##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 (MARK ONE)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For The Fiscal Year Ended December 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For The Transition Period from  to
 Commission File Number 0-6247
 
 ARABIAN AMERICAN DEVELOPMENT COMPANY
 (Exact name of registrant as specified in its charter)
 Delaware
    
    75-1256622(State or other jurisdiction of incorporation or
    
    (I.R.S. Employerorganization)
    
    Identification No.)10830 North Central Expressway Suite 175Dallas, Texas
    
    75231(Address of principal executive offices)
    
    (Zip Code)
 (214) 692-7872
 None
  (Title Of Class)  Common Stock, par value $0.10 per share
 o þ
 o þ
 
 þ o
 þ
  o o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



TABLE OF CONTENTS
 Item Number and Description
 PART IITEM 1. BUSINESS
    
    
    1General
    
    
    1International Operations
    
    
    2Competition
    
    
    5Environmental Matters
    
    
    7Personnel
    
    
    8Available Information
    
    
    10ITEM 2. PROPERTIES
    
    
    11United States Specialty Products Facility
    
    
    11Mexico Specialty Products Facility
    
    
    12Saudi Arabia Mining Properties
    
    
    12United States Mineral Interests
    
    
    18Offices
    
    
    19ITEM 3. LEGAL PROCEEDINGS
    
    
    21ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    22PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    23ITEM 6. SELECTED FINANCIAL DATA
    
    
    24ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    24General
    
    
    24Liquidity and Capital Resources
    
    
    24Results of Operations
    
    
    27Critical Accounting Policies
    
    
    32ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    33ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    34ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    34ITEM 9A. CONTROLS AND PROCEDURES
    
    
    34ITEM 9B. OTHER INFORMATION
    
    
    35PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    36ITEM 11. EXECUTIVE COMPENSATION
    
    
    37ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    40ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS INDEPENDENCE
    
    
    42ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    43PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    44




---



##### 



PART I
 ITEM 1. Business .
 General
  United States Activities . See Item 2. Properties
 Saudi Arabian Activities
  Mexico Activities
 Item 2. Properties
 Note 15 to the Consolidated Financial Statements Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations
 1




---



##### 



International Operations
  Economic and Political Instability; Terrorist Acts; War and Other Political Unrest
   2




---



##### 




    
    ongoing instability or changes in a countrys or regions economic or political
conditions, including inflation, recession, interest rate fluctuations and actual or
anticipated military or political conflicts;
    
    longer accounts receivable cycles and financial instability among customers;
    
    trade regulations and procedures and actions affecting production, pricing and
marketing of products;
    
    local labor conditions and regulations;
    
    geographically dispersed workforce;
    
    changes in the regulatory or legal environment;
    
    differing technology standards or customer requirements;
    
    import, export or other business licensing requirements or requirements
relating to making foreign direct investments, which could affect our ability to obtain
favorable terms for labor and raw materials or lead to penalties or restrictions;
    
    difficulties associated with repatriating cash generated or held abroad in a
tax-efficient manner and changes in tax laws; and
    
    fluctuations in freight costs and disruptions in the transportation and
shipping infrastructure at important geographic points of exit and entry for our
products and shipments.
  3




---



##### 



Termination of Mining Lease; Expropriation or Nationalization of Assets Item 2. Properties
 Compliance with Foreign Laws
 Mining Management Risks
    4




---



##### 



Other Difficulties and Risks Associated with International Operations
 Competition
  5




---



##### 



6




---



##### 



Environmental Matters
    7




---



##### 



Item 3. Legal Proceedings
 Item 2. Properties
 Personnel
    
    
    speculation in the press or investment community about, or actual changes in,
our executive team, strategic position, business, organizational structure, operations,
financial condition, financial reporting and results, effectiveness of cost cutting
efforts, prospects or extraordinary transactions;
    
    announcement of new products, services, technological innovations or
acquisitions by the Company or competitors; and
 8




---



##### 




    
    quarterly increases or decreases in revenue, gross margin or earnings, changes
in estimates by the investment community or guidance provided by the Company, and
variations between actual and estimated financial results.
   
    
    combining product offerings and entering into new markets in which the Company
is not experienced;
    
    convincing customers and distributors that the transaction will not diminish
client service standards or business focus, preventing customers and distributors from
deferring purchasing decisions or switching to other suppliers (which could result in
our incurring additional obligations in order to address customer uncertainty), and
coordinating sales, marketing and distribution efforts;
    
    minimizing the diversion of management attention from ongoing business
concerns;
    
    persuading employees that business cultures are compatible, maintaining
employee morale and retaining key employees, engaging with employee works councils
representing an acquired companys non-U.S. employees, integrating employees into the
Company, correctly estimating employee benefit costs and implementing restructuring
programs;
 9




---



##### 




    
    coordinating and combining administrative, manufacturing, and other operations,
subsidiaries, facilities and relationships with third parties in accordance with local
laws and other obligations while maintaining adequate standards, controls and
procedures;
    
    achieving savings from supply chain integration; and
    
    managing integration issues shortly after or pending the completion of other
independent transactions.
  Available Information
  10




---



##### 



ITEM 2. Properties .
 United States Specialty Products Facility
 ®
 ®
 ® ®
  11




---



##### 



Mexico Specialty Products Facility, Coatzacoalcos, Mexico
 Note 20 to the Consolidated Financial Statements
 Saudi Arabia Mining Properties
 Al Masane Project
 Location, Access and Transportation
 12




---



##### 



Conditions to Retain Title.
 History of Previous Operations
 13




---



##### 



1 bankable
 Description of Current Property Condition 2
  
 1
    
    Gossan means the rust colored
oxidized, capping or staining of a mineral deposit, generally formed by the
oxidation or alteration of iron sulphides.2
    
    Dore means unrefined gold and
silver bullion bars consisting of approximately 90% precious metals which will
be further refined to almost pure metal. 14




---



##### 



Average Price
    
    Spot Price as of
    
    Increase/for 2004-2006
    
    December 31, 2006
    
    (Decrease)Gold
    
    $
    491.60/oz.
    
    
    $
    632.00/oz.
    
    
    $
    140.40/oz.Silver
    
    $
    9.03/oz.
    
    
    $
    12.90/oz.
    
    
    $
    3.87/oz.Copper
    
    $
    1.98/lb.
    
    
    $
    2.81/lb.
    
    
    $
    0.83/lb.Zinc
    
    $
    0.85/lb.
    
    
    $
    1.93/lb.
    
    
    $
    1.08/lb.
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  15




---



##### 



Rock Formations and Mineralization
 16




---



##### 



MineralizedMaterials
    
    Copper
    
    Zinc
    
    Gold
    
    SilverZone
    
    (Tonnes)
    
    (%)
    
    (%)
    
    (g/t)
    
    (g/t)Saadah
    
    
    3,872,400
    
    
    
    1.67
    
    
    
    4.73
    
    
    
    1.00
    
    
    
    28.36Al Houra
    
    
    2,465,230
    
    
    
    1.22
    
    
    
    4.95
    
    
    
    1.46
    
    
    
    50.06Moyeath
    
    
    874,370
    
    
    
    0.88
    
    
    
    8.92
    
    
    
    1.29
    
    
    
    64.85Total
    
    
    7,212,000
    
    
    
    1.42
    
    
    
    5.31
    
    
    
    1.19
    
    
    
    40.20
    Other Exploration Areas in Saudi Arabia
 During the course of its exploration and development work in the Al Masane area, the Company has
carried on exploration work in other areas in Saudi Arabia.
 Wadi Qatan and Jebel Harr
 17




---



##### 



Greater Al Masane
    United States Mineral Interests
  Nevada Mining Properties
 18




---



##### 



Offices
  19




---



##### 



20




---



##### 



ITEM 3. Legal Proceedings.
      21




---



##### 



Note 20 to the Consolidated Financial
Statements.
 ITEM 4. Submission Of Matters To A Vote Of Security Holders .
  22




---



##### 



PART II
 ITEM 5. Market For Registrants Common Equity And Related Shareholder Matters .
  Pink Sheets/OTC Bulletin BoardHigh
    
    LowFiscal Year Ended December 31, 2006First Quarter ended March 31, 2006
    
    $
    1.70
    
    
    $
    1.51Second Quarter ended June 30, 2006
    
    $
    1.54
    
    
    $
    1.38Third Quarter ended September 30, 2006
    
    $
    2.58
    
    
    $
    2.27Fourth Quarter ended December 31, 2006
    
    $
    3.05
    
    
    $
    2.94Fiscal Year Ended December 31, 2005First Quarter ended March 31, 2005
    
    $
    0.35
    
    
    $
    0.23Second Quarter ended June 30, 2005
    
    $
    0.45
    
    
    $
    0.37Third Quarter ended September 30, 2005
    
    $
    0.70
    
    
    $
    0.55Fourth Quarter ended December 31, 2005
    
    $
    1.11
    
    
    $
    0.94
 See Note 9
to the Consolidated Financial Statements
 See
Note 13 to the Consolidated Financial Statements
 23




---



##### 



ITEM 6. Selected Financial Data.
  2006
    
    2005
    
    2004
    
    2003
    
    2002Revenues
    
    $
    98,502
    
    
    $
    82,416
    
    
    $
    59,793
    
    
    $
    39,625
    
    
    $
    36,753Net Income (Loss)
    
    $
    7,875
    
    
    $
    16,636
    
    
    $
    (2,551
    )
    
    $
    (3,505
    )
    
    $
    692Net Income (Loss) Per
Share-Diluted
    
    $
    0.34
    
    
    $
    0.73
    
    
    $
    (.11
    )
    
    $
    (.15
    )
    
    $
    .03Total Assets (at December 31)
    
    $
    71,050
    
    
    $
    66,948
    
    
    $
    51,048
    
    
    $
    52,672
    
    
    $
    55,621Notes Payable (at December 31)
    
    $
    11,013
    
    
    $
    11,026
    
    
    $
    11,744
    
    
    $
    11,744
    
    
    $
    11,744Current Portion of Long-Term
Debt (at December 31)
    
    $
    489
    
    
    $
    1,426
    
    
    $
    3,071
    
    
    $
    3,170
    
    
    $
    7,127Total Long-Term Obligations
(at December 31)
    
    $
    5,108
    
    
    $
    9,839
    
    
    $
    4,916
    
    
    $
    
    
    
    $
    
 ITEM 7 . Managements Discussion And Analysis Of Financial Condition And Results Of Operations .
 General
  Liquidity and Capital Resources
  24




---



##### 



SPECIALTY PETROCHEMICALS SEGMENT
   Note 9 to the
Consolidated Financial Statements.
   25




---



##### 



MINING SEGMENT. Item 2. Properties
     26




---



##### 



Payments due by periodLess than
    
    
    
    
    
    3-5
    
    More thanContractual Obligations
    
    Total
    
    1 year
    
    1-3 years
    
    years
    
    5 yearsLong-Term Debt Obligations
    
    
    5,519,382
    
    
    
    460,656
    
    
    
    5,058,726
    
    
    
    
    
    
    
    Capital Lease Obligations
    
    
    77,755
    
    
    
    28,172
    
    
    
    49,583
    
    
    
    
    
    
    
    Operating Lease Obligations
    
    
    3,242,100
    
    
    
    741,300
    
    
    
    858,600
    
    
    
    234,600
    
    
    
    1,407,600Purchase Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Long-Term
Liabilities Reflected on
the Companys Balance
Sheet under GAAP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    8,839,237
    
    
    
    1,230,128
    
    
    
    5,966,909
    
    
    
    234,600
    
    
    
    1,407,600
 Results of Operations
 Comparison of the Years 2006, 2005, 2004
 Specialty Petrochemicals Segment
     27




---



##### 



2006
    
    
    2005
    
    
    2004TOCCOProduct Sales
    
    $
    93,855
    
    
    $
    76,268
    
    
    $
    52,428Toll Processing
    
    $
    4,647
    
    
    $
    4,105
    
    
    $
    3,775Gross Revenue
    
    $
    98,502
    
    
    $
    80,373
    
    
    $
    56,203Volume of sales (thousand gallons)
    
    
    38,073
    
    
    
    34,826
    
    
    
    32,685COINGross Revenue
    
    
    -0-
    
    
    $
    2,043
    
    
    $
    3,590TOCCOCost of Materials
    
    $
    60,131
    
    
    $
    45,638
    
    
    $
    35,171Total Operating Expense
    
    $
    19,758
    
    
    $
    17,989
    
    
    $
    14,513Natural Gas Expense
    
    $
    5,707
    
    
    $
    4,743
    
    
    $
    4,472General & Administrative Expense
    
    $
    4,600
    
    
    $
    4,281
    
    
    $
    3,231COINCost of Materials
    
    
    -0-
    
    
    $
    503
    
    
    $
    1,250Total Operating Expense
    
    
    -0-
    
    
    $
    654
    
    
    $
    1,532Natural Gas Expense
    
    
    -0-
    
    
    $
    294
    
    
    $
    482General & Administrative Expense
    
    
    -0-
    
    
    $
    388
    
    
    $
    412Capital Expenditures
    
    $
    3,734
    
    
    $
    3,491
    
    
    $
    2,091
  28




---



##### 



Note 19 to the Consolidated Financial Statements
   Mining Segment and General Corporate Expenses.
 2006
    
    

2005
    
    

2004General corporate expenses
    
    $
    1,242
    
    
    $
    187
    
    
    $
    614
   New Accounting Standards
 ,
 29




---



##### 



30




---



##### 



31




---



##### 



Critical Accounting Policies
 Long-lived Assets
 See Item 2. Properties
    Environmental Liabilities
 Item 1. Business Item 3. Legal Proceedings
 32




---



##### 



ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.
      33




---



##### 



ITEM 8. Consolidated Financial Statements and Supplementary Data.
  ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
  ITEM 9A. Controls and Procedures.
  Material Weaknesses in Internal Control
    34




---



##### 



ITEM 9B. Other Information.
  35




---



##### 



PART III
 ITEM 10. Directors and Executive Officers of the Registrant .
  Name; Business Experience; Other Directorships
    
    Age
    
    Date of ElectionJohn A. Crichton
    
    90
    
    May 1967Chairman of the Board of the Company since 1967; Chief
Executive Officer of the Company from 1967 to February
1994Hatem El-Khalidi
    
    82
    
    April 1968President of the Company since 1975; prior to 1975 Vice
President of the Company; Chief Executive Officer of
the Company since February 1994Nicholas N. Carter
    
    60
    
    August 2004President of the Petrochemical Company since 1987;
Controller/Treasurer of the Petrochemical Company prior to
1987; Certified Public AccountantRobert E. Kennedy
    
    63
    
    January 2007President, Robert E. Kennedy and Associates, retired
as General Manager for Supply, Logistics, and
Procurement from Chevron Chemical in 2000Ghazi Sultan
    
    69
    
    September 1993Chairman, Sultan Group of Companies, Jeddah, Saudi
Arabia since 1987 (investments and marble mining);
Director General, Safwah Company, Jeddah, Saudi Arabia
since 1987 (investments); Deputy Minister of Petroleum
and Mineral Resources of the Kingdom of Saudi Arabia
1966-1987
   36




---



##### 



Name
    
    Positions
    
    AgeJohn A. Crichton
    
    Chairman of the Board and Director
    
    90Hatem El-Khalidi
    
    President, Chief Executive Officer and Director
    
    82Nicholas N. Carter
    
    Secretary and Treasurer/President - TOCCO
    
    60
   Section 16(a) Beneficial Ownership Reporting Compliance
  ITEM 11. Executive Compensation .
 Compensation Committee Report
   Compensation Discussion and Analysis
 General
  37




---



##### 



Compensation Components
  Base Salary
  Incentive Compensation
  Stock Option Plan
  Other Compensation
  Termination of Employment Payments
  Tax Considerations
  38




---



##### 



Summary of Executive Compensation
  SUMMARY COMPENSATION TABLE
 Change inPension ValueandRestricted
    
    Securities
    
    Non-Equity
    
    NonqualifiedStock
    
    Underlying
    
    Incentive
    
    Deferred
    
    All OtherName and
    
    
    
    
    
    Salary
    
    Bonus
    
    Award(s)
    
    Options/
    
    Plan
    
    Compensation
    
    CompensationPrincipal Position
    
    Year
    
    ($) (1)
    
    ($)
    
    ($)
    
    SARs (#)
    
    Compensation($)
    
    Earnings($)
    
    ($) (2)
    
    Total ($)Hatem El-Khalidi,
    
    
    2006
    
    
    $
    72,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,000
    
    
    $
    80,000President and Chief
    
    
    2005
    
    
    $
    72,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,000
    
    
    $
    80,000Executive Officer, Director
    
    
    2004
    
    
    $
    72,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,000
    
    
    $
    80,000Nicholas N. Carter,
    
    
    2006
    
    
    $
    163,044
    
    
    $
    97,994
    
    
    
    30,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    291,038Secretary and Treasurer
    
    
    2005
    
    
    $
    155,748
    
    
    $
    45,705
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    201,453President, Petrochemical
Company
    
    
    2004
    
    
    $
    139,629
    
    
    $
    10,680
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    150,309
 
 (1)
    
    Includes $0, $11,957 and $28,591 in compensation for the fiscal years ended December 31,
2006, 2005 and 2004, respectively, that was deferred at the election of Mr. El-Khalidi. All
present deferred compensation owing to Mr. El-Khalidi aggregating $301,282 is considered, and
future deferred compensation owing to Mr. El-Khalidi, if any, will be considered payable to
Mr. El-Khalidi on demand.(2)
    
    Includes $8,000 in termination benefits for each of the fiscal years ended December 31, 2006,
2005 and 2004, respectively, that was accrued for Mr. El-Khalidi in accordance with Saudi
Arabian employment laws. The total amount of accrued termination benefits due to Mr.
El-Khalidi as of December 31, 2006 was $300,000. Employment Agreements
  Director Compensation
  Compensation Committee Interlocks and Insider Participation
  39




---



##### 



AGGREGATED OPTION/SAR EXERCISES IN
 LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS/SAR VALUES
  Number of Securities
    
    Value of UnexercisedUnderlying Unexercised
    
    In-The-MoneyShares
    
    
    
    
    
    Options/SARs at
    
    Options/SARs atAcquired on
    
    Value
    
    FY-End(#)
    
    FY-End ($)(1)Name
    
    Exercise (#)
    
    Realized($)
    
    Exercisable/Unexercisable
    
    Exercisable/UnexercisableHatem El-Khalidi
    
    
    0
    
    
    
    0
    
    
    
    400,000/0
    
    
    $
    1,226,378/0Ghazi Sultan
    
    
    0
    
    
    
    0
    
    
    
    100,000/0
    
    
    $
    242,634/0
 
 (1)
    
    Based on the closing price of $3.156 of the Companys Common Stock on the OTC
Bulletin Board on December 31, 2006. ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
  40




---



##### 



SharesName
and Address
    
    Beneficially
    
    PercentOf
Beneficial Owner
    
    Owned (1)
    
    of ClassFahad Mohammed Saleh Al-Athel
    
    
    3,612,268
    
    
    
    15.8
    %c/o Saudi Fal
P. O. Box 4900
Riyadh, Saudi Arabia 11412Mohammad Salem ben Mahfouz
    
    
    1,500,000
    
    
    
    6.6
    %c/o National Commercial Bank
Jeddah, Saudi ArabiaHarb S. Al Zuhair
    
    
    1,423,750
    
    
    
    6.2
    %P.O. Box 3750
Riyadh, Saudi ArabiaPrince Talal Bin Abdul Aziz
    
    
    1,272,680
    
    
    
    5.6
    %P. O. Box 930
Riyadh, Saudi ArabiaHatem El-Khalidi
    
    
    474,000
    (2)
    
    
    2.0
    %10830 North Central Expressway, Suite 175
Dallas, Texas 75231John A. Crichton
    
    
    1,650
    
    
    
    *10830 North Central Expressway, Suite 175
Dallas, Texas 75231Ghazi Sultan
    
    
    225,000
    (3)
    
    
    1.0
    %P.O. Box 5360
Jeddah, Saudi Arabia 21422Nicholas N. Carter
    
    
    67,500
    
    
    
    *P.O. Box 1636
Silsbee, Texas 77656All directors and executive officers as a group (6 persons)
    
    
    768,150
    (4)
    
    
    3.3
    %
 
 (1)
    
    Unless otherwise indicated, to the knowledge of the Company, all shares are owned directly
and the owner has sole voting and investment power.(2)
    
    Includes 400,000 shares which Mr. El-Khalidi has the right to acquire through the exercise of
presently exercisable stock options. Excludes 385,000 shares owned by Ingrid El-Khalidi, Mr.
El-Khalidis wife, and 443,000 shares owned by relatives of Hatem El-Khalidi.(3)
    
    Includes 100,000 shares which Mr. Sultan has the reight to acquire through the exercise of
presently exercisable stock options.(4)
    
    Includes 500,000 shares which certain directors and executive officers have the right to
acquire through the exercise of stock options or other rights exercisable presently or within
60 days. Excludes 385,000 shares owned by Ingrid El-Khalidi, the wife of Hatem El-Khalidi, the
President, Chief Executive Officer and a director of the Company, and 443,000 shares owned by
relatives of Hatem El-Khalidi. 41




---



##### 



ITEM 13. Certain Relationships And Related Transactions .
    42




---



##### 



ITEM 14. Principal Accountant Fees and Services.
  2006
    
    2005Audit Fees
    
    $
    192,176
    
    
    $
    126,118Audit-Related Fees
    
    $
    0
    
    
    $
    0Tax Fees
    
    $
    16,436
    
    
    $
    7,525All Other Fees
    
    $
    
    
    
    $
    0
  43




---



##### 



PART IV
 ITEM 15. Exhibits, Financial Statement Schedules, And Reports On Form 8-K.
    
 
 
   
   ExhibitNumber
    
    Description3(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)).
 44




---



##### 



ExhibitNumber
    
    Description10(a)
    -
    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(b)
    -
    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(c)
    -
    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(d)
    -
    Addendum to Equipment Lease Agreement dated August 1, 2004,
between Silsbee Trading and Transportation Corp. and south Hampton
Refining Company (incorporated by reference to Exhibit 10(q) to
the Companys Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004 (File No. 0-6247)).10(e)
    -
    Addendum to Equipment Lease Agreement dated August 1, 2004,
between Silsbee Trading and Transportation Corp. and south Hampton
Refining Company (incorporated by reference to Exhibit 10(q) to
the Companys Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004 (File No. 0-6247)).10(f)
    -
    Judicial Agreement dated May 19, 2005 between Fabricante Y
Comercializadora Beta, S.A. de C.V. and Productos Coin, S.A. de
C.V. (incorporated by reference to Exhibit 10(r) to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30, 2005
(file No. 0-6247)).10(g)
    -
    Agreement dated June 6, 2005 between Fabricante Y
Comercializadora Beta, S.A. de C.V. and Productos Quimicos Coin,
S.A. de C.V. (incorporated by reference to Exhibit 10(s) to the
Companys Quarterly Report on Form 10-Q for the quarter ended June
30, 2005 (file No. 0-6247)).
 45




---



##### 



ExhibitNumber
    
    Description10(h)
    -
    Mercantile Shares Purchase and Sale Agreement dated June 9, 2005
between Texas Oil & Chemical Co. II. Inc. and Ernesto Javier
Gonzalez Castro and Mauricio Ramon Arevalo Mercado (incorporated
by reference to Exhibit 10(t) to the Companys Quarterly Report on
Form 10-Q for the quarter ended September 30, 2005 (file No.
0-6247)).10(i)
    -
    Partnership Agreement dated August 6, 2006 between Arabian
American Development Company, Thamarat Najran Company, Qasr
Al-Maadin Corporation, and Durrat Al-Masani Corporation.
(incorporated by reference to Exhibit 10(i) to the Companys
Quarterly Report on Form 10-Q for the quarter ended September 30,
2006 (file No. 0-6247)).10(j)
    -
    Financial Legal Service and Advice Agreement dated August 5,
2006 between Arabian American Development Company, Nassir Ali
Kadasa, and Dr. Ibrahim Al-Mounif. (incorporated by reference to
Exhibit 10(j) to the Companys Quarterly Report on Form 10-Q for
the quarter ended September 30, 2006 (file No. 0-6247)).14
    -
    Code of Ethics for Senior Financial Officers (incorporated by
reference to Exhibit 14 to the Companys Annual Report on Form
10-K for the year ended December 31, 2003 (File No. 0-6247)).16
    -
    Letter re change in certifying accountant (incorporated by
reference to Exhibit 16 to the Companys Current Report on Form
8-K/A dated January 31, 2003 (File No. 0-6247)).21
    -
    Subsidiaries (incorporated by reference to Exhibit 21 to the
Companys Annual Report on Form 10-K for the year ended December
31, 2001 (File No. 0-6247)).24
    -
    Power of Attorney (set forth on the signature page hereto).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.(b)
    
    No reports on Form 8-K were filed during the last quarter of the period covered
by this Report.
 46




---



##### 



POWER OF ATTORNEY
  SIGNATURES
  ARABIAN AMERICAN DEVELOPMENT COMPANYDated: April 5, 2007
    By:
    /s/ Hatem El-KhalidiHatem El-KhalidiPresident and Chief Executive Officer 47




---



##### 



Signature
    
    
    
    Title/s/
Hatem El - Khalidi
 Hatem El - Khalidi
    
    
    
    President, Chief Executive Officer and Director
(principal executive officer)/s/ Nicholas N. Carter
 Nicholas
N. Carter
    
    
    
    Secretary and Treasurer
(principal financial and accounting officer)/s/ John A. Crichton
 John
A. Crichton
    
    
    
    Chairman of the Board and Director/s/ Robert Kennedy
 Robert
Kennedy
    
    
    
    DirectorGhazi
Sultan
    
    
    
    Director
 48




---



##### 



PageINDEX TO FINANCIAL STATEMENTSReport of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets at December 31, 2006 and 2005
    
    
    F-3Consolidated Statements of Operations
For the Years Ended December 31, 2006, 2005 and 2004
    
    
    F-5Consolidated Statement of Stockholders Equity
For the Years Ended December 31, 2006, 2005 and 2004
    
    
    F-7Consolidated Statements of Cash Flows
For the Years Ended December 31, 2006, 2005 and 2004
    
    
    F-8Notes to Consolidated Financial Statements
    
    
    F-10INDEX TO FINANCIAL STATEMENT SCHEDULESReport of Independent Registered Public Accounting Firm on Schedules
    
    
    F-33Schedule II  Valuation and Qualifying Accounts
For the Three Years Ended December 31, 2006
    
    
    F-34INDEX TO SUPPLEMENTAL INDEPENDENT AUDITORS REPORTSIndependent Auditors Report on Productos Quimicos Coin, S.A. DE D.V.
For the Financial Statements at June 12, 2005
    
    
    F-35Independent Auditors Report on Productos Quimicos Coin, S.A. DE D.V.
For the Financial Statements at December 31, 2004
    
    
    F-37
 49




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




---



##### 



/s/ MOORE STEPHENS TRAVIS WOLFF, L.L.P.




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 December 31,2006
    
    
    2005ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    2,939,022
    
    
    $
    1,738,558Trade receivables, net of allowance for doubtful accounts
of $35,000 and $0, respectfully
    
    
    8,893,182
    
    
    
    12,972,657Current
portion of notes receivable, net of discount and deferred gross profit
of $200,492, and $172,846 , respectively
    
    
    605,955
    
    
    
    326,772Financial contracts
    
    
    
    
    
    
    74,752Financial contract deposits
    
    
    1,500,000
    
    
    
    Prepaid expenses and other assets
    
    
    404,228
    
    
    
    365,557Inventories
    
    
    3,576,317
    
    
    
    1,164,674Income tax
receivable
    
    
    619,598
    
    
    
    Total current assets
    
    
    18,538,302
    
    
    
    16,642,970PLANT, PIPELINE AND EQUIPMENT  AT COST
    
    
    21,643,903
    
    
    
    17,905,048LESS ACCUMULATED DEPRECIATION
    
    
    (11,017,503
    )
    
    
    (9,678,443
    )PLANT, PIPELINE AND EQUIPMENT, NET
    
    
    10,626,400
    
    
    
    8,226,605AL MASANE PROJECT
    
    
    37,137,022
    
    
    
    36,804,098OTHER INTERESTS IN SAUDI ARABIA
    
    
    2,431,248
    
    
    
    2,431,248MINERAL PROPERTIES IN THE UNITED STATES
    
    
    1,084,711
    
    
    
    1,084,711NOTES RECEIVABLE, net of discount and deferred gross
profit of $172,041, and $262,293, respectively, net of current
portion
    
    
    1,545,714
    
    
    
    1,349,890OTHER ASSETS
    
    
    226,769
    
    
    
    434,646TOTAL ASSETS
    
    $
    71,590,166
    
    
    $
    66,974,168




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS  Continued
 December 31,2006
    
    
    2005LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    2,989,203
    
    
    $
    1,787,353Accrued interest
    
    
    59,857
    
    
    
    58,749Financial Contracts
    
    
    765,672
    
    
    
    Accrued liabilities
    
    
    1,210,054
    
    
    
    1,282,993Accrued liabilities in Saudi Arabia
    
    
    1,645,257
    
    
    
    2,407,282Notes payable
    
    
    11,012,500
    
    
    
    11,025,833Current portion of long-term debt
    
    
    488,828
    
    
    
    1,425,932Current portion of other liabilities
    
    
    584,349
    
    
    
    305,180Total current liabilities
    
    
    18,755,720
    
    
    
    18,293,322LONG-TERM DEBT, net of current portion
    
    
    5,108,309
    
    
    
    9,838,662OTHER LIABILITIES
    
    
    1,621,105
    
    
    
    1,427,376DEFERRED INCOME TAXES
    
    
    540,000
    
    
    
    297,000MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
    
    
    817,558
    
    
    
    834,662COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYCommon stock  authorized, 40,000,000 shares of $.10
par value; issued and outstanding, 22,571,994 in 2006
and 22,431,994 shares in 2005
    
    
    2,257,199
    
    
    
    2,243,199Additional paid-in capital
    
    
    37,087,206
    
    
    
    36,512,206Retained earnings (accumulated deficit)
    
    
    5,403,069
    
    
    
    (2,472,259
    )Total stockholders equity
    
    
    44,747,474
    
    
    
    36,283,146TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    71,590,166
    
    
    $
    66,974,168




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the years ended December 31,
 2006
    
    
    2005
    
    
    2004RevenuesPetrochemical product sales
    
    $
    93,854,726
    
    
    $
    76,268,360
    
    
    $
    52,429,267Processing fees
    
    
    4,647,431
    
    
    
    4,105,227
    
    
    
    3,774,52898,502,157
    
    
    
    80,373,587
    
    
    
    56,203,795Operating costs and expensesCost of petrochemical product sales and processing
    
    
    79,888,772
    
    
    
    63,626,497
    
    
    
    49,683,489General and administrative
    
    
    5,842,564
    
    
    
    4,468,253
    
    
    
    3,845,116Depreciation
    
    
    859,059
    
    
    
    651,607
    
    
    
    722,81286,590,395
    
    
    
    68,746,357
    
    
    
    54,251,417Operating income
    
    
    11,911,762
    
    
    
    11,627,230
    
    
    
    1,952,378Other income (expense)Interest income
    
    
    276,184
    
    
    
    95,214
    
    
    
    28,089Interest expense
    
    
    (704,282
    )
    
    
    (792,976
    )
    
    
    (795,023
    )Minority interest
    
    
    17,535
    
    
    
    8,437
    
    
    
    9,095Miscellaneous income
    
    
    383,545
    
    
    
    16,559
    
    
    
    9,441(27,018
    )
    
    
    (672,766
    )
    
    
    (748,398
    )Income from continuing
operations before income taxes
    
    
    11,884,744
    
    
    
    10,954,464
    
    
    
    1,203,980Income tax expense
    
    
    4,009,416
    
    
    
    1,133,787
    
    
    
    Net income from continuing operations
    
    
    7,875,328
    
    
    
    9,820,677
    
    
    
    1,203,980Discontinued operationsIncome (loss) from operations of Coin
    
    
    
    
    
    
    989,856
    
    
    
    (853,772
    )Gain (loss) on disposal of Coin
    
    
    
    
    
    
    5,825,668
    
    
    
    (2,900,964
    )Income (loss) from discontinued operations
    
    
    
    
    
    
    6,815,524
    
    
    
    (3,754,736
    )Net income (loss)
    
    $
    7,875,328
    
    
    $
    16,636,201
    
    
    $
    (2,550,756
    )Basic weighted average net income (loss) per common shareContinuing operations
    
    $
    0.35
    
    
    $
    0.43
    
    
    $
    0.05Discontinued operations
    
    
    
    
    
    
    0.30
    
    
    
    (0.16
    )Net income (loss)
    
    $
    0.35
    
    
    $
    0.73
    
    
    $
    (0.11
    )Basic weighted average number of common
shares outstanding
    
    
    22,804,567
    
    
    
    22,731,994
    
    
    
    22,731,994




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
 For the years ended December 31,
 2006
    
    
    2005
    
    
    2004Diluted weighted average net income
(loss) per common shareContinuing operations
    
    $
    0.34
    
    
    $
    0.43
    
    
    $
    0.05Discontinued operations
    
    
    
    
    
    
    0.30
    
    
    
    (0.16
    )Net income (loss)
    
    $
    0.34
    
    
    $
    0.73
    
    
    $
    (0.11
    )Diluted weighted average number of common
shares outstanding
    
    
    23,030,573
    
    
    
    22,731,994
    
    
    
    22,731,994




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 For the years ended December 31, 2006, 2005, and 2004
 AdditionalCommon stock
    
    
    paid-in
    
    
    AccumulatedShares
    
    
    Amount
    
    
    capital
    
    
    deficit
    
    
    TotalDECEMBER 31, 2003
    
    
    22,431,994
    
    
    $
    2,243,199
    
    
    $
    36,512,206
    
    
    $
    (16,557,704
    )
    
    $
    22,197,701Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,550,756
    )
    
    
    (2,550,756
    )DECEMBER 31, 2004
    
    
    22,431,994
    
    
    
    2,243,199
    
    
    
    36,512,206
    
    
    
    (19,108,460
    )
    
    
    19,646,945Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,636,201
    
    
    
    16,636,201DECEMBER 31, 2005
    
    
    22,431,994
    
    
    
    2,243,199
    
    
    
    36,512,206
    
    
    
    (2,472,259
    )
    
    
    36,283,146Common StockIssued to Employees
    
    
    40,000
    
    
    
    4,000
    
    
    
    56,000
    
    
    
    
    
    
    
    60,000Issued to Directors
    
    
    100,000
    
    
    
    10,000
    
    
    
    290,000
    
    
    
    
    
    
    
    300,000Stock Options Issued to Directors
    
    
    
    
    
    
    
    
    
    
    229,000
    
    
    
    
    
    
    
    229,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,875,328
    
    
    
    7,875,328DECEMBER 31, 2006
    
    
    22,571,994
    
    
    $
    2,257,199
    
    
    $
    37,087,206
    
    
    $
    5,403,069
    
    
    $
    44,747,474




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the years ended December 31,
 2006
    
    
    2005
    
    
    2004Operating activitiesNet income (loss)
    
    $
    7,875,328
    
    
    $
    16,636,201
    
    
    $
    (2,550,756
    )Adjustments to reconcile net income (loss)
to net cash provided by operating activities:Depreciation
    
    
    859,059
    
    
    
    651,607
    
    
    
    1,071,172Accretion of notes receivable discounts
    
    
    (166,959
    )
    
    
    (50,724
    )
    
    
    (24,432
    )Accretion of unrealized gross profit
    
    
    (44,534
    )
    
    
    (40,858
    )
    
    
    (37,483
    )Unrealized (gain) loss on financial contracts
    
    
    840,424
    
    
    
    (169,951
    )
    
    
    184,800Loss on foreclosure of Coin plant assets
    
    
    
    
    
    
    
    
    
    
    2,900,964Gain on disposal of Coin
    
    
    
    
    
    
    (5,825,668
    )
    
    
    Stock compensation
    
    
    589,000
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    243,000
    
    
    
    297,000
    
    
    
    Decrease in Minority interest
    
    
    (17,104
    )
    
    
    (8,436
    )
    
    
    (18,077
    )Changes in operating assets and liabilities:(Increase) decrease in trade receivables
    
    
    4,079,475
    
    
    
    (9,774,576
    )
    
    
    (387,223
    )(Increase) decrease in notes receivable
    
    
    689,386
    
    
    
    195,717
    
    
    
    95,050(Increase) decrease in inventories
    
    
    (2,411,643
    )
    
    
    79,019
    
    
    
    (587,212
    )(Increase)
decrease in income tax receivable
    
    
    (619,598
    )
    
    
    
    
    
    
    (Increase) decrease in other assets
    
    
    207,877
    
    
    
    (270,770
    )
    
    
    (73,558
    )Increase in financial contract deposits
    
    
    (1,500,000
    )
    
    
    
    
    
    
    Increase in prepaid expenses
    
    
    (38,671
    )
    
    
    (66,568
    )
    
    
    (53,461
    )Increase (decrease) in accounts payable and accrued
liabilities
    
    
    1,128,911
    
    
    
    (81,786
    )
    
    
    1,474,222Increase (decrease) in accrued interest
    
    
    1,108
    
    
    
    (841,610
    )
    
    
    853,832Increase (decrease) in accrued liabilities in
Saudi Arabia
    
    
    (762,025
    )
    
    
    (341,846
    )
    
    
    77,288Increase in other liabilities
    
    
    
    
    
    
    
    
    
    
    8,598Net cash provided by operating activities
    
    
    10,953,034
    
    
    
    386,751
    
    
    
    2,933,724Investing activitiesAdditions to Al Masane Project
    
    
    (332,924
    )
    
    
    (383,533
    )
    
    
    (255,445
    )Additions to plant, pipeline and equipment
    
    
    (3,738,856
    )
    
    
    (3,491,467
    )
    
    
    (1,949,760
    )(Additions to) reduction in mineral properties in
the United States
    
    
    
    
    
    
    (390
    )
    
    
    153,572Net cash used in investing activities
    
    
    (4,071,780
    )
    
    
    (3,875,390
    )
    
    
    (2,051,633
    )Financing activities
Repayments of notes payable to stockholders
    
    
    (13,333
    )
    
    
    (718,000
    )
    
    
    Advances on long-term debt
    
    
    5,058,726
    
    
    
    7,000,000
    
    
    
    Repayment of long-term debt
    
    
    (10,726,183
    )
    
    
    (1,678,005
    )
    
    
    (436,605
    )Net cash provided (used) in financing activities
    
    
    (5,680,790
    )
    
    
    4,603,995
    
    
    
    (436,605
    )Net increase in cash
    
    
    1,200,464
    
    
    
    1,115,356
    
    
    
    445,486Cash and cash equivalents at beginning of year
    
    
    1,738,558
    
    
    
    623,202
    
    
    
    177,716Cash and cash equivalents at end of year
    
    $
    2,939,022
    
    
    $
    1,738,558
    
    
    $
    623,202




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
 For the year ended December 31,2006
    
    
    2005
    
    
    2004Supplemental disclosure of cash flow information:Cash payments for interest
    
    $
    720,752
    
    
    $
    1,490,807
    
    
    $
    746,444Cash paid for income taxes
    
    $
    3,908,398
    
    
    $
    837,326
    
    
    $
    Supplemental disclosure of non-cash items:Notes receivable issued for capital expansion
    
    $
    952,900
    
    
    $
    1,662,403
    
    
    $
    Note payable for material purchases
    
    $
    
    
    
    $
    
    
    
    $
    5,753,966Fixed assets acquired through capital lease obligations
    
    $
    
    
    
    $
    
    
    
    $
    136,876Capital expansion amortized to depreciation expense
    
    $
    (480,002
    )
    
    $
    (104,988
    )
    
    $
    (52,302
    )




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 1  BUSINESS AND OPERATIONS OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Business and Operations of the Company
    Summary of Significant Accounting Policies
 Cash, Cash Equivalents and Short-Term Investments
 Inventories
 Accounts Receivable and Allowance for Doubtful Accounts
 Notes Receivable




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 1  BUSINESS AND OPERATIONS OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
Continued
  Mineral Exploration and Development Costs
 Plant, Pipeline and Equipment
 Other Assets
 Long-Lived Assets Impairment
  Revenue recognition 
 Shipping and handling costs 
 Retirement plan
 Environmental Liabilities
 Deferred Revenue




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 1  BUSINESS AND OPERATIONS OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
  Other Liabilities
 Net Income (Loss) Per Share
 Foreign Currency and Operations
   Management Estimates
 Stock-Based Compensation




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 1  BUSINESS AND OPERATIONS OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
   Derivatives
  Fair Value of Financial Instruments
 Reclassifications
 New Accounting Pronouncements




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 1  BUSINESS AND OPERATIONS OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 1  BUSINESS AND OPERATIONS OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 2  LIQUIDITY MATTERS, REALIZATION OF ASSETS AND BUSINESS RISKS
  Saudi Arabia
    
    
    United States
    
    
    TotalCurrent assets
    
    $
    1,213,233
    
    
    $
    17,325,069
    
    
    $
    18,538,302Current liabilities
    
    
    12,676,963
    
    
    
    6,078,757
    
    
    
    18,755,720Excess (shortage) of current
assets over current liabilities
    
    $
    (11,463,730
    )
    
    $
    11,246,312
    
    
    $
    (217,418
    )
 
   NOTE 3  CONCENTRATIONS OF REVENUES AND CREDIT RISK




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 3  CONCENTRATIONS OF REVENUES AND CREDIT RISK  Continued
   NOTE 4  SALE OF ACCOUNTS RECEIVABLE
    NOTE 5  INVENTORIES
  2006
    
    
    2005Raw material
    
    $
    2,577,555
    
    
    $
    Finished products
    
    
    998,762
    
    
    
    1,164,674Total inventory
    
    $
    3,576,317
    
    
    $
    1,164,674




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 6  NOTES RECEIVABLE
  2006
    
    
    2005Note with processing customer (A)
    
    $
    1,894,820
    
    
    $
    1,921,702Less discount
    
    
    (270,470
    )
    
    
    (327,318
    )1,624,350
    
    
    
    1,594,384Note with processing customer (B)
    
    
    534,333
    
    
    
    Less discount
    
    
    (49,925
    )
    
    
    484,408
    
    
    
    Note for sale of office building (C)
    
    
    95,050
    
    
    
    190,100Less discount
    
    
    (3,597
    )
    
    
    (14,745
    )Less deferred gross profit
    
    
    (48,542
    )
    
    
    (93,077
    )42,911
    
    
    
    82,278Total long-term notes receivable
    
    
    2,151,669
    
    
    
    1,676,662Less current portion
    
    
    605,955
    
    
    
    326,772Total long-term notes receivable, less current portion
    
    $
    1,545,714
    
    
    $
    1,349,890
 
 (A)
    
    The Company has notes receivable from a long term processing customer for capital
costs incurred in making adjustments to the processing unit at their request. The payment
term is 5 years with interest imputed at a rate of 8%. Payments of $40,851 are due
monthly.(B)
    
    The Company has notes receivable from a long term processing customer for capital costs
incurred in making adjustments to the processing unit at their request. The payment term is
3 years with interest imputed at a rate of 8%. Payments of $18,432 are due monthly.(C)
    
    The Company has notes receivable from a state agency from the owner financing of an
office building. The payment term is 10 years with an interest rate of 9%. Payments of
$95,050 are due annually.  Long-Term NotesYear Ending December 31,
    
    Receivable2007
    
    $
    806,4472008
    
    
    711,3972009
    
    
    582,3732010
    
    
    423,985Thereafter
    
    
    Total
    
    
    2,524,202Less: discount
    
    
    372,533$
    2,151,669




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 7  MINERAL EXPLORATION AND DEVELOPMENT COSTS IN SAUDI ARABIA
  Al Masane Project




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 7  MINERAL EXPLORATION AND DEVELOPMENT COSTS IN SAUDI ARABIA  Continued
   Balance at
    
    
    
    
    
    
    Balance at
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    Activity
    
    
    December 31,
    
    
    Activity
    
    
    December 31,
    
    
    Activity2006
    
    
    for 2006
    
    
    2005
    
    
    for 2005
    
    
    2004
    
    
    for 2004Property and equipment:Mining equipment
    
    $
    2,160,206
    
    
    
    
    
    
    $
    2,160,206
    
    
    
    
    
    
    $
    2,160,206
    
    
    
    Construction costs
    
    
    3,140,493
    
    
    
    
    
    
    
    3,140,493
    
    
    
    
    
    
    
    3,140,493
    
    
    
    Total
    
    
    5,300,699
    
    
    
    
    
    
    
    5,300,699
    
    
    
    
    
    
    
    5,300,699
    
    
    
    Other costs:Labor, consulting
services and project
administration costs
    
    $
    22,700,634
    
    
    $
    329,904
    
    
    $
    22,370,730
    
    
    $
    333,867
    
    
    $
    22,036,863
    
    
    $
    255,445Materials and
maintenance
    
    
    6,175,232
    
    
    
    
    
    
    
    6,175,232
    
    
    
    
    
    
    
    6,175,232
    
    
    
    Feasibility study
    
    
    2,960,457
    
    
    
    3,020
    
    
    
    2,957,437
    
    
    
    49,666
    
    
    
    2,907,771
    
    
    
    Total
    
    
    31,836,323
    
    
    
    332,924
    
    
    
    31,503,399
    
    
    
    383,533
    
    
    
    31,119,866
    
    
    
    255,445$
    37,137,022
    
    
    $
    332,924
    
    
    $
    36,804,098
    
    
    $
    383,533
    
    
    $
    36,420,565
    
    
    $
    255,445
 F-20




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 7  MINERAL EXPLORATION AND DEVELOPMENT COSTS IN SAUDI ARABIA  Continued
 Other Interest in Saudi Arabia
     NOTE 8  MINERAL PROPERTIES IN THE UNITED STATES
  F-21




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 9  NOTES PAYABLE, LONG-TERM DEBT AND LONG-TERM OBLIGATIONS
  2006
    
    
    2005Notes payable:Secured note to Saudi Arabian government (A)
    
    $
    11,000,000
    
    
    $
    11,000,000Unsecured demand notes payable to Saudi investors
    
    
    -
    
    
    
    13,333Other
    
    
    12,500
    
    
    
    12,500Total
    
    $
    11,012,500
    
    
    $
    11,025,833Long-term debt:Note with vendor (B)
    
    
    460,656
    
    
    
    4,260,906Capital lease with affiliated party (C)
    
    
    77,755
    
    
    
    103,688Revolving note to domestic bank (D)
    
    
    
    
    
    
    5,000,000Secured note to Capital Group (E)
    
    
    
    
    
    
    1 ,900,000Revolving note to domestic bank (F)
    
    
    5,058,726
    
    
    
    Total long-term debt
    
    
    5,597,137
    
    
    
    11,264,594Less current portion
    
    
    (488,828
    )
    
    
    (1,425,932
    )Total long-term debt, less Current Portion
    
    $
    5,108,309
    
    
    $
    9,838,662
 
 (A)
    
    The Company has an interest-free loan of $11,000,000 from the Saudi Arabian Ministry of
Finance and National Economy, the proceeds of which were used to finance the development
phase of the Al Masane Project. The loan was repayable in ten equal annual installments of
$1,100,000, with the initial installment payable on December 31, 1984. None of the ten
scheduled payments have been made. Pursuant to the mining lease agreement covering the Al
Masane Project, the Company intends to repay the loan in accordance with a repayment
schedule to be agreed upon with the Saudi Arabian government from its share of cash flows.
An agreement has not yet been reached regarding either the rescheduling or source of
these payments.
The loan is collateralized by all of the Companys movable and immovable assets in Saudi
Arabia.(B)
    
    On June 1, 2004, South Hampton entered into a contract with a supplier for the purchase of
65,000 barrels per month of natural gasoline on an 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. On June 1, 2005, the term was extended to May 31, 2007. 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, the balance of
$460,656
has been classified as current at December 31, 2006. The account was originally secured
by a lien on the plant assets, and the lien was removed in December 2006.(C)
    
    On August 1, 2004, South Hampton entered into a $136,876 capital lease with a
transportation company owned by a Company officer for the purchase of a diesel powered
manlift. The lease bears interest of 6.9% over a 5 year term with a monthly payment of
$3,250. Title transfers to South Hampton at the end of the term.(D)
    
    On October 31, 2005 South Hampton entered into a $6.0 million revolving loan
agreement with a domestic bank. This agreement replaced the Purchase and Sale (Factoring)
Agreement with the same bank. The note bears interest at Prime plus .25% (7.5% at
December 31, 2005), payable
monthly, with a 2 year term. This agreement was replaced with loan agreement (F) below.
Therefore, at December 31, 2006 no amount was outstanding on this loan.
 F-22




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 9  NOTES PAYABLE, LONG-TERM DEBT AND LONG-TERM OBLIGATIONS  Continued
 (E)
    
    On June 30, 2005 South Hampton entered into a $2.0 million loan agreement with a
capital investment group to fund the expansion of a toll processing unit. The note bears
interest at 12% has a 5 year term and payments due quarterly of $100,000 plus accrued
interest. This agreement was replaced with loan agreement (F) below. Therefore, at
December 31, 2006 no amount was outstanding on this loan.(F)
    
    On May 25, 2006 South Hampton entered into a $12.0 million revolving loan agreement
with a domestic bank secured by accounts receivable and inventory. The agreement expires
October 31, 2008. This agreement replaced the October 31, 2005 loan agreement with a
domestic bank (D) and the June 30, 2005 loan agreement with a capital investment group
(E). At December 31, 2006, there was a long-term amount outstanding of $5,058,726. The
credit agreement contains a sub-limit of $3.0 million available to be used in support of
the hedging program. The interest rate on the loan varies according to several options
and the amount outstanding. At December 31, 2006 the rate was 7.25%, and the amount
available to be drawn was approximately $4.1 million as determined by the borrowing base
of the Company. If the amount outstanding surpasses the amount calculated by the
borrowing base, a principal payment would be due to reduce the amount outstanding to the
calculated base. Interest is paid monthly. Covenants that must be maintained include
EBITDA, capital expenditures, dividends payable to parent, and leverage ratio.
  Year Ending December 31,
    
    Long-Term Debt
    
    
    Capital Lease Obligations2007
    
    $
    460,656
    
    
    $
    33,4712008
    
    
    5,058,726
    
    
    
    33,4712009
    
    
    
    
    
    
    19,523Total
    
    $
    5,519,382
    
    
    
    86,465Less: Amount representing interest
    
    
    
    
    
    
    (8,710
    )Present value of future minimum
lease payments
    
    
    
    
    
    $
    77,755
 NOTE 10  ACCRUED LIABILITIES
  2006
    
    
    2005Accrued state taxes
    
    $
    554,453
    
    
    $
    437,269Accrued operating costs
    
    
    200,000
    
    
    
    200,000Accrued payroll
    
    
    251,971
    
    
    
    378,300Other liabilities
    
    
    203,630
    
    
    
    267,424Total
    
    $
    1,210,054
    
    
    $
    1,282,993
 F-23




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 11  ACCRUED LIABILITIES IN SAUDI ARABIA
  2006
    
    
    2005Salaries
    
    $
    866,376
    
    
    $
    1,528,422Termination benefits
    
    
    758,397
    
    
    
    733,624Surface rentals
    
    
    
    
    
    
    117,333Other liabilities
    
    
    20,484
    
    
    
    27,903Total
    
    $
    1,645,257
    
    
    $
    2,407,282
 NOTE 12  COMMITMENTS AND CONTINGENCIES
    Year EndingDecember 312007
    
    $
    741,3002008
    
    
    741,3002009
    
    
    117,3002010
    
    
    117,3002011
    
    
    117,300Thereafter
    
    
    1,407,600Total
    
    $
    3,242,100
   Litigation -
 F-24




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 12  COMMITMENTS AND CONTINGENCIES  Continued
      Environmental remediation
   F-25




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 12  COMMITMENTS AND CONTINGENCIES  Continued
   NOTE 13  SHARE-BASED COMPENSATION
 Common Stock 
 Stock Options
   2004Weighted averageShares
    
    
    exercise priceOutstanding at beginning of year
    
    
    445,000
    
    
    $
    1.08Forfeited
    
    
    (45,000
    )
    
    
    1.75Outstanding at end of year
    
    
    400,000
    
    
    $
    1.00Options exercisable at December 31, 2004
    
    
    400,000
    
    
    $
    1.00
 2005Weighted averageShares
    
    
    exercise priceOutstanding at beginning of year
    
    
    400,000
    
    
    $
    1.00Forfeited
    
    
    Outstanding at end of year
    
    
    400,000
    
    
    $
    1.00Options exercisable at December 31, 2005
    
    
    400,000
    
    
    $
    1.00
 F-26




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 13  SHARE-BASED COMPENSATION- Continued
 2006Weighted averageShares
    
    
    exercise priceOutstanding at beginning of year
    
    
    400,000
    
    
    $
    1.00Granted
    
    
    100,000
    
    
    $
    2.00Forfeited
    
    
    Outstanding at end of year
    
    
    500,000
    
    
    $
    1.20Options exercisable at December 31, 2006
    
    
    500,000
    
    
    $
    1.20
  Options outstanding and exercisableRemaining
    
    
    ExerciseNumber
    
    contractual life
    
    
    price400,000
    
    undetermined
    
    $
    1.00100,000
    
    2.7 years
    
    $
    2.00
 NOTE 14  INCOME TAXES
  Year endedDecember 31,2006
    
    
    2005Current federal provision
    
    $
    3,196,005
    
    
    $
    394,789Current state provision
    
    
    569,903
    
    
    
    441,998Deferred federal provision
    
    
    222,721
    
    
    
    273,000Deferred state provision
    
    
    20,787
    
    
    
    24,000Income tax expense
    
    $
    4,009,416
    
    
    $
    1,133,787
  2006
    
    
    2005
    
    
    2004Income taxes at U.S. statutory rate
    
    $
    4,048,863
    
    
    $
    6,064,431
    
    
    $
    (867,257
    )State taxes, net of federal benefit
    
    
    385,756
    
    
    
    533,763
    
    
    
    37,013Prior year overpayments
    
    
    (358,054
    )
    
    
    
    
    
    
    Change in valuation allowance
    
    
    
    
    
    
    (3,170,892
    )
    
    
    (460,734
    )Foreign operations with no
benefit (tax) provided
    
    
    
    
    
    
    (2,317,278
    )
    
    
    1,276,609Other items
    
    
    (67,149
    )
    
    
    23,763
    
    
    
    14,369Total tax expense
    
    $
    4,009,416
    
    
    $
    1,133,787
    
    
    $
    
 F-27




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 14  INCOME TAXES  Continued
  December 31,2006
    
    
    2005
    
    
    2004Deferred tax liabilities:Plant, pipeline and equipment
    
    $
    (1,462,000
    )
    
    $
    (907,000
    )
    
    $
    (377,000
    )Deferred tax assets:Accounts receivable
    
    
    55,000
    
    
    
    42,000
    
    
    
    36,000Mineral interests
    
    
    236,000
    
    
    
    236,000
    
    
    
    236,000Accrued liabilities
    
    
    255,000
    
    
    
    215,000
    
    
    
    184,000Net operating loss and contribution
carry-forwards
    
    
    75,000
    
    
    
    55,000
    
    
    
    2,870,000Capital loss carry-forward
    
    
    1,336,000
    
    
    
    1,336,000
    
    
    
    Tax credit carry-forwards
    
    
    
    
    
    
    
    
    
    
    212,000Deferred gain on sale of property
    
    
    18,000
    
    
    
    34,000
    
    
    
    50,000Unrealized losses on swap agreements
    
    
    283,000
    
    
    
    28,000
    
    
    
    64,000Gross deferred tax assets
    
    
    2,258,000
    
    
    
    1,946,000
    
    
    
    3,652,000Valuation allowance
    
    
    (1,336,000
    )
    
    
    (1,336,000
    )
    
    
    (3,275,000
    )Net deferred tax assets (liabilities)
    
    
    (540,000
    )
    
    
    (297,000
    )
    
    
    Net deferred taxes
    
    $
    (540,000
    )
    
    $
    (297,000
    )
    
    $
    
    NOTE 15  SEGMENT INFORMATION
  December 31, 2006Petrochemical
    
    Mining
    
    TotalContinuing operationsRevenue from external customers
    
    $
    98,502,157
    
    
    $
    
    
    
    $
    98,502,157Depreciation
    
    
    858,813
    
    
    
    246
    
    
    
    859,059Operating income (loss)
    
    
    13,130,693
    
    
    
    (1,238,931
    )
    
    
    11,911,762Total assets
    
    $
    29,638,657
    
    
    $
    42,186,790
    
    
    $
    71,825,447
 F-28




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 15  SEGMENT INFORMATION  Continued
 December 31, 2005Petrochemical
    
    Mining
    
    TotalContinuing operationsRevenue from external customers
    
    $
    80,373,587
    
    
    $
    
    
    
    $
    80,373,587Depreciation
    
    
    651,582
    
    
    
    25
    
    
    
    651,607Operating income (loss)
    
    
    12,252,223
    
    
    
    (624,993
    )
    
    
    11,627,230Discontinued operations (Coin)Revenue from external customers
    
    $
    2,042,676
    
    
    $
    
    
    
    $
    2,042,676Depreciation
    
    
    
    
    
    
    
    
    
    
    Operating income
    
    
    497,730
    
    
    
    
    
    
    
    497,730Total assets
    
    $
    26,165,931
    
    
    $
    40,782,018
    
    
    $
    66,947,949
 December 31, 2004Petrochemical
    
    Mining
    
    TotalContinuing operationsRevenue from external customers
    
    $
    56,203,795
    
    
    $
    
    
    
    $
    56,203,795Depreciation
    
    
    722,401
    
    
    
    411
    
    
    
    722,812Operating income (loss)
    
    
    2,565,866
    
    
    
    (613,488
    )
    
    
    1,952,378Discontinued operations (Coin)Revenue from external customers
    
    $
    3,589,659
    
    
    $
    
    
    
    $
    3,589,659Depreciation
    
    
    348,360
    
    
    
    
    
    
    
    348,360Operating income
    
    
    45,963
    
    
    
    
    
    
    
    45,963Total assets
    
    $
    10,796,800
    
    
    $
    40,251,083
    
    
    $
    51,047,883
  Year ended December 31,2006
    
    
    2005
    
    
    2004RevenuesUnited States
    
    $
    98,502
    
    
    $
    80,373
    
    
    $
    56,203Mexico (discontinued operations)
    
    
    
    
    
    
    2,043
    
    
    
    3,590Saudi Arabia
    
    
    
    
    
    
    
    
    
    
    $
    98,502
    
    
    $
    82,416
    
    
    $
    59,793
 Year ended December 31,2006
    
    
    2005
    
    
    2004Long-lived assetsUnited States
    
    $
    12,561
    
    
    $
    9,285
    
    
    $
    6,550Mexico
    
    
    
    
    
    
    
    
    
    
    Saudi Arabia
    
    
    39,568
    
    
    
    39,235
    
    
    
    38,852$
    52,129
    
    
    $
    48,520
    
    
    $
    45,402
 F-29




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 16  NET INCOME (LOSS) PER COMMON SHARE
 Year ended December 31,2006
    
    2005
    
    2004Basic earnings per common shareIncome from continuing operations
    
    $
    0.35
    
    
    $
    0.43
    
    
    $
    0.05Discontinued operations
    
    
    
    
    
    
    0.30
    
    
    
    (0.16
    )Net income (loss)
    
    $
    0.35
    
    
    $
    0.73
    
    
    $
    (0.11
    )Weighted average shares outstanding
    
    
    22,804,567
    
    
    
    22,731,994
    
    
    
    22,731,994
 Year ended December 31,2006
    
    2005
    
    2004Diluted earnings per common shareIncome from continuing operations
    
    $
    0.34
    
    
    $
    0.43
    
    
    $
    0.05Discontinued operations
    
    
    
    
    
    
    0.30
    
    
    
    (0.16
    )Net income (loss)
    
    $
    0.34
    
    
    $
    0.73
    
    
    $
    (0.11
    )Weighted average shares outstanding
    
    
    23,030,283
    
    
    
    22,731,994
    
    
    
    22,731,994
  NOTE 17  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
  Year Ended December 31, 2006First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    TotalRevenues
    
    $
    24,316
    
    
    $
    24,082
    
    
    $
    27,541
    
    
    $
    22,563
    
    
    $
    98,502Net income (loss)
    
    
    2,701
    
    
    
    2,648
    
    
    
    514
    
    
    
    2,012
    
    
    
    7,875Basic EPS
    
    $
    0.12
    
    
    $
    0.12
    
    
    $
    0.02
    
    
    $
    0.09
    
    
    $
    0.35Diluted EPS
    
    $
    0.12
    
    
    $
    0.11
    
    
    $
    0.02
    
    
    $
    0.09
    
    
    $
    0.34
 Year Ended December 31, 2005First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter(1)
    
    Quarter
    
    Quarter
    
    TotalRevenues
    
    $
    18,717
    
    
    $
    21,300
    
    
    $
    20,734
    
    
    $
    21,665
    
    
    $
    82,416Net income (loss)
    
    
    3,940
    
    
    
    7,844
    
    
    
    5,927
    
    
    
    (1,075
    )
    
    
    16,636Basic and diluted EPS
    
    $
    0.17
    
    
    $
    0.35
    
    
    $
    0.26
    
    
    $
    (0.05
    )
    
    $
    0.73
 
 (1)
    
    See Note 20. Discontinued Operations for the disclosure of the gain on sale of
$5,825,668 recorded in the second quarter. F-30




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 18  RELATED PARTY TRANSACTIONS
     NOTE 19  DERIVATIVE INSTRUMENTS
   NOTE 20  DISCONTINUED OPERATIONS
  F-31




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 NOTE 20  DISCONTINUED OPERATIONS  Continued
   NOTE 21  SUBSEQUENT EVENTS
      F-32




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULES
    /s/ MOORE STEPHENS TRAVIS WOLFF, L.L.P.
 
 F-33




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 VALUATION AND QUALIFYING ACCOUNTS
  ChargedBeginning
    
    
    (credited)
    
    
    
    
    
    
    EndingDescription
    
    balance
    
    
    to earnings
    
    
    Deductions
    
    
    balanceALLOWANCE FOR DEFERRED
TAX ASSETDecember 31, 2004
    
    
    3,735,322
    
    
    
    
    
    
    
    (460,734
    )(a)
    
    
    3,274,588December 31, 2005
    
    
    3,274,588
    
    
    
    1,336,451
    
    
    
    (3,274,588
    )(a)
    
    
    1,336,451December 31, 2006
    
    
    1,336,451
    
    
    
    
    
    
    
    
    
    
    
    1,336,451
 
 (a)
    
    Utilization of carryforwards F-34




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 INDEPENDENT AUDITORS REPORT
 To the Shareholders of
Productos Quimicos Coin, S.A. de C.V.
Mexico City, Mexico
         F-35




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
    Orozco Medina & Asociados, S.C./s/ Francisoco J. Olvera FonsecaFrancisco J. Olvera Fonseca CPA
 
 F-36




---



##### 



ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
 INDEPENDENT AUDITORS REPORT
 To the Shareholders of
Productos Quimicos Coin, S.A. de C.V.
Mexico City, Mexico
       F-37




---



##### 





ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES








Despacho Freyssinier Morin, S.C./s/ C.P. JUAN PABLO SOTO

C.P.C. Juan Pablo Soto Partner





F-38