BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q. These financial statements have not been
examined by independent certified public accountants, but in the
opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of consolidated
results of operations, consolidated financial position and
consolidated cash flows at the dates and for the periods indicated,
have been included.
These financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. Operating results for the three month
period ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997.
For further information, refer to the Consolidated Financial
Statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996.
These 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
Refining Company owns all of the outstanding common stock of Texas
Oil and Chemical Company II, Inc. ("TOCCO"). South Hampton Refining
Company ("South Hampton") is a wholly-owned subsidiary of TOCCO, and
Gulf State Pipe Line Company, Inc. ("Gulf State") is a wholly-owned
subsidiary of South Hampton. The Company also has voting rights to
approximately 55%, and directly owns approximately 46%, of the
capital stock of an inactive Nevada mining company, Pioche-Ely Valley
Mines, Inc. ("Pioche"). At December 31, 1996, the Company concluded
that its voting control of Pioche was no longer temporary and
consolidated the accounts of Pioche in its financial statements for
1996. Previously, the investment in Pioche was accounted for on the
equity method.
2. GOING CONCERN
These financial statements have been prepared assuming the Company
will continue as a going concern. The Company's sources of cash flow
in 1996 and the first three months of 1997 were the operations of
South Hampton's refinery and the proceeds from stock sales to Saudi
Arabian investors. The Company is not currently generating cash flow
from any other activities. As the cash flow attributable to the
refinery is fully dedicated to repayment of debt and funding of
refinery operations, the cash flow attributable to the refinery
currently is not adequate to support the Company's operations. The
Company is liable to the Saudi Arabian government for an $11,000,000
loan. The Company does not currently have the financial resources to
pay this obligation.
Management plans to fund future operations through sales of its
common stock and borrowings. It is expected that the operations and
obligations of the Company will be eventually funded from operations
of the Al Masane mine. However, because of uncertainties with respect
to future sales of
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<PAGE> 7
common stock, obtaining suitable financing, and reaching an agreement
on the repayment of the loan to the Saudi Arabian government, there
is substantial doubt about the Company's ability to continue as a
going concern. These financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
3. LEGAL PROCEEDINGS
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 entered into a settlement agreement with one of the
plaintiffs on March 13, 1997, by agreeing to pay such plaintiff the
amount of $45,000 in full and final settlement of all claims by such
plaintiff against South Hampton. South Hampton intends to vigorously
defend against the remaining lawsuit.
On May 15, 1991, the Company filed a complaint with the U. S.
Department of Justice ("DOJ") against Hunt Oil Company of Dallas,
Texas ("Hunt"), alleging violations of the Foreign Corrupt Practices
Act ("FCPA") by Hunt in obtaining its Petroleum Production Sharing
Agreement ("PSA") in Yemen in 1981, subsequent to the Company
presenting a bid to the Yemen government for the same area before
Hunt made its application. On May 5, 1995, Company's attorneys in
Washington, D.C. informed the Company that, because the PSA of Hunt
is still ongoing, and under its auspices, payments and receipts occur
daily, the DOJ still has ample jurisdiction to continue its
investigation. A letter from the DOJ on December 19, 1995 stated its
interest in receiving additional documentation regarding the
Company's allegations. On February 28, 1996, the Company sent more
documents to the DOJ which it believed would further support its
allegations. The Company's attorneys in Washington, D.C. believe that
the Victim Restitution Act provides for restitution to the Company of
monies lost as a result of the alleged wrongdoing by Hunt, if Hunt is
convicted under the FCPA. On October 1, 1996, the DOJ wrote that the
documents presented did not suggest that any criminal events happened
within the statute of limitations, and that, at that time, the DOJ
did not intend to pursue its investigation. On November 18, 1996,
legal counsel retained by the Company, after studying the facts of
the case, sent the DOJ an analysis concluding that, while the statute
of limitations of FCPA may have lapsed, the statute of limitations
for conspiracy to violate the FCPA had not lapsed, and that, as a
consequence, the DOJ could criminally prosecute Hunt for conspiracy
to violate the FCPA. The legal counsel met with the Fraud Section of
the DOJ on December 13, 1996 and was told that the DOJ would take a
more aggressive stance if more information of evidentiary quality
were presented to them. The Company intends to vigorously pursue
obtaining such further information in the United States and in Yemen.
Late in 1994, articles were published in two prominent Yemen
newspapers in which Yemen Hunt Oil Company, a wholly-owned subsidiary
of Hunt Oil Company of Dallas, Texas ("Yemen Hunt"), was accused of
obtaining a petroleum production sharing agreement in Yemen in 1981
through the
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<PAGE> 8
corruption of Yemen officials in order to exclude the application of
the Company and it then partner, Dorchester Gas Company, from
consideration for the same area. A letter to the editor of one of
these newspapers, published on December 7, 1994 and signed by the
executive vice president of Yemen Hunt, after explicitly mentioning
the Company and Dorchester Gas Company, stated that "(Yemen Hunt)
knows well those suspicious companies who are mainly engaged in
political activities for the purpose of undermining the economic
interest of Yemen..." On December 26, 1995, the Company filed a
complaint of criminal libel with the Yemen Attorney General for
Publications in Sana'a, Yemen against Yemen Hunt, alleging that Yemen
Hunt, in its published letter to the prominent Yemen newspaper, had
criminally libeled the Company, which, if not addressed, could
seriously affect the business and reputation of the Company and its
employees in the Middle East. In October 1996, the Company received
the official decision from the Deputy Attorney General for
Publications of Yemen which stated that, after taking the statement
of the President of the Company and the statement of the chief of the
legal department of Yemen Hunt, it was evident that the letter from
Yemen Hunt published in the Yemen newspaper on December 7, 1994 was
libelous to the Company. However, since the four month statute of
limitations period under Yemen criminal law had run, Yemen Hunt could
not be prosecuted for criminal libel. The Company intends to
vigorously pursue the matter under the civil libel laws of Yemen.
4. INVENTORIES
Inventories include the following:
<TABLE>
<CAPTION>
MARCH 31, 1997 DEC. 31, 1996
-------------- --------------
<S> <C> <C>
Refinery feedstock $ 77,289 $ --
Refined products 459,058 565,346
-------------- --------------
Total inventories $ 536,347 $ 565,346
============== ==============
</TABLE>
Refined products and feedstock are recorded at the lower of cost,
determined on the last-in, first-out method (LIFO), or market. At
March 31, 1997 and December 31, 1996, current cost exceeded LIFO
value by approximately $45,000 and $163,000, respectively.
5. NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share", which
is effective for financial statements issued after December 15, 1997.
Early adoption of the new standard is not permitted. The new standard
eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts were computed. The adoption
of this new standard is not expected to have a material impact on the
disclosure of earnings per share in the financial statements.
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<PAGE> 9
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company had a net loss of $448,345 for the three months ending
March 31, 1997, compared to net income of $41,082 for the same period
in 1996, resulting in a net income decrease of $489,427 in 1997 over
the comparable period in 1996.
For the first three months ending March 31, 1997 and 1996, the
refinery had an operating loss of $212,704 and operating income of
$160,777, respectively and a net loss of $287,877 and net income of
$143,189, respectively, a net income decrease in 1997 of $431,066
compared to the same prior year period. The refinery had negative
cash flow of $183,077 for the first quarter of 1997 which was in
contrast to the positive comparable figure of $279,156 in 1996. Sales
volume was higher in 1997 by 22% to 6,157,342 total gallons and the
average selling price per gallon was higher than that for the first
quarter of 1996 by $.12 per gallon. Feedstock prices, however, were
higher by almost $.17 per gallon average than the prices for the same
period in 1996. Sales for the first quarter in 1997 were actually at
record levels from a volume standpoint for the premium pentane
products. The rapidly rising feed costs for the last two months of
the fourth quarter 1996 and the first two months of the first quarter
of 1997, however, prevented the refinery from taking advantage of the
increased market demand. Pricing commitments and competitive
pressures prevent raising product prices instantly as feed prices go
up, therefore the gross margin is always squeezed for a time during
periods of rapidly rising prices. The reverse is true in times of
falling prices. Feedstock prices began falling in late February and
continued through April, so the second quarter should see much
improved results.
Expenses at the refinery for the first quarter in 1997 were higher
than a year ago. In addition to rapid feedstock cost rises, the price
of natural gas used to fuel the refinery processes rose rapidly for
the same four month period. Natural gas prices rose to a peak of
$3.85 per MMBTU for the month of January 1997 before starting to fall
off in February. This was the primary reason for operating expenses
increasing by over $250,000 for the quarter, a 16% increase. Refinery
administrative expenses were flat compared to prior periods. Interest
and bank fees were up by 54% due to restructuring the debt in the
fourth quarter of 1996.
Processing fees of $108,142 reflected a 45% decrease in the first
quarter of 1997. One unit used for toll processing remains idle at
this time and another is running at the contract minimum. The fees
should improve when a new customer is found for the idle unit. The
refinery has found that in this period of "right-sizing", which many
of the major oil and chemical companies are experiencing, there are
many opportunities for a smaller company to provide processing
services on streams which the larger companies no longer want to
handle themselves.
The outlook for the industry is good from the perspective of
increased opportunities for toll processing. The refinery is
currently operating processes for three different entities and, while
the contracts are being renewed on a year-to-year basis, the outlook
on all the contracts is that they will be longer term operations.
Sales of the refinery's prime
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<PAGE> 10
products remain stable and expanded marketing efforts have kept the
plant at capacity through the winter and early spring months which
are historically the weakest.
General and Administrative Expenses for the first three months in
1997 were $63,867 higher than for the same period in 1996, a slight
increase of 13%. Interest Expense in 1997 and 1996 was practically
all attributable to the debt of the refinery and increased by $18,829
due to a larger amount of interest-bearing debt in 1997, which was a
result of a major debt restructuring in October 1996 when accrued
interest was rolled over into principal and the new interest rates
were higher.
In 1996, the Company concluded that its voting control of Pioche was
no longer temporary and, therefore, the accounts of Pioche have been
consolidated into the Company's financial statements. The Minority
Interest in 1997 and 1996 of $17,432 and $1,285, respectively,
represents the Pioche minority shareholders portion of Pioche's 1997
and 1996 losses. There has been no activity in several years on the
Pioche properties primarily due to the lack of financing for claims
to be explored and developed. The losses in Pioche are attributable
to the costs of maintaining the Nevada mining properties. A charge
for Amortization of Goodwill of $69,285 per quarter during the same
periods in 1997 and 1996 relates to the goodwill recognized on the
purchase of the refinery in 1987. Interest Income in both periods was
primarily from a short-term investment by the refinery and from the
investment of temporary excess cash in time deposits in Saudi Arabia.
Miscellaneous Income in both periods primarily includes income from
tank rentals, building rentals, commission income and occasional
small asset sale proceeds at the refinery.
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.
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 also plans to start
an intensive exploration program to increase the reserves at the mine
site and elsewhere in the lease area. In addition, the Company is
engaged in the establishment of a petrochemical plant in Saudi Arabia
similar to the one at the refinery. The products to be manufactured
would be solvents for the plastics industry which are anticipated to
be sold in the Middle East, Europe and the Far East. An application
for an industrial license is currently being prepared for the plant.
The principal assets of Pioche are an undivided interest in 48
patented and 81 unpatented mining claims and a 300 ton-per-day mill
located in southeastern Nevada. Due to lack of capital, the
properties held by Pioche have not been commercially operated for
approximately 35 years. In late 1996, Pioche was extended a proposal
from a prominent mining company for the lease of its mining claims.
This proposal is currently being negotiated.
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<PAGE> 11
During 1996 and the first quarter of 1997, the Company took certain
actions designed to generate additional equity capital and improve
its financial condition, including: (1) the completion at October 15,
1996 of negotiations by South Hampton of a restructuring of its debt
to Dennorske Bank to provide for a revolving credit facility in an
aggregate principal amount of up to $1,965,000; (2)the restructuring
at October 15, 1996 of the indebtedness of South Hampton to Saudi Fal
Co., Ltd., a Saudi Arabian limited liability company owned by a
stockholder of the Company, and to American Shield Refining Company,
whereby accrued interest to October 15, 1996 was added to principal,
resulting in new promissory notes in the principal amounts of
$1,945,773 and $1,694,605, respectively, which promissory notes are
subordinated to the Den norske note; (3)approval by the Company's
Board of Directors in June 1996 of the sale of up to 1 million shares
of common stock through private placements at a price no less than
$1.00 per share; (4)the sale of 450,000 shares of common stock at
$1.00 per share to a Saudi Arabian investor who is a stockholder of
the Company and approval of the sale of an additional 450,000 shares
of common stock at $1.00 per share to the same investor, the purchase
price for such additional shares being payable in monthly
installments of $100,000, of which $300,000 had been received by
March 31, 1997; and (5) approval of the sale of 50,000 shares of
common stock at $1.00 per share to a Saudi Arabian investor which was
received in January 1997.
On March 31, 1997, the outstanding principal amount under the new
Amended and Restated Credit Agreement with Den norske was $1,815,000,
with $1,515,000 classified as long-term debt. The entire balance
under the Amended and Restated Credit Agreement is now due on
December 31, 1998. Prior to the restructuring of this debt at October
15, 1996, the Agreement had been extended on a month-to-month basis
pending the final approval of new terms. South Hampton has now agreed
to make minimum quarterly principal payments of $75,000 plus interest
at the Den norske prime rate plus 1%, and under certain conditions,
can make distributions to Saudi Fal and the Company. The debt is
secured by all of the assets of the refinery and all of the issued
and outstanding shares of the Company's three subsidiaries there.
On October 15, 1996, there was also a restructuring of the loan of
$1,500,000 owed by South Hampton to Saudi Fal, pursuant to Board of
Director approval in October 1995. The loan, plus accrued interest,
was converted into a Second Lien Promissory Note in the principal
amount of $1,945,773 bearing interest at the Den norske prime rate
plus 1%. Interest only is due and payable monthly on the note and the
entire unpaid balance of principal and any accrued interest is due on
December 31, 1998. The principal amount at March 31, 1997 remained at
$1,945,773. The note is secured by all of the assets of the refinery
and is subordinate to the Den norske note.
The Company, through its subsidiary American Shield Refining Company,
advanced funds in 1990 for some of the costs to increase the
processing capacity of the refinery. These advances were in the form
of a note from the refinery. This note was also restructured at
October 15, 1996, whereby accrued interest of $361,250 was added to
principal with the note bearing interest at the Den norske prime rate
plus 1%. This resulted in a new principal amount of $1,694,605 at
that time, which remained the same at March 31, 1997. The note is
secured by all of the assets of the refinery and is subordinate to
the promissory note issued to Saudi Fal.
On September 3, 1995, the Company made a formal application to the
Saudi Industrial Development Fund ("SIDF") to obtain 50% of the
capital needed to
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<PAGE> 12
finance the development of the Al Masane project. Before the loan
could be approved, the Company had to obtain an industrial license
for the project. This license was applied for on February 10, 1996
and was issued on December 23, 1996. The industrial license and the
1996 update to the Watts Griffis feasibility study were presented to
the SIDF on December 23, 1996. A presentation by Watts Griffis of
additional information requested by the SIDF will be made in late May
1997. Negotiations are underway toward the approval of the loan.
At March 31, 1997, a total of approximately $1,506,000 in salaries
and termination benefits accrued since 1971 was due to Company
employees in Saudi Arabia in accordance with Saudi Arabian employment
laws. This amount includes approximately $730,000 due to Hatem
El-Khalidi, the Company's President and Chief Executive Officer. The
payment of these amounts has been deferred until the Company's
working capital position improves. Also, the Company has not made all
of the surface rental payments due to the Saudi Arabian government
under the terms of the Al Masane Project lease. The past due amount
of these rental payments at March 31, 1997 was approximately
$309,000. The payments are being deferred to be paid by the Saudi
Arabian limited liability company after it is formed. In addition,
the Company has not complied with certain statutory reporting
requirements in Saudi Arabia. Management of the Company believes that
the lack of compliance with these license requirements will not have
any effect on the Company's operations in Saudi Arabia.
The annual meeting of the stockholders of the Company was held on May
5, 1997 for the purpose of electing six directors to serve until the
next annual meeting. Directors elected at the meeting were Messrs.
John A. Crichton, Hatem El-Khalidi, Harb S. Al Zuhair, Mohammed O.
Al-Omair and Ghazi Sultan. Mr. Oliver W. Hammonds received only 48.7%
of the shares voted and was not elected. The total number of shares
voted by proxy and in person represented approximately 51% of the
total shares owned and outstanding as of the record date of March 17,
1997.
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 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. Company
management is 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.
-11-
<PAGE> 13
ARABIAN SHIELD DEVELOPMENT COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
None
----------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: May 12, 1997 ARABIAN SHIELD DEVELOPMENT COMPANY
-------------- ----------------------------------------
(Registrant)
/s/ J. A. CRICHTON
----------------------------------------
J. A. Crichton, Chairman of the
Board of Directors
/s/ DREW WILSON, JR.
----------------------------------------
Drew Wilson, Jr. Secretary/Treasurer
-12-
<PAGE> 14
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 223,953
<SECURITIES> 298,731
<RECEIVABLES> 2,788,437
<ALLOWANCES> 0
<INVENTORY> 731,296
<CURRENT-ASSETS> 4,042,417
<PP&E> 5,782,401
<DEPRECIATION> 3,010,448
<TOTAL-ASSETS> 44,469,223
<CURRENT-LIABILITIES> 16,191,386
<BONDS> 0
0
0
<COMMON> 2,130,649
<OTHER-SE> 20,817,650
<TOTAL-LIABILITY-AND-EQUITY> 44,469,223
<SALES> 5,892,422
<TOTAL-REVENUES> 6,000,564
<CGS> 5,699,704
<TOTAL-COSTS> 6,418,630
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,099
<INCOME-PRETAX> (448,345)
<INCOME-TAX> 0
<INCOME-CONTINUING> (448,345)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (448,345)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
