<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                            ------------------------

                                    FORM 10-K

(MARK ONE)
    [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

                                       OR

    [ ]       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                (I.R.S. Employer
               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

           Securities Registered Pursuant to Section 12(b) of the Act:
                                      NONE

           Securities Registered Pursuant to Section 12(g) of the Act:

                                (Title Of Class)
                     COMMON STOCK, PAR VALUE $0.10 PER SHARE

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

      Indicate by check mark whether the registrant (l) 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 [ ]

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

<PAGE>

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]

Number of shares of registrant's Common Stock, par value $0.10 per share,
outstanding as of December 31, 2004: 22,731,994.

The aggregate market value on June 30, 2004 of the registrant's voting
securities held by non-affiliates was $1,906,191.

                       DOCUMENTS INCORPORATED BY REFERENCE

          No documents are incorporated by reference into this report.

<PAGE>

                               TABLE OF CONTENTS

                           ITEM NUMBER AND DESCRIPTION

                                     PART I

<TABLE>
<S>                                                                                   <C>
ITEM 1.   BUSINESS
           General..............................................................       1
           International Operations.............................................       2
           Competition..........................................................       3
           Environmental Matters................................................       3
           Personnel............................................................       5
           Available Information................................................       5

ITEM 2.   PROPERTIES
           United States Specialty Products Facility............................       5
           Mexico Specialty Products Facility...................................       6
           Saudi Arabia Mining Properties.......................................       7
           United States Mineral Interests......................................      15
           Offices..............................................................      15

ITEM 3.   LEGAL PROCEEDINGS.....................................................      17

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................      19

                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
          SHAREHOLDER MATTERS...................................................      20

ITEM 6.   SELECTED FINANCIAL DATA...............................................      21

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS
           General..............................................................      21
           Liquidity and Capital Resources......................................      21
           Results of Operations................................................      25
           Critical Accounting Policies.........................................      28

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............      29

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................      30

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE...................................      30

ITEM 9A.  CONTROLS AND PROCEDURES...............................................      30

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................       32

ITEM 11.  EXECUTIVE COMPENSATION................................................       33

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT........................................................       34

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................       36

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES................................       37

                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K......      38
</TABLE>

<PAGE>

                                     PART I

ITEM 1. BUSINESS.

GENERAL

Arabian American Development Company (the "Company") was organized as a Delaware
corporation in 1967. The Company's principal business activities include
refining various specialty petrochemical products and developing mineral
properties in Saudi Arabia and the United States. All of its mineral properties
are presently undeveloped and require significant capital expenditures before
beginning any commercial operations. The Company's undeveloped mineral interests
are primarily located in Saudi Arabia.

United States Activities. The Company's domestic activities are primarily
conducted through a wholly owned subsidiary, American Shield Refining Company
(the "Petrochemical Company"), which owns all of the capital stock of Texas Oil
and Chemical Co. II, Inc. ("TOCCO"). TOCCO owns all of the capital stock of
South Hampton Refining Company ("South Hampton"), and South Hampton owns all of
the capital stock of Gulf State Pipe Line Company, Inc. ("Gulf State"). South
Hampton owns and operates a specialty petrochemical product facility near
Silsbee, Texas that is one of the largest manufacturers of pentanes consumed in
North America. Gulf State owns and operates three pipelines which connect the
South Hampton facility to a natural gas line, to South Hampton's truck and rail
loading terminal and to a marine terminal owned by an unaffiliated third party.
The Company also directly owns approximately 55% of the capital stock of a
Nevada mining company, Pioche-Ely Valley Mines, Inc. ("Pioche"). Pioche does not
conduct any substantial business activities. See Item 2. Properties.

Saudi Arabian Activities. The Company holds a thirty (30) year mining lease
(which commenced on May 22, 1993) covering an approximate 44 square kilometer
area in the Al Masane area in southwestern Saudi Arabia. The Company has the
option to renew or extend the term of the lease for additional periods not to
exceed twenty (20) years. The Company was granted exploration licenses for the
other areas in southwestern Saudi Arabia which have expired.

In 1999, the Company applied for an exploration license covering an area of
approximately 2,850 square kilometers surrounding the mining lease area, where
it has previously explored with the written permission of the Saudi Ministry of
Petroleum and Mineral Resources.

Mexico Activities. TOCCO owns approximately 93% of the issued and outstanding
shares of common stock of Productos Quimicos Coin, S.A. de. C.V. ("Coin"), a
specialty petrochemical product company. The facility is located in
Coatzacoalcos, on the Yucatan Peninsula. An administrative office is located in
Mexico City.

See Item 2. Properties for additional discussions regarding all of the Company's
properties and financing of the Al Masane project.

Note 13 to the Consolidated Financial Statements contain information regarding
the Company's industry segments and geographic financial information for the
years ended December 31, 2004, 2003 and 2002. In addition, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations for a discussion of the Company's liquidity, capital resources and
operating results.

                                        1
<PAGE>

INTERNATIONAL OPERATIONS

A substantial portion of the Company's mineral properties and related interests,
and one of its specialty petrochemical facilities, are located in Saudi Arabia
and Mexico, respectively. Specific and known risks are discussed in detail in
this report; however, the Company's international operations involve additional
general risks not usually associated with domestic operations, any of which
could have a material and adverse affect on the Company's business, financial
condition or results of operations, including a heightened risk of the
following:

Economic and Political Instability; Terrorist Acts; War and Other Political
Unrest. The U.S. military action in Iraq, the terrorist attacks that took place
in the United States on September 11, 2001, the potential for additional future
terrorist acts and other recent events, have caused uncertainty in the world's
financial markets and have significantly increased global political, economic
and social instability, including in Saudi Arabia, a country in which the
Company has substantial interests and operations. It is possible that further
acts of terrorism may be directed against the United States domestically or
abroad, and such acts of terrorism could be directed against the properties and
personnel of companies such as the Company. The Company's operations in Saudi
Arabia and elsewhere could be further adversely affected by post-war conditions
in Iraq if armed hostilities, acts of terrorism or other unrest persist. Recent
acts of terrorism and threats of armed conflicts elsewhere in the Middle East
could also limit or disrupt the Company's operations.

War and other political unrest also may cause unforeseen delays in the
development of the Company's mineral properties and related interests located in
Saudi Arabia, and interruption in the operation of the Company's specialty
petrochemical facility located in Mexico, and may pose a direct security risk to
such interests and operations.

Such economic and political uncertainties may materially and adversely affect
the Company's business, financial condition or results of operations in ways
that cannot be predicted at this time.

Termination of Mining Lease; Expropriation or Nationalization of Assets. The
Company's mining lease for the Al Masane area in Saudi Arabia is subject to the
risk of termination if the Company does not comply with its contractual
obligations. See Item 2. Properties. Further, the Company's foreign assets are
subject to the risk of expropriation or nationalization. If a dispute arises,
the Company may have to submit to the jurisdiction of a foreign court or panel
or may have to enforce the judgment of a foreign court or panel in that foreign
jurisdiction.

Compliance with Foreign Laws. Because of the Company's substantial international
operations, its business is affected by changes in foreign laws and regulations
(or interpretation of existing laws and regulations) affecting both the mining
and petrochemical industries, and foreign taxation. The Company will be directly
affected by the adoption of rules and regulations (and the interpretations of
such rules and regulations) regarding the manufacturing of specialty
petrochemical products and the exploration and development of mineral properties
for economic, environmental and other policy reasons. The Company may be
required to make significant capital expenditures to comply with non-U.S.
governmental laws and regulations. It is also possible that these laws and
regulations may in the future add significantly to the Company's operating costs
or may significantly limit its business activities. Additionally, the Company's
ability to compete in the international market may be adversely affected by
non-U.S. governmental regulations favoring or requiring the awarding of leases,
concessions and other contracts or exploration licenses to local contractors or
requiring foreign contractors to employ citizens of, or purchase supplies from,
a particular jurisdiction. The

                                        2
<PAGE>

Company is not currently aware of any specific situations of this nature, but
there is always the opportunity for this type of difficulty to arise in the
international business environment.

Other Difficulties and Risks Associated with International Operations. The
Company also may experience difficulty in managing and staffing operations
across international borders, particularly in remote locations. Additional risks
associated with the Company's international operations, any of which could
disrupt the Company's operations, include changing political conditions, foreign
and domestic monetary policies, international economics, world metal price
fluctuations, foreign currency fluctuations, foreign taxation, foreign exchange
restrictions, trade protective measures and tariffs.

COMPETITION

The Company competes in both the petrochemical and mining industries.
Accordingly, the Company is subject to intense competition among a large number
of companies, both larger and smaller than the Company, many of which have
financial capability, facilities, personnel and other resources greater than the
Company. In the specialty products and solvents markets, the Petrochemical
Company has one principal competitor. Generally, good economic conditions have
meant strong demand for its specialty products and solvents. The acquisition of
Coin was intended to strengthen the Petrochemical Company's position in the
market in Mexico and allow it to pursue increased sales volumes in the United
States. From 2000 to early 2004 the major competitor in Mexico was selling
product in Mexico for less than Coin's feedstock price. This led to the Coin
facility being shutdown for much of the three years immediately after purchase
by the Petrochemical Company. In early 2004, the competition's pricing formulas
changed and the Coin facility was once again competitive and since that time has
been profitable and active in the market. Coin has since been positioned in the
market as originally planned, selling the majority of product in Mexico and
exporting the remainder to be marketed by South Hampton in the United States.
However, the previous years of financial drain hindered Coin's ability to
service debt and have cast doubt on its ability to keep the facility and remain
in operation for the future. During March 2005, an additional procedure in the
process to transfer title occurred, such that, management believes that it is
probable title to the plant in Coatzacolacos will ultimately be transferred to
the creditor or its assignee. As a result, management recorded the loss on the
foreclosure of the facility with a charge to consolidated operations of
$2,900,964 during the fourth quarter of 2004. See Note 18 to the Consolidated
Financial Statements.

All of the Petrochemical Company's raw materials are purchased on the open
market. The cost of these materials is a function of spot market oil and gas
prices, which tended down during 1998, began rising in mid-1999 and continued to
rise dramatically throughout the year 2000. The prices peaked in late 2000 and
returned to more traditional levels throughout 2001 and 2002. During the latter
part of 2002 and early 2003, prices rose upon speculation the Iraqi freedom
action would disrupt supplies. Prices remained at the historically higher prices
throughout 2003 and peaked again in January 2004. During 2004, feedstock prices
fluctuated, rising and falling as most of the petroleum markets do, in relation
to crude oil.

ENVIRONMENTAL MATTERS

In 1993, during remediation of a small spill area, the Texas Commission on
Environmental Quality ("TCEQ"), formerly the Texas Natural Resources
Conservation Commission ("TNRCC"), required South Hampton to drill a well to
check for groundwater contamination under the spill area. Two

                                        3
<PAGE>

pools of hydrocarbons were discovered to be floating on the groundwater at a
depth of approximately 25 feet. One pool is under the site of a former gas
processing plant owned and operated by Sinclair, Arco and others before its
purchase by South Hampton in 1981. The analysis of the material indicates it
entered the ground prior to South Hampton's acquisition of the property. The
other pool is under the original South Hampton facility and analysis indicates
the material was deposited several decades ago. Tests conducted have determined
that the hydrocarbons are contained on the property and are not moving in any
direction. The recovery process was initiated in June 1998 and approximately
$53,000 was spent setting up the system. The recovery is proceeding as planned
and is expected to continue for several years until the pools are reduced to an
acceptable level. Expenses of recovery and periodic migration testing are being
recorded as normal operating expenses. Expenses for future year's recovery are
expected to stabilize and be less per annum than the initial set up cost,
although there can be no assurance of this effect.

The light hydrocarbon recovered from the former gas plant site is compatible
with the normal Penhex feedstock and is accumulated and transferred into the
PenHex feedstock tank. The material recovered from under the original South
Hampton site is accumulated and sold as a by-product. Approximately 540 barrels
of material was recovered during 2004. The recovered material had an economic
value of approximately $15,000 during 2004. Consulting engineers estimate that
as much as 20,000 barrels of recoverable material may be available to South
Hampton for use in its process or for sale, but no reduction has been made in
the accrual for remediation costs due to the uncertainties relating to the
recovery process. At current market values this material, if fully recovered
would be worth approximately $630,000.

South Hampton drilled additional wells in 2001 and 2002 to further delineate the
boundaries of the pools and to ensure that, with the additional rainfall
experienced in 2001 and 2002, movement had not taken place. These tests
confirmed that no movement of the hydrocarbon pools had taken place. As a result
of the investigation, the current action plan was deemed acceptable.

In other remediation activity, South Hampton investigated a potential chemical
dump site on the facility property relating to ownership by Arco in the 1950's.
The investigation indicates no further action is required and the TCEQ was so
notified. The Company also continues to remediate the site of a pipeline leak
and spill which occurred in 2001. The affected site contains less than
one-eighth acre of land and the cost is being covered by insurance. While the
amount of material spilled is minimal, due to the nature of the soil and
location, the Company feels the remediation will be a long term process relying
heavily on natural attenuation. Also, see Item 3. Legal Proceedings.

The Clean Air Act Amendments of 1990 have had a positive effect on the Refining
Company's business as plastics manufacturers are searching for ways to use more
environmentally acceptable solvents in their processes. Plastics manufacturers
have historically used C6 hydrocarbons (hexanes) as coolants and catalyst
carrying agents. There is a current trend among plastics manufacturers toward
the use of lighter and more recoverable C5 hydrocarbons (pentanes) which are a
large part of the Refining Company's product line. Management believes its
ability to manufacture high quality solvents in the C5 hydrocarbon market will
provide a basis for growth over the next few years; however, there can be no
assurance that such growth will occur. As the use of C6 solvents is phased out
in parts of the industry, several manufacturers of such solvents have opted to
no longer market those products. As the number of producers has consolidated,
the Company has been able to pick up market share at higher sales prices from
customers who still require C6 solvents in their business. Also, see Item 2.
Properties.

                                        4
<PAGE>

PERSONNEL

The Company's officers who reside in the United States are Mr. John A. Crichton,
Chairman of the Board, and Mr. Nicholas Carter, Secretary and Treasurer of the
parent company and President of the petrochemical segment companies, and both
are US citizens. Mr. Hatem El-Khalidi, also a US citizen and the Company's
President and Chief Executive Officer splits his time between the US and Saudi
Arabia. Mr. El-Khalidi supervises the Company's 20 mining segment employees in
Saudi Arabia, consisting of the office personnel and field crews who conduct
exploration and related activities. The Petrochemical Company employs 110
persons.

AVAILABLE INFORMATION

The Company will provide paper copies of this Annual Report on Form 10-K, its
quarterly reports on Form 10-Q, its current reports on Form 8-K and amendments
to those reports, all as filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, free of charge upon written or oral
request to Arabian American Development Company, P. O. Box 1636, Silsbee, TX
77656, (409) 385-1400. The Company does not maintain an Internet website.

ITEM 2.  PROPERTIES.

UNITED STATES SPECIALTY PRODUCTS FACILITY

South Hampton owns and operates a specialty petrochemical products facility near
Silsbee, Texas. The facility presently consists of six operating units which,
while interconnected, make distinct products through differing processes: (i) a
PenHex unit; (ii) a Reformer; (iii) a Cyclo-pentane unit; (iv) an Aromax(R)
unit; (v) an aromatics hydrogenation unit; and (vi) a white oil fractionation
unit. All of these units are currently in operation.

The capacity of the facility's processes when taken in total is approximately
4,950 barrels per run day. The facility generally consists of equipment commonly
found in most petroleum refineries such as fractionation towers and hydrogen
treaters except the facility is adapted to produce highly specialized products
that are high purity, highly consistent, precise specification materials
utilized in the petrochemical industry as solvents, additives, blowing agents
and cooling agents. South Hampton produces eight distinct product streams and
markets several combinations of blends as needed in various customers'
applications. South Hampton produces neither motor fuel products nor any other
products commonly sold directly to retail consumers or outlets.

The products from the PenHex Unit, Reformer, Aromax(R) Unit, and Cyclo-pentane
Unit are marketed directly to the customer by South Hampton's marketing
personnel. These units had the following utilization rates during 2004 on a
calendar day basis: PenHex Unit- 96.5%; Reformer- 63.3%; Cyclo-pentane Unit-
94%; Aromax(R) Unit- 43.7%. The total material charged to these units averaged
approximately 3,120 barrels per day, out of approximately 3,650 BPD of capacity,
or an average of 85.5% utilization. All production was essentially sold during
the year and no excess inventories were developed. The Reformer and Aromax(R)
units are operated as needed to support the PenHex and Cyclo-pentane Units and
therefore the utilization rates of these units are lower.

The other two operating units at the plant site, an Aromatics Hydrogen Treating
Unit and a White Oils Fractionation Unit, are operated as two, independent and
completely segregated processes. They are dedicated to the needs of two
different toll processing customers. The customers supply

                                        5
<PAGE>

and maintain title to the feedstock, South Hampton processes the feedstock into
products based upon customer specifications, and the customers market the
products. Products may be sold directly from South Hampton's storage tanks or
may be taken to the customer's location for storage and marketing. The units
have a combined capacity of 1,400 BPD and realized a utilization rate of 1,062
BPD or 75.8%. The units are operated in accordance with customer needs, and the
contracts call for take or pay minimums of production.

To meet market demand, the South Hampton has increased the capacity of the
PenHex Unit by 30%. Equipment was being purchased in late 2004 and a
construction permit was issued by the TCEQ in late January 2005. Expansion was
accomplished primarily by the addition of two (2) larger towers and
rearrangement of existing equipment. The Expanded capacity was put into service
and was fully operational by the end of the first quarter 2005. Additionally,
South Hampton signed an agreement in late January 2005 with one of the toll
processing customers calling for an expansion of the White Oils Fractionation
Unit by October 2005. Capacity will be doubled to a minimum of 2000 BPD.
Procurement of additional equipment is underway and construction will commence
following completion of work on the PenHex Unit. All permits are in place.

South Hampton, in support of the petrochemical operation, owns approximately 100
storage tanks with a total capacity of approximately 320,000 barrels, and 133
acres of land, approximately 78 acres of which are developed. South Hampton also
owns a truck and railroad loading terminal consisting of eight storage tanks, a
rail spur and truck and tank car loading facilities.

As a result of various expansion programs and the toll processing contracts,
essentially all of the standing equipment at South Hampton is operational. South
Hampton has surplus equipment on-site with which to assemble additional
processing units, such as a hydro-cracking unit with a 2,000 BPD capacity.

Gulf State owns and operates three (3) 8-inch diameter pipelines aggregating
approximately 50 miles in length that connect South Hampton's facility to: (1) a
natural gas line, (2) South Hampton's truck and rail loading terminal and (3) a
marine terminal owned by an unaffiliated third party. South Hampton leases
storage facilities at this marine terminal.

MEXICO SPECIALTY PRODUCTS FACILITY, COATZACOALCOS, MEXICO

The Coin specialty petrochemical products facility is similar to South Hampton's
facility in Silsbee, Texas, but is less developed, having only the PenHex Unit.
The capacity is 600 BPD, or approximately 25% of the capacity of the Silsbee
plant. The Coin facility also produces high purity solvents, which are used in
the expandable polystyrene and polystyrene foam industries. In addition, these
solvents are approved and used by developers of high-density polyethylene
manufacturing processes for use in licensed units. Coin markets its products in
Mexico, Latin America and the United States. With the Coin acquisition, the
Company believes its petrochemical operations are a significant supplier of high
purity solvents in those markets. Coin employs 24 persons. Coin's operations are
dependent upon Pemex (Mexican government owned vendor) for its feedstock supply.
In late 2003, Coin secured a purchase contract with Pemex for feedstock and
purchased material throughout 2004 on a prepaid basis at a price competitive
with normal spot market pricing.

The Coin facility was shut down much of 2000 and 2001 due to the high cost of
feedstock and low margins. During the fourth quarter of 2001, the facility began
to operate at reduced rates and in the first quarter of 2002 was running at
capacity. The facility operated at about 50% capacity during

                                        6
<PAGE>

much of the remainder of 2002. The Coin facility shut down in early 2003 and
remained essentially idle until March 2004. Since that time the facility has
operated continuously and has sold its product primarily in Mexico, with the
remainder being marketed by South Hampton in the United States.

As discussed in Note 18 to the Consolidated Financial Statements, in February
2004, a creditor initiated mortgage foreclosure proceedings against Coin which
resulted in a court ordered award of Coin's plant facilities to the creditor.
The legal transfer of ownership has yet to occur. The Company is pursuing all
available remedies at law, to prevent or delay such legal action but has no
assurance it will prevail. If the creditor prevails, Coin would have no more
than thirty days to vacate the premises. During March 2005, an additional
procedure in the process to transfer title occurred, such that, management
believes that it is probable title to the plant in Coatzacolacos will ultimately
be transferred to the creditor or its assignee. As a result, management recorded
the loss on the foreclosure of the facility with a charge to consolidated
operations of $2,900,964 during the fourth quarter of 2004.

SAUDI ARABIA MINING PROPERTIES

AL MASANE PROJECT

The Al Masane project, consisting of a mining lease area of approximately 44
square kilometers, contains extensive ancient mineral workings and smelters.
From ancient inscriptions in the area, it is believed that mining activities
went on sporadically from 1000 BC to 700 AD. The ancients are believed to have
extracted mainly gold, silver and copper.

Initial Exploration Work and Prior Feasibility Studies. The Saudi Arabian
government granted the Company exploration licenses for the Al Masane and Wadi
Qatan areas in 1971. Subsequently, the Company conducted substantial geological
and geophysical activities in these areas. Core drilling and studies by
independent consulting firms concluded that Al Masane's copper, zinc, gold and
silver prospects could be put in production sooner than the nickel prospect at
Wadi Qatan. Metallurgical tests also showed difficulty in separating the nickel
at Wadi Qatan. During 1977, a pre-feasibility mining study was conducted at Al
Masane by the mining consulting firm of Watts, Griffis and McOuat Limited of
Toronto, Canada ("WGM"). WGM recommended an extensive development program for
the Al Masane prospect.

Phase I of WGM's recommended Al Masane development program was completed in
April 1981. It involved construction of underground tunnels parallel to the ore
bodies totaling 3.9 kilometers in length from which extensive underground core
drilling was done in order to prove the quantity and quality of the ore
reserves. This work was financed primarily with an $11 million interest-free
loan from the Saudi Arabian Ministry of Finance. As a result of this work, WGM
concluded that sufficient ore reserves had been established to justify
completion of a fully bankable feasibility study to determine the economic
potential of establishing a commercial mining and ore treatment operation at Al
Masane. WGM and SNC/GECO of Montreal, Canada conducted this study in 1982. They
concluded that the Al Masane deposits would support commercial production of
copper, zinc, gold and silver and recommended implementation of Phase II of the
Al Masane development program, which would involve the construction of mining,
ore treatment and support facilities. WGM's September 1984 reevaluation of the
project resulted in no substantial changes of their initial conclusions and
recommendations.

                                        7
<PAGE>

The Company continued its exploration work at Al Masane after 1984.
Consequently, WGM upwardly revised its reserve estimates in 1989 and again
concluded that a proposed mining operation was economically viable as well as
having high potential for the discovery of additional ore zones.

Current Feasibility Studies. The Saudi government granted the Company a mining
lease for the Al Masane area on May 22, 1993. The Company subsequently
commissioned WGM to prepare a new fully bankable feasibility study to be used to
obtain financing for commercial development of the project. The study, which was
completed in 1994, contained specific recommendations to insure that project
construction was accomplished expeditiously and economically. The engineering
design and costing portions of the study were performed by Davy International of
Toronto, Canada ("Davy"). WGM and Davy updated this study in 1996. A summary of
the studies' findings are as follows:

The Al Masane ore is located in three mineralized zones known as Saadah, Al
Houra and Moyeath. The following table sets forth a summary of the diluted
minable, proven and probable ore reserves at the Al Masane project, along with
the estimated average grades of these reserves:

<TABLE>
<CAPTION>
                              RESERVES       COPPER     ZINC      GOLD     SILVER
      ZONE                    (TONNES)        (%)        (%)      (g/t)    (g/t)
      ----                    ---------      ------     ----      -----    ------
<S>                           <C>             <C>       <C>       <C>      <C>
Saadah .................      3,872,400       1.67      4.73      1.00     28.36
Al Houra ...............      2,465,230       1.22      4.95      1.46     50.06
Moyeath ................        874,370       0.88      8.92      1.29     64.85
                              ---------       ----      ----      ----     -----
     Total .............      7,212,000       1.42      5.31      1.19     40.20
</TABLE>

For purposes of calculating proven and probable reserves, a dilution of 5% at
zero grade on the Saadah zone and 15% at zero grade on the Al Houra and Moyeath
zones was assumed. A mining recovery of 80% has been used for the Saadah zone
and 88% for the Al Houra and Moyeath zones. Mining dilution is the amount of
wallrack adjacent to the ore body that is included in the ore extraction
process.

Proven reserves are those mineral deposits for which quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes, and grade is
computed from results of detailed sampling. For ore deposits to be proven, the
sites for inspection, sampling and measurement must be spaced so closely and the
geologic character must be so well defined that the size, shape, depth and
mineral content of reserves are well established. Probable reserves are those
for which quantity and grade are computed from information similar to that used
for proven reserves, but the sites for inspection, sampling and measurement are
farther apart or are otherwise less adequately spaced. However, the degree of
assurance, although lower than that for proven reserves, must be high enough to
assume continuity between points of observation.

The metallurgical studies conducted on the ore samples taken from the zones
indicated that 87.7% of the copper and 82.6% of the zinc could be recovered in
copper and zinc concentrates. Overall, gold and silver recovery from the ore was
estimated to be 77.3% and 81.3%, respectively, partly into copper concentrate
and partly as bullion through cyanide processing of zinc concentrates and mine
tailings. Further studies recommended by consultants may improve those
recoveries and thus the potential profitability of the project; however, there
can be no assurances of this effect.

                                        8
<PAGE>

The mining and milling operation recommended by WGM for Al Masane would involve
the production of 2,000 tonnes of ore per day (700,000 tonnes per year), with a
mine life of over ten years. Annual production is estimated to be 34,900 tonnes
of copper concentrate (25% copper per tonne) containing precious metal and
58,000 tonnes of zinc concentrate (54% zinc per tonne). Total output per year of
gold and silver is estimated to be 22,000 ounces of gold and 800,000 ounces of
silver from the copper concentrate and bullion produced. The construction of
mining, milling and infrastructure facilities is estimated to take 21 months to
complete. Construction necessary to bring the Al Masane project into production
includes the construction of a 2,000 tonne per day concentrator, infrastructure
with a 300 man housing facility and the installation of a cynidization plant to
increase the recovery of precious metals from the deposit. Project power
requirements will be met by diesel generated power.

WGM recommended that the Al Masane reserves be mined by underground methods
using trackless mining equipment. Once the raw ore is mined, it would be
subjected to a grinding and treating process resulting in three products to be
delivered to smelters for further refining. These products are zinc concentrate,
copper concentrate and Dore bullion. The copper and zinc concentrates also
contain valuable amounts of gold and silver. These concentrates and the Dore
bullion to be produced from the cynidization plant are estimated to be 22,000
ounces of gold and 800,000 ounces of silver and will be sold to copper and zinc
custom smelters and refineries worldwide. After the smelter refining process,
the metals could be sold by the Company or the smelter for the Company's account
in the open market.

In the 1994 feasibility study, WGM stated that there is potential to find more
reserves within the lease area, as the ore zones are all open at depth. Further
diamond drilling, which will be undertaken by the Company, is required to
quantify the additional mineralization associated with these zones. A
significant feature of the Al Masane ore zones is that they tend to have a much
greater vertical plunge than strike length; relatively small surface exposures
such as the Moyeath zone are being developed into sizeable ore tonnages by
thorough and systematic exploration. Similarly, systematic prospecting of the
small gossans in the area could yield significant tonnages of new ore.

The 1996 update showed the estimated capital cost to bring the project into
operation to be $89 million. At a production rate of 700,000 tonnes per year,
the operating cost of the project (excluding concentrate freight, ship loading,
smelter charges, depreciation, interest and taxes) was estimated to be $38.49
per tonne of ore milled.

WGM prepared an economic analysis of the project utilizing cash flow
projections. A base case was prepared that included those project elements which
were most likely to be achieved. WGM believed that a majority of the base case
assumptions used in the 1994 feasibility study remained valid, including the ore
reserves, mill feed grade, production rate, metal recoveries and concentrate
grade and smelter returns. Metal prices, capital costs, operating costs and the
corporate structure were adjusted to reflect more current information. Capital
and operating costs were adjusted in conformity with the updated estimates
prepared by Davy.

The base case assumed the corporate structure of the entity to be formed to
operate the project would be owned 50% by the Company and 50% by Saudi Arabian
investors and that the owners of this entity would contribute an aggregate of
$26 million to the cost of the project. The base case further assumed financing
for the project from commercial loans in the aggregate amount of $25 million
bearing interest at the rate of 8% per year and a loan in the amount of $38
million from the Saudi Industrial Development Fund ("SIDF") repayable in equal
annual installments over the initial life of the mine. Cash generated by the
operation of the project would contribute

                                        9
<PAGE>

the remainder of the project financing. The base case assumed that the $11
million loan outstanding to the Saudi Arabian government would be paid by the
Company in accordance with a repayment schedule to be agreed upon with the Saudi
Arabian government from the Company's share of the project's cash flows. Based
on these assumptions, and assuming the average prices of metal over the life of
the mine to be $1.05 per pound for copper, $.60 per pound for zinc, $400 per
ounce of gold and $6.00 per ounce of silver, WGM's economic analysis of the 1996
base case showed the project would realize an internal rate of return of 13.1%,
the Company's and the Saudi Arabian investors' internal rates of return would be
27.3% and 12.1%, respectively, and projected net cash flow (after debt
repayment) from the project of $95.1 million. The 1994 feasibility study base
case showed the project would realize a 14.05% internal rate of return. Cash
flow under the base case is exclusive of income tax as the base case assumes
that any such tax would be paid by individual investors and not by the project.
Assuming a 10% discount rate, the net present value of the project as shown in
the 1996 update was $12.16 million compared to the $15.5 million net present
value of the project shown in the 1994 feasibility study. Based on the 1996
update, WGM believed that the economic analysis showed that the project remained
viable.

In February 2005, for purposes of estimating future cash flows, the price
assumptions contained in the WGM 1996 report were updated by an independent
consultant, who had previously prepared updated cash flow projections in 2000
through 2004. The new price assumptions are averages over the projected ten-year
life of the mine and are $1.40 per pound for copper ($1.05 in 2004), $.53 per
pound for zinc ($.61 in 2004), $400 per ounce for gold ($375 in 2004) and $6.50
per ounce for silver ($5.50 in 2004). Copper and zinc comprise in excess of 80%
of the expected value of production. Although these prices are lower than those
used in the 1996 WGM report, the project remains viable.

Mining Lease. As the holder of the Al Masane mining lease, the Company is solely
responsible to the Saudi Arabian government for the rental payments and other
obligations provided for by the mining lease and repayment of the previously
discussed $11 million loan. The Company's interpretation of the mining lease is
that repayment of this loan will be made in accordance with a repayment schedule
to be agreed upon with the Saudi Arabian government from the Company's share of
the project's cash flows. The initial term of the lease is for a period of
thirty (30) years from May 22, 1993, with the Company having the option to renew
or extend the term of the lease for additional periods not to exceed twenty (20)
years. Under the lease, the Company is obligated to pay advance surface rental
in the amount of 10,000 Saudi riyals (approximately $2,667 at the current
exchange rate) per square kilometer per year (approximately $117,300 annually)
during the period of the lease. At December 31, 2003, approximately $586,000 of
rental payments was in arrears. The Company, in accordance with the most recent
agreement with the Ministry, paid $266,000 of the back payments on January 3,
2005, and is scheduled to pay the remaining $320,000 on December 31, 2005. In
addition, the Company must pay income tax in accordance with the income tax laws
of Saudi Arabia then in force and pay all infrastructure costs. The Saudi
Arabian Mining Code provides that income tax will not be due during the first
stage of mining operations, which is the period of five years starting from the
earlier of (i) the date of the first sale of products or (ii) the beginning of
the fourth year since the issue of the mining lease. The lease gives the Saudi
Arabian government priority to purchase any gold production from the project as
well as the right to purchase up to 10% of the annual production of other
minerals on the same terms and conditions then available to other similar buyers
and at current prices then prevailing in the free market. Furthermore, the lease
contains

                                       10
<PAGE>

provisions requiring that preferences be given to Saudi Arabian suppliers and
contractors, that the Company employ Saudi Arabian citizens and provide training
to Saudi Arabian personnel.

Reference is made to the map on page 16 of this Report for information
concerning the location of the Al Masane project.

Project Financing. As detailed above, the estimated total capital cost to bring
the Al Masane project into production is $89 million. The Company does not
presently have sufficient funds to bring this project into production. Also, see
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations for a further discussion of these matters.

Pursuant to the mining lease agreement, when the Al Masane project is profitable
the Company is obligated to form a Saudi public stock company with the Saudi
Arabian Mining Company, a corporation wholly owned by the Saudi Arabian
government ("Ma'aden"), as successor to and assignee of the mining interests
formerly held by the Petroleum Mineral Organization ("Petromin"). Ma'aden is the
Saudi Arabian government's official mining company. In 1994, the Company
received instructions from the Saudi Ministry of Petroleum and Mineral Resources
stating that it is possible for the Company to form a Saudi company without
Petromin (now Ma'aden), but the sale of stock to the Saudi public could not
occur until the mine's commercial operations were profitable for at least two
years. The instructions added that Petromin (now Ma'aden) still had the right to
purchase shares in the Saudi public stock company any time it desires. Title to
the mining lease and the other obligations specified in the mining lease would
be transferred to the Saudi public stock company. However, the Company would
remain responsible for repaying the $11 million loan to the Saudi Arabian
government.

In order to commercially develop the Al Masane project, the Company entered into
a joint venture arrangement with Al Mashreq Company for Mining Investments ("Al
Mashreq"), a Saudi limited liability company owned by Saudi Arabian investors
(including certain of the Company's shareholders). The partners formed The
Arabian Shield Company for Mining Industries Ltd., a Saudi limited liability
company ("Arabian Mining"), which was officially registered and licensed in
August 1998 to conduct business in Saudi Arabia and authorized to mine and
process minerals from the Al Masane lease area. Arabian Mining received
conditional approval for a $38.1 million interest-free loan from SIDF, and
deposited $26 million of equity capital into its bank account.

In 1998, due to the severe decline in the open market prices for the minerals to
be produced by the Al Masane project and the financial crisis affecting
southeast Asia, SIDF and other potential lenders required additional guarantees
and other financing conditions which were unacceptable to the Company and Al
Mashreq. As a consequence, Al Mashreq withdrew from the joint venture and all
equity capital was returned.

By letter dated May 11, 1999, the Company informed the Ministry of Petroleum and
Mineral Resources (the "Ministry") that the recent sharp drop in the market
prices of the metals to be produced from the mine at Al Masane, as a result of
the economic crisis in southeast Asia, made implementation of the development of
the mine uneconomical at that time and that, as a result, the Company would
delay implementation of the project until metal prices recovered.

The Ministry notified the Company one year later that it must immediately
implement the project and in the fall of 2000 further notified the Company that
the project should be immediately implemented or the mining lease would be
terminated. A second notice from the Ministry several weeks later stated that
the Committee of the Supreme Council of Petroleum and Minerals in Saudi Arabia
had recommended giving the Company six months to take positive steps to

                                       11
<PAGE>

implement the project. A written notice from the Ministry in the Summer of 2001
stated that the Council of Ministers of Saudi Arabia had issued a resolution in
which it refused the Company's request to postpone implementation of the
project, that the Company must start implementation of the project within six
months of the date of the resolution and that, if the project was not then
started, the Ministry was authorized to begin procedures to terminate the mining
lease. Subsequent correspondence from the Ministry in the fall and winter of
2001 and into 2002 reiterated the threat to terminate the mining lease if the
project was not immediately implemented. A letter from the Ministry in March
2002 stated that the six-month period to implement the project had expired
without the Company taking positive steps towards that end.

The Company has vigorously contested the legality of the threats of the Ministry
to terminate the Company's mining lease. The Company has written numerous
letters to the Ministry, and the Company and its Saudi Arabian legal advisors
also have had meetings with officials of the Ministry. In September 2002, the
Company sent a letter to Saudi Arabian Crown Prince Abdullah Ben Abdul Aziz, in
his capacity as Deputy Chairman of the Saudi Supreme Council of Petroleum and
Minerals (the King of Saudi Arabia is the chairman), in which the Company
contested the legality of the threats of the Ministry to terminate the mining
lease and requested his advice. As stated in its letters to the Ministry and the
Crown Prince, the Company believes that the Ministry's letters to the Company
asking for the implementation of the project, without any regard to metal market
conditions, is contrary to the Saudi Mining Code and the mining lease agreement.
In addition, the Company has had correspondence and a meeting with the United
States Ambassador to Saudi Arabia where the Company presented its opinion
regarding the legality of the Ministry's actions. This opinion also was conveyed
in a letter to the United States Secretary of Commerce, who replied that the
United States Embassy is working to set up meetings with Saudi Arabian
government officials in an effort to resolve the matter. The Secretary of
Commerce assured the Company that the Department of Commerce has a strong
commitment in helping United States companies whenever possible. In a further
letter from the Department of Commerce, signed by William H. Lash III, Assistant
Secretary for Market Access and Compliance, dated March 6, 2003, it was stated:
"After investigating the matter, the U.S. Embassy in Riyadh has been informed by
the Ministry of Petroleum that it did not cancel your mining lease. According to
the Ministry, it is waiting development of the site by Arabian American
Development Company."

On February 23, 2004, the Company's President received a letter from the Deputy
Minister of Petroleum and Mineral Resources stating that the Council of
Ministers had issued a resolution, dated November 17, 2003, which directed the
Minister, or whomever he may designate, to discuss with the President of the
Company the implementation of a work program, similar to that which is attached
to the Company's mining lease, to start during a period not to exceed two years,
and the payment of the past due surface rentals. If agreeable, a document is to
be signed to that effect. The resolution stated further that, if no agreement is
reached, the Ministry of Finance will give the Council of Ministers its
recommendation regarding the $11 million loan granted to the Company.

After discussions with the Deputy Minister, the Company President responded, in
a letter to the Minister dated March 23, 2004, that the Company will agree to
abide by the resolution and will start implementing the work program to build
the mine, treatment plant and infrastructure within two years from the date of
the signed agreement. The work program was prepared by the Company's technical
consultants and was attached to the letter. The Company also will agree to pay
the past due surface rentals, which now total approximately $586,000, in two
equal installments, the first on December 31, 2004 and the second on December
31, 2005 and will

                                       12
<PAGE>

continue to pay the surface rentals as specified in the Mining Lease Agreement.
On May 15, 2004, an agreement was signed with the Ministry covering these
provisions. In the event the Company does not start to implement the program
during the two-year period, the matter will be referred to the concerned parties
to seek direction in accordance with the Mining Code and other concerned codes.

The Company, on January 3, 2005, paid the first installment of the surface
rentals for the Al Masane mining lease area in the amount of $266,000 in
accordance with the terms of the agreement with the Ministry. The second
installment of $320,000 is due on December 31, 2005.

The Saudi Government published and implemented the new Mining Code on October
22, 2004 which contains several provisions the Company believes beneficial, not
the least of which is a reduction of taxes on profits from 45% to 20%.

The Company, in a letter to the Minister dated February 2, 2005, asked that the
Company be granted fair compensation for the loss it incurred due to the severe
drop in the value of its stock. The drop in value coincided with the delay in
issuing the mining lease, and with the threat of termination of the lease during
the 1999 to 2004 time frame and continued through the May 15, 2004 agreement
when the Council of Ministries resolved to allow the Company two more years to
implement the project. The Ministry in its reply did not agree that the Company
deserved compensation. On February 24, 2005, the Company again wrote the
Minister, re-stating the arguments for fair compensation, and asked that the
matter be referred to arbitration in accordance with Article (58) of the new
Mining Code. On March 4, 2005 the Company received the Ministry's reply
rejecting the request for arbitration and suggested that the Company refer the
matter to the Court of Grievances, which is the governing court of law in the
Kingdom.

The Company is consulting with counsel on further steps which might be taken,
however any such action will not affect the Company's right to implement the Al
Masane project. The feasibility study is being updated and if positive, as
expected, the Company will again seek joint venture partners to assist in
implementing the project. There are no assurances that the Company's efforts
will be successful.

         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. In
1971, the Saudi Arabian government awarded the Company exclusive mineral
exploration licenses to explore and develop the Wadi Qatan area in southwestern
Saudi Arabia. The Company was subsequently awarded an additional license in 1977
for an area north of Wadi Qatan at Jebel Harr. These licenses have expired.

In 1999, the Company applied for an exploration license covering an area of
approximately 2,850 square kilometers, which surrounds the Al Masane mining
lease area and includes the Wadi Qatan and Jebel Harr areas. This area is
referred to as the Greater Al Masane area. The Company has been authorized in
writing by the Saudi Arabian government to carry out exploration work in the
area. Previous exploration work has been carried on and paid for by the Company.
The application for the new exploration licenses is still pending and is
expected to be acted upon now that the new Saudi Arabian Mining Code has been
approved.

                                       13
<PAGE>

Reference is made to the map on page 16 of this Report for information
concerning the location of the foregoing areas.

Wadi Qatan and Jebel Harr. The Wadi Qatan area is located in southwestern Saudi
Arabia. Jebel Harr is north of Wadi Qatan. Both areas are approximately 30
kilometers east of the Al Masane area. These areas consist of 40 square
kilometers, plus a northern extension of an additional 13 square kilometers. The
Company's geological, geophysical and limited core drilling disclosed the
existence of massive sulfides containing an average of 1.2% nickel. Reserves for
these areas have not yet been classified and additional exploration work is
required. When the Company obtains an exploration license for the Wadi Qatan and
Jebel Harr areas, the Company intends to continue its exploratory drilling
program in order to prove whether enough ore reserves exist to justify a viable
mining operation; however there is no assurance that a viable mining operation
could be established.

Greater Al Masane. On June 22, 1999, the Company submitted a formal application
for a five-year exclusive mineral exploration license for the Greater Al Masane
area of approximately 2,850 square kilometers, which surrounds the Al Masane
mining lease area and includes the Wadi Qatan and Jebel Harr areas. The Company
previously worked in the Greater Al Masane area after obtaining written
authorization from the Saudi Ministry of Petroleum and Mineral Resources and has
expended over $3 million on exploration work. Geophysical, geochemical and
geological work and diamond core drilling on the Greater Al Masane area has
revealed mineralization similar to that discovered at Al Masane. A detailed
exploration program and expenditures budget accompanied the application. The
Company indicated on its application that it would welcome the participation of
Ma'aden in this license. Ma'aden, which has expressed an interest in the Greater
Al Masane area, also was informed directly by the Company that its participation
as a joint venture partner in the license would be welcomed.

As previously stated, the Company does not possess current formal exploration
licenses for any of the above areas. The absence of such licenses creates
uncertainty regarding the Company's rights and obligations, if any, in these
areas. The Company believes it has satisfied the Saudi Arabian government's
requirements in these areas and that the government should honor the Company's
claims.

The new Mining Code, adopted by the Saudi government in October, 2004, specifies
that the size of an exploration license cannot exceed one hundred (100) square
kilometers. However, there is no restriction on how many exploration licenses
can be held by one party simultaneously. The Company intends to select the best
areas of the previously explored Greater Al Masane Area, and to re-apply for
those individually. The applications, per the Mining Code should be acted upon
by the Minister within 30 working days. Any refusal may be appealed to the Board
of Grievances within 30 days of the date of the ruling notice.

                                       14
<PAGE>

UNITED STATES MINERAL INTERESTS

The Company's mineral interests in the United States are its ownership interests
in Pioche. Pioche has been inactive for many years.

Nevada Mining Properties. Pioche's properties include 48 patented and 5
unpatented claims totaling approximately 1,500 acres. All the claims are located
in the Pioche Mining District, Lincoln County, Nevada. There are prospects and
mines on these claims that previously produced silver, gold, lead, zinc and
copper. The ore bodies are both oxidized and sulfide deposits, classified into
three groups: fissure veins in quartzite, mineralized granite porphyry and
replacement deposits in carbonate rocks (limestone and dolomites). There is a
300-ton-a-day processing mill on property owned by Pioche. The mill is not
currently in use and a significant expenditure would be required in order to put
the mill into continuous operation, if commercial mining is to be conducted on
the property.

OFFICES

The Company has a year-to-year lease on space in an office building in Jeddah,
Saudi Arabia, used for office occupancy. The Company also leases a house in
Jeddah that is used as a technical office and for staff housing. The Company
continues to lease office space in Dallas, Texas on a month-to-month basis. It
also owns a base camp and accompanying facilities and equipment at the Al Masane
project site.

                                       15
<PAGE>

                                      [MAP]

                                       16
<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

South Hampton is presently a defendant in ten lawsuits. The suits, seven of
which are filed in Madison County, Illinois, and which include up to 70 other
defendants, primarily claim illness and disease resulting from alleged exposure
to chemicals, including benzene, butadiene and/or isoprene, during their
employment at various occupations. The plaintiffs claim that the companies
engaged in the business of manufacturing, selling and/or distributing these
chemicals in a manner which subjected them to liability for unspecified actual
and punitive damages. South Hampton does not believe any of plaintiffs in the
Illinois lawsuits ever came in contact with its products and is vigorously
defending itself against these claims. The Company also believes it has adequate
insurance coverage to protect it financially from any damage awards that might
be incurred.

South Hampton is a defendant in two lawsuits filed in Jefferson County, Texas.
The first lawsuit was filed on September 2001, and alleges that the plaintiff
became ill from exposure to asbestos while employed by South Hampton from 1961
through 1975. Mediation occurred during 2003 in which the plaintiff made a
financial offer. South Hampton counter-offered a structured settlement. To date
the plaintiff has not accepted or rejected the counter-offer or withdrawn
settlement offer. A new trial date has been set for September 2005. Due to the
time period in which the claimant was allegedly injured, the Company has not
been able to locate insurance coverage for this particular suit. The Company
plans on continuing negotiations in an attempt to settle the case. The
consolidated financial statements do not include any amounts related to this
case.

The second lawsuit was filed on May 29, 2003, and alleges that the plaintiff was
exposed to asbestos containing products in his duties as a welder, pipefitter
assistant, laborer, floor hand and mud hand/derrick hand from 1950 - 1984.
Plaintiff claims that he suffers from an asbestos related disease, although this
has not been confirmed by a pathologist. Plaintiff testified in his deposition
that he worked as a pipefitter assistant building a plant for South Hampton in
Vidor, Orange County, Texas for approximately three months. Plaintiff made a
settlement demand and South Hampton has countered. This matter is currently on
the Court's trial docket for May, 2005. Due to the time period in which the
claimant was allegedly injured, the Company has not been able to locate
insurance coverage for this particular suit. The Company plans to vigorously
defend this matter and continue negotiations to settle the case for nuisance
value. The consolidated financial statements do not include any amounts related
to this case.

In August 1997, the Executive Director of the Texas Commission on Environmental
Quality (TCEQ), filed a preliminary report and petition with the TCEQ alleging
that South Hampton violated various TCEQ rules, TCEQ permits issued to South
Hampton, a TCEQ order issued to South Hampton, the Texas Water Code, the Texas
Clean Air Act and the Texas Solid Waste Disposal Act. The violations generally
relate to the management of volatile organic compounds in a manner that
allegedly violates the TCEQ's air quality rules and the storage, processing and
disposal of hazardous waste in a manner that allegedly violates the TCEQ's
industrial and hazardous waste rules. The TCEQ's Executive Director recommended
that the TCEQ enter an order assessing administrative penalties against South
Hampton in the amount of $709,408 and order South Hampton to undertake such
actions as are necessary to bring its operations at its facility and its bulk
terminal into compliance with Texas Water Code, the Texas Health and Safety
Code, TCEQ rules, permits and orders. Appropriate modifications were made by
South Hampton where it appeared there were legitimate concerns. A preliminary
hearing was held in November 1997, but no further action was taken at that time.

                                       17
<PAGE>

On February 2, 2000, the TCEQ amended its pending administrative enforcement
action against South Hampton to add allegations dating through May 21, 1998 of
35 regulatory violations relating to air quality control and industrial solid
waste requirements. The TCEQ proposed that administrative penalties be increased
to approximately $765,000 and that certain corrective action be taken.

On December 13, 2001, the TCEQ notified South Hampton that it found several
alleged violations of TCEQ rules during a record review in October 2001 and
proposed a settlement for $59,375. South Hampton settled this particular claim
in April 2002 for approximately $5,900.

In April 2003 South Hampton received a revised Notice of Violation from the
TCEQ. Various claims of alleged violation were dropped, modified and added in
the revised report and the total dollar amount of the proposed administrative
penalty was reduced to approximately $690,000. On May 25, 2003, a settlement
hearing with the TCEQ was held and additional information was submitted on June
2, 2003, October 2, 2003 and November 4, 2003. South Hampton believes that the
revised notice contains incorrect information and erroneously delineates as
ongoing problems matters that were corrected immediately upon discovery several
years ago. South Hampton has continued to communicate with the TCEQ concerning
ongoing emission control facility upgrades which are being implemented
independently of this action and the Company intends to continue to vigorously
defend itself against the outstanding Notice of Violation. Negotiations between
South Hampton and the TCEQ are expected to continue in order to reach a final
settlement.

By letter dated March 11, 2003, the Company was advised that the Division of
Enforcement of the Securities and Exchange Commission ("SEC") was conducting an
informal, non-public inquiry concerning disclosure matters relating to the Al
Masane project and the Ministry's threatened termination of the Al Masane mining
lease. The Company fully cooperated with the SEC in the conduct of the
investigation, which became a formal investigation.

On October 16, 2003, without admitting or denying any findings of fact or
conclusions of law, the Company agreed to a cease-and-desist order with the SEC
settling alleged violations of the federal securities laws asserted by the SEC
relating to developments not previously disclosed concerning the Company's
mining lease for the Al Masane area of Saudi Arabia. In connection with the
settlement, the Company agreed to (i) cease and desist from violating certain
provisions of the Securities Exchange Act of 1934 and (ii) comply with certain
undertakings designed to improve its reporting and record keeping practices and
enhance its internal accounting controls. On the same date, without admitting or
denying any findings of fact or conclusions of law, the Company's President and
Chief Executive Officer, Hatem El-Khalidi, agreed to a cease-and-desist order
with the SEC settling alleged violations of the federal securities laws relating
to the same matter and agreeing to pay a $25,000 penalty. In connection with the
settlement, Mr. El-Khalidi agreed to cease and desist from violating certain
provisions of the Securities Exchange Act of 1934.

On February 23, 2004, by court order, a creditor was awarded Coin's plant
facilities as a result of a mortgage foreclosure proceeding. The foreclosure
proceedings were brought about by the lack of activity at the facility during
the 2000-2003 time period when market conditions did not allow the Coin facility
to be competitive. When the market appeared to be changing in early 2004, the
Company immediately took legal steps to delay and, if possible, prevent seizure
of the plant. The Company has remained in control of (and operates) the facility
and is continuing its legal challenge to the foreclosure. The ultimate outcome
of the proceedings is difficult to predict and there is no assurance the Company
will maintain control and possession. The operation is continuing on a

                                       18
<PAGE>

month to month basis as the dispute continues. Management recorded a loss on the
foreclosure of the facility with a charge to consolidated operations of
$2,900,964 during the fourth quarter of 2004. See Note 18 to the Consolidated
Financial Statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of the Company's shareholders since the last
shareholders meeting in May 2001.

                                       19
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

The Company's common stock has traded on the OTC Bulletin Board and the Pink
Sheets at various times during the last two fiscal years under the symbol: ARSD.
The following table sets forth the range of high and low bid prices for each
quarter as reported by the OTC Bulletin Board and the Pink Sheets. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.

<TABLE>
<CAPTION>
                                                                                             Pink Sheets
                                                                                    ----------------------------
                                                                                     High                   Low
                                                                                    -----                  -----
<S>                                                                                 <C>                    <C>
Fiscal Year Ended December 31, 2004
     First Quarter ended March 31, 2004                                             $0.05                  $0.04
     Second Quarter ended June 30, 2003                                             $0.06                  $0.05
     Third Quarter ended September 30, 2004                                         $0.10                  $0.06
     Fourth Quarter ended December 31, 2004                                         $0.13                  $0.10
</TABLE>

<TABLE>
<CAPTION>
                                                                                         OTC Bulletin Board
                                                                                    ----------------------------
                                                                                     High                   Low
                                                                                    -----                  -----
<S>                                                                                 <C>                    <C>
Fiscal  Year Ended December 31, 2003
     First Quarter ended March 31, 2003                                             $0.04                  $0.04
     Second Quarter from April 1, 2003 to May 27, 2003                              $0.06                  $0.05
</TABLE>

<TABLE>
<CAPTION>
                                                                                             Pink Sheets
                                                                                    ----------------------------
                                                                                     High                   Low
                                                                                    -----                  -----
<S>                                                                                 <C>                    <C>
Second Quarter from May 28, 2003 to June 30, 2003                                   $0.06                  $0.06
Third Quarter ended September 30, 2003                                              $0.06                  $0.03
Fourth Quarter ended December 31, 2003                                              $0.07                  $0.05
</TABLE>

At December 31, 2004, there were approximately 753 record holders of the
Company's common stock. The Company has not paid any dividends since its
inception and, at this time, does not have any plans to pay any dividends in the
foreseeable future. The provisions of the Refining Company agreements with its
lender restrict the declaration and payment of dividends and other distributions
to an amount not exceeding $50,000 per month, provided there is no event of
default under the relevant loan agreement. See Note 8 to the Consolidated
Financial Statements.

See Note 11 to the Consolidated Financial Statements for information about stock
options outstanding at December 31, 2004.

                                       20
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA.

The following is a five-year summary of selected financial data of the Company
(in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                  2004          2003         2002         2001           2000
                                               ----------   -----------   ----------   -----------    ----------
<S>                                            <C>          <C>           <C>          <C>            <C>
Revenues                                       $   59,793   $    39,625   $   36,753   $    32,713    $   42,612
Net Income (Loss)                              $    (2551)  $    (3,505)  $      692   $    (2,601)   $   (4,288)
Net Income (Loss) Per Share-Diluted            $     (.11)  $      (.15)  $      .03   $      (.11)   $     (.19)
Total Assets (at December 31)                  $   51,048   $    52,672   $   55,621   $    55,748    $   57,599
Notes Payable (at December 31)                 $   11,744   $    11,744   $   11,744   $    11,744    $   11,924
Current Portion of Long-Term Debt (at
     December 31)                              $    3,071   $     3,170   $    7,127   $     7,599    $    8,061
Total Long-Term Obligations
     (at December 31)                          $    4,916   $        --   $       --   $        --    $       --
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

GENERAL

Statements in Items 7 and 7A, as well as elsewhere in, or incorporated by
reference in, this Annual Report on Form 10-K regarding the Company's financial
position, business strategy and plans and objectives of the Company's management
for future operations and other statements that are not historical facts, are
"forward-looking statements" as that term is defined under applicable Federal
securities laws. In some cases, "forward-looking statements" can be identified
by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "contemplates," "proposes," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms and other comparable
terminology. Forward-looking statements are subject to risks, uncertainties and
other factors that could cause actual results to differ materially from those
expressed or implied by such statements. Such risks, uncertainties and factors
include, but are not limited to, general economic conditions domestically and
internationally; insufficient cash flows from operating activities; difficulties
in obtaining financing; outstanding debt and other financial and legal
obligations; lawsuits; competition; industry cycles; feedstock, specialty
petrochemical product and mineral prices; feedstock availability; technological
developments; regulatory changes; environmental matters; foreign government
instability; foreign legal and political concepts; and foreign currency
fluctuations, as well as other risks detailed in the Company's filings with the
U.S. Securities and Exchange Commission, including this Annual Report on Form
10-K, all of which are difficult to predict and many of which are beyond the
Company's control.

LIQUIDITY AND CAPITAL RESOURCES

The Company operates in two business segments, specialty petrochemicals (which
is composed of the entities owned by the Petrochemical Company) and mining. Its
corporate overhead needs are minimal. A discussion of each segment's liquidity
and capital resources follows.

Specialty Petrochemicals Segment. Historically, this segment has contributed all
of the Company's internally generated cash flows. Throughout the 1990's the
Petrochemical Company

                                       21
<PAGE>

enjoyed the benefits of economic expansion in the US and relatively low and
stable energy prices. In 2000, energy prices became more volatile and the
economy slowed, and the Company suffered operating losses as the petrochemical
industry struggled to adjust to the new environment. Beginning in February 2001,
the decline of feedstock and natural gas prices returned the Petrochemical
Company to a positive cash flow, which it attained for the remainder of 2001 and
throughout 2002. Demand for specialty solvents, while not enough to justify
operating the plant at capacity, was strong enough to cover fixed and variable
costs. The toll processing segment of the business remained strong throughout
2001 and 2002 and contributed to the Petrochemical Company's steady performance.
The Company also was able to successfully hedge its feedstock and a portion of
its fuel gas to dampen the effects of the new volatility in the energy markets.
During 2003, the industry again experienced tighter margins resulting from the
rise in feedstock prices and unfortunately, due to increased scrutiny of the
industry after the Enron fiasco, several of the Company's trading partners in
the hedging program dropped out of the business and the Company was again at the
mercy of rising petroleum costs. Feedstock prices remained at historically
higher prices throughout 2003 which resulted in operating losses for the segment
in 2003. After January 2004, feedstock prices temporarily began to fall back to
more moderate levels and at the same time the Company was able to establish a
trading relationship with an international integrated oil concern. When oil
prices began their dramatic rise in 2004, the Company had financial swaps in
place which gave it protection against sudden and volatile price swings in
feedstock prices and to a lesser extent, fuel gas costs. Product demand also
grew in 2004.

South Hampton obtains its feedstock requirements from a sole source vendor. At
April 30, 2004, South Hampton owed this supplier approximately $7,000,000. As
discussed in Note 8 to the Consolidated Financial Statements, on May 7, 2004,
South Hampton agreed to provide the supplier a first lien on the Silsbee plant
as security for the feedstock account. In addition to agreeing to continue the
feedstock supply arrangement, the supplier also signed a letter of intent
whereby the supplier will purchase up to $1,800,000 of capital equipment for use
by South Hampton to facilitate the execution of a new processing agreement
between a large toll processing customer and South Hampton. Under the agreement,
South Hampton would share the revenue of the toll processing agreement and
ownership of the equipment would revert to South Hampton after a specified
period of time. South Hampton is still considering this agreement as one option
for financing the project.

South Hampton entered into a $3,250,000 revolving credit agreement in September
1999 with a bank, which terminated in June 2003. In July 2003, a Purchase and
Sale (Factoring) Agreement with a limit of $4,500,000 was instituted with the
same bank. In July, 2004, the Bank raised the limit to $6,000,000 on the
factoring arrangement to accommodate the increased sales volume of South Hampton
and higher sales prices, which increased Accounts Receivable amounts. The limit
was raised to $8,500,000 in January, 2005 as sales volume and prices continued
to increase. Product imported from Coin increased volume during the latter part
of 2004. South Hampton generally operates with sufficient working capital by
having sold an average of approximately 68% of Accounts Receivable under the
agreement at any one time. The terms and conditions of this agreement are
discussed in Note 4 to the Consolidated Financial Statements.

In connection with the acquisition of the common stock of Coin, South Hampton
and Gulf State entered into a $3,500,000 loan agreement in December 1999 with a
commercial lending company. The loan was paid in full in 2003.

                                       22
<PAGE>

At December 31, 2004 Coin had two loans payable to Mexican banks in the
outstanding principal amounts of $0 and $2,044,096. The terms and conditions of
these loans are discussed in Note 8 to the Consolidated Financial Statements.
Also the creditor of the first loan initiated a mortgage foreclosure proceeding
in February, 2004 that resulted in a court ordered award of the plant facilities
to the creditor. The Company continues to control and operate the facility and
is vigorously protesting the foreclosure action by the lender. The final outcome
of the proceedings is difficult to predict and there is no assurance the Company
will maintain possession or ownership of the facility. Management recorded a
loss on the foreclosure of the facility with a charge to consolidated operations
of $2,900,964 during the fourth quarter of 2004. See Note 18 to the Consolidated
Financial Statements.

Mining Segment. This segment is in the development stage. Its most significant
asset is the Al Masane mining project in Saudi Arabia, which is a net user of
the Company's available cash and capital resources. As discussed in Item 2.
Properties, implementation of the project has been delayed until the open market
prices for the minerals to be produced by the mine improve. At that time, the
Company will attempt to locate a joint venture partner, form a joint venture
and, together with the joint venture partner, attempt to obtain acceptable
financing to commercially develop the project. There is no assurance that a
joint venture partner can be located, a joint venture formed or, if it is
formed, that the joint venture would be able to obtain acceptable financing for
the project.

Management also is addressing two other significant financing issues within this
segment. These issues are the $11,000,000 note payable due the Saudi Arabian
government and accrued salaries and termination benefits of approximately
$947,000 due employees working in Saudi Arabia (this amount does not include any
amounts due the Company's President and Chief Executive Officer who also
primarily works in Saudi Arabia and is owed accrued salary and termination
benefits of approximately $1,195,000).

Regarding the note payable, this loan was originally due in ten annual
installments beginning in 1984. The Company has not made any repayments nor has
it received any payment demands or other communications regarding the note
payable from the Saudi government. By memorandum to the King of Saudi Arabia in
1986, the Saudi Ministers of Finance and Petroleum recommended that the
$11,000,000 note be incorporated into a loan from SIDF to finance 50% of the
cost of the Al Masane project, repayment of the total amount of which would be
made through a mutually agreed upon repayment schedule from the Company's share
of the operating cash flows generated by the project. The Company remains active
in Saudi Arabia and received the Al Masane mining lease at a time when it had
not made any of the agreed upon repayment installments. Based on its experience
to date, management believes that as long as the Company diligently attempts to
explore and develop the Al Masane project no repayment demand will be made. The
Company has communicated to the Saudi government that its delay in repaying the
note is a direct result of the government's lengthy delay in granting the Al
Masane lease and requested formal negotiations to restructure this obligation.
Based on its interpretation of the Al Masane mining lease and other documents,
management believes the government is likely to agree to link repayment of this
note to the Company's share of the operating cash flows generated by the
commercial development of the Al Masane project and to a long-term installment
repayment schedule. In the event the Saudi government was to demand immediate
repayment of this obligation, which management considers unlikely, the Company
would be unable to pay the entire amount due. Under the most recent agreement
signed with the Ministry in May 2004, the Company has an obligation, among other
things, to start development of the mining operation within two years from the
date of the agreement. If the Company does not

                                       23
<PAGE>

comply with this obligation, it is unsure what will be the resulting status of
the lease or of the future of the debt as discussed.

With respect to the accrued salaries and termination benefits due employees
working in Saudi Arabia, the Company plans to continue employing these
individuals until it is able to generate sufficient excess funds to begin
payment of this liability. Management will then begin the process of gradually
releasing certain employees and paying its obligation as they are released from
the Company's employment.

At this time, the Company has no definitive plans for the development of its
domestic mining assets. It periodically receives proposals from outside parties
who are interested in possibly developing or using certain assets. Management
will continue to review these proposals as they are received, but at this time
does not anticipate making any significant domestic mining capital expenditures
or receiving any significant proceeds from the sale or use of these assets.

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

The report of the Company's independent registered public accounting firm states
that the Company had incurred cumulative losses through December 31, 2004 of
$19,108,460 and had an excess of current liabilities over current assets of
$20,428,408 at December 31, 2004. As discussed in Notes 2 and 8 to the
Consolidated Financial Statements, the Company was in default of various loan
agreements totaling $17,509,108, including accrued interest. All of these
matters raise substantial doubt about the Company's ability to continue as a
going concern in its present structure. While the petrochemical segment is able
to operate within its environment, it does not have or generate sufficient
resources to meet the debt or development needs of the mining operation.

The table below summarizes the following contractual obligations of the Company:

<TABLE>
<CAPTION>
                                                                           PAYMENTS DUE BY PERIOD
                                                                           ----------------------
                                                                       LESS THAN                               MORE THAN
CONTRACTUAL OBLIGATIONS                                    TOTAL        1 YEAR      1-3 YEARS     3-5 YEARS     5 YEARS
-----------------------                                  ----------    ---------    ---------     ---------    ---------
<S>                                                      <C>           <C>          <C>           <C>          <C>
Long-Term Debt Obligations                                7,859,168    3,044,096    4,815,072          ---            ---

Capital Lease Obligations                                   153,407       33,471       66,942       52,994            ---

Operating Lease Obligations                               4,832,028    1,090,666    1,242,600      738,600      1,760,162

Purchase Obligations                                            ---          ---          ---          ---            ---

Other Long-Term Liabilities Reflected on the Company's
Balance Sheet under GAAP                                        ---          ---          ---          ---            ---
                                                         ----------    ---------    ---------      -------      ---------

Total                                                    12,844,603    4,168,233    6,124,614      791,594      1,760,162
</TABLE>

                                       24
<PAGE>

RESULTS OF OPERATIONS

      Comparison of the Years 2004, 2003, 2002

      Specialty Petrochemicals Segment

This discussion of the petrochemicals segment of the business uses the table
below for purposes of illustration and discussion. The reader should rely on the
Audited Financial Statements attached to this report for financial analysis
under United States generally accepted accounting principles.

South Hampton facility sales increased in each of the last three years.
Historically, over the last twenty years, specialty products markets generally
did not experience significant volatility and prices might only be adjusted once
or twice a year. After the unstable years of 2000 and 2001, which saw a great
deal of price volatility, the petroleum markets in 2002 were relatively stable
as compared to what has become the norm during recent times. The Company learned
in 2003 that a more aggressive approach to product pricing is required in
today's environment.

From 2002 to 2003, the Company experienced an increase of 17% in Gross Sales on
products while volume during the same period increased by only 3%, indicating
that despite demand being somewhat flat, the Company successfully increased
sales prices in response to rising feedstock costs. But, as seen in the final
results, price increases alone were not sufficient to maintain the desired level
of profitability. From 2003 to 2004, the same Gross Sales figures indicate an
increase of 48% with a volume increase of approximately 12%. Thus, results of
the dramatic rise in oil prices over the period are evident. It is important to
note that the utilization rates described previously in this report and
increased sales volumes for 2004 indicate that market demand played a major role
in the increased success of the Company. Strong demand allowed the Company to
raise prices to the necessary level and still maintain market share.

Toll Processing Revenue fell during the period 2002 to 2003 and again in 2004
due to the loss of a major customer in August, 2003. The Company successfully
serviced the customers' needs for over five years and in early 2003, processing
difficulties developed. Analysis indicated the customer's feedstock supply had
changed characteristics and the Company's equipment was no longer suitable for
producing the products required. The contract was terminated by mutual consent.
The Company remains dedicated to maintaining a certain level of toll processing
business in the facility and will continue to pursue opportunities. The Company,
in January 2005, signed a contract with a current toll processing customer to
add equipment sufficient to increase production capacity to up to twice the
current levels by October 2005.

The Coin facility has had difficult times in recent years as discussed in Note
18 of the Consolidated Financial Statements. Sales in 2002 were the result of
periodically operating the plant, reselling material purchased from the South
Hampton facility, and other miscellaneous activities. As indicated, very little
activity took place in 2003, and then in early 2004 the market conditions
changed to allow the Company to start the plant and operate almost continuously
from March through the end of the year. The Coin facility has during that time
supplied the majority of pentane product sold in Mexico and has exported about
half of its production into the US to be marketed by South Hampton. The future
of the plant and its ownership by TOCCO is uncertain but the Company intends to
pursue every legal remedy possible to maintain its position. During March 2005,
an additional procedure in the process to transfer title occurred, such that,

                                       25
<PAGE>

management believes that it is probable title to the plant in Coatzacolacos will
ultimately be transferred to the creditor or its assignee. As a result,
management recorded the loss on foreclosure of the facility with a charge to
consolidated operations of $2,900,964 during the fourth quarter of 2004. The
following is a three year summary of selected financial data of the Company (in
thousands):

<TABLE>
<CAPTION>
                                      2004      2003      2002
                                     -------   -------   -------
<S>                                  <C>       <C>       <C>
TOCCO
Product Sales                        $52,428   $34,988   $29,943
Toll Processing                      $ 3,775   $ 3,864   $ 4,114
                                     -------   -------   -------
Gross Revenue                        $56,203   $38,852   $34,057

Volume of sales (thousand gallons)    32,685    29,154    28,252

COIN
Gross Revenue                        $ 3,590   $   773   $ 2,696

TOCCO
Cost of Materials                    $34,986   $23,877   $17,199
Total Operating Expense              $15,193   $13,107   $12,054
Natural Gas Expense                  $ 4,472   $ 4,295   $ 3,070
General & Administrative Expense     $ 3,326   $ 3,086   $ 2,944

Capital Expenditures                 $ 2,091   $   126   $   614
</TABLE>

Total Cost of Materials increased dramatically over the last three years as
mentioned in the discussion of Gross Sales. After a fairly flat 2002, prices
increased dramatically to record highs in early 2003, declined in early spring,
and began a steady climb for the next eighteen months. Prices continue to climb
today. The Company uses natural gasoline for its feedstock which is the heavier
liquid remaining after butane and propane are removed from liquids produced by
natural gas wells. The material is a commodity product in the oil/petrochemical
markets and generally is readily available. Alternative uses are in motor
gasoline blending and as a feedstock in other petrochemical processes, including
ethylene crackers. The price of natural gasoline generally has an 88%
correlation to the price of crude oil, meaning its market price rises and falls
with crude oil approximately 88% of the time. The Company maintains a hedge
position on approximately half of its feedstock needs, buying financial swaps to
protect the price for three to six months in advance as opportunities arise. The
numbers in the table above reflect the final price of materials, including
results of the realized and unrealized gains and losses of the hedging program.
Material purchases rose by 39% from 2002 to 2003 and by 47% from 2003 to 2004.

Operating Expenses for the petrochemical segment have increased over the past
three years, with natural gas, its single largest expense, leading the way. The
cost of natural gas purchases rose 40% from 2002 to 2003, and another 4% from
2003 to 2004. The dramatic rise from 2002 to 2003 was a major contributor to the
weak financial results for that time period. The Company also hedges a portion
of its natural gas supply costs using primarily options contracts for up to nine
months ahead. That program and its results are discussed in Note 17 to the
Consolidated

                                       26
<PAGE>

Financial Statements. Operating Expenses in general increased over the three
year period -- 9% from 2002 to 2003; and another 16% from 2003 to 2004. The rise
from 2002 to 2003 was primarily due to fuel gas cost increases. The increase in
Operating Expenses during 2004 resulted from higher fuel gas usage with
increased plant utilization, increased maintenance due to increased production,
and catch up of maintenance which had been delayed in the prior year due to weak
financial performance. By the end of 2004, maintenance was current and equipment
reliability was good.

General and Administrative costs have remained relatively flat for the periods
discussed above. There were no changes in the number of personnel employed and
insurance costs have been flat, reflecting only increased amounts needed to
cover expanding operations and sales. The Company has successfully emphasized
its safety program to assist in keeping insurance costs under control.

Capital Expenditures were average for the needs of the plant during 2002, and
were minimized during 2003 as the Company struggled with high fuel and feedstock
costs. In 2004, as conditions improved, the Company invested money into key
areas of the plant and pipeline to ensure a safe and reliable facility. In the
later part of 2004, the Company began acquiring equipment needed to
de-bottleneck the PenHex Unit and increase capacity. The TCEQ permit to begin
construction was obtained in January 2005. The expanded operation is expected to
be completed in the first quarter of 2005.

      Mining Segment and General Corporate Expenses.

None of the Company's mining operations generate operating or other revenues.
The minority interest amount represents the Pioche and Coin minority
stockholders' share of the losses from the Pioche and Coin operations. Pioche
losses are primarily attributable to the costs of maintaining the Nevada mining
properties.

The Company had net operating loss carry forwards of approximately $7,610,000 at
December 31, 2004. These loss carry forwards expire during the years 2005
through 2023.

New Accounting Standards

In 2004, the FASB issued SFAS No. 123R, "Share-Based Payments", which will
require that the cost resulting from all share-based payments be recognized in
the financial statements, based upon the application of a fair value-based
measurement method. SFAS 123R is effective as of the beginning of the third
quarter of 2005. The Company does not anticipate the adoption of the Statement
to have a material impact on the results of operations.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs". SFAS No. 151
amends guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). The Statement requires that these items
be recognized as current-period charges. SFAS No. 151 is effective for fiscal
years beginning after June 15, 2005. The Company does not expect the adoption of
SFAS No. 151 to have a material impact on the results of operations.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary
Assets". SFAS No. 153 amends APB Opinion No. 29, "Accounting for Non-monetary
Transactions" to eliminate

                                       27
<PAGE>

the exception for non-monetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of non-monetary assets that
do not have commercial substance. A non-monetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The Statement is effective for fiscal
periods beginning after June 15, 2005. The Company does not expect adoption of
SFAS No 153 to have a material impact on the results of operations.

CRITICAL ACCOUNTING POLICIES

      Recoverability of Investments

Management periodically reviews and evaluates the recoverability of the
Company's investments, which primarily include its mineral exploration and
development projects. The significant judgment required in management's
recoverability assessment is the determination of the fair value of the
investment. Accounting standards require that if the sum of the future cash
flows expected to result from a company's asset, undiscounted and without
interest charges, is less than the reported value of the asset, an asset
impairment must be recognized in the financial statements. The amount of
impairment to recognize is calculated by subtracting the fair value of the asset
from the reported value of the asset. The recoverability of the carrying values
of the Company's development properties are assessed by comparing the carrying
values to estimated future net cash flows from each property. The Company's most
significant asset is the Al Masane mining project in Saudi Arabia. In February
2005, for purposes of estimating future cash flows, the price assumptions
contained in the 1996 update to the Al Masane project's feasibility study, which
was prepared by WGM, were updated by an independent consultant. See Item 2.
Properties. These price assumptions are averages over the projected ten-year
life of the Al Masane mine and are $1.40 per pound for copper, $.53 per pound
for zinc, $400 per ounce for gold and $6.50 per ounce for silver. Copper and
zinc comprise in excess of 80% of the expected value of production. For its
other mineral properties and related assets, carrying values were compared to
estimated net realizable values based on market comparables. Using these price
assumptions, no asset impairments existed.

The Company assesses the carrying values of its assets on an ongoing basis.
Factors which may affect carrying values include, but are not limited to,
mineral prices, capital cost estimates, the estimated operating costs of any
mines and related processing, ore grade and related metallurgical
characteristics, the design of any mines and the timing of any mineral
production. There are no assurances that, particularly in the event of a
prolonged period of depressed mineral prices, the Company will not be required
to take a material write-down of any of its mineral properties.

      Environmental Liabilities

The petrochemical operations by South Hampton are subject to the rules and
regulations of the TCEQ, which inspects the operations at various times for
possible violations relating to air, water and industrial solid waste
requirements. As noted in Item 1. Business and Item 3. Legal Proceedings,
evidence of groundwater contamination was discovered in 1993. The recovery
process, initiated in 1998, is proceeding as planned and is expected to continue
for many years.

Also, in 1997 the TCEQ notified South Hampton of several alleged violations
relating to air quality rules and the storage, processing and disposal of
hazardous waste. Some claims have

                                       28
<PAGE>

been dropped, some have been settled and others continue to be negotiated. It is
the Company's policy to accrue remediation costs based on estimates of known
environmental remediation exposure. At December 31, 2004, a liability of
$200,000 has been accrued to cover future estimated costs of these environmental
issues.

      Foreign Currency and Operations

The Company has undeveloped mining interests in Saudi Arabia and a majority
interest in a refining company in Mexico. These interests are subject to foreign
laws and foreign conditions, with the attendant varying risks and advantages.
Foreign exchange controls, foreign legal and political concepts, foreign
government instability, international economics and other factors create risks
not necessarily comparable with those involved in doing business in the United
States. Any changes in these conditions and influences could have a material
adverse effect on the Company's financial condition, operating results and cash
flows.

The functional currency for each of the Company's two foreign operations is the
U.S. dollar. Transaction gains or losses, as a result of conversion from the
local currency to the U.S. dollar, are reflected in the statements of operations
as a foreign exchange transaction gain or loss. The Company does not employ any
practices to minimize foreign currency risks. The exchange rate of the Saudi
riyal to the U.S. dollar has not changed in many years, but there is no
guarantee that this will not change. The foreign exchange transaction gains and
losses as reflected in the statements of operations are a result of changes in
the exchange rate of the Mexican peso to the U.S. dollar, which does fluctuate
periodically. These changes have not been material.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The market risk inherent in the Company's financial instruments represents the
potential loss resulting from adverse changes in interest rates, foreign
currency rates and commodity prices. The Company's exposure to interest rate
changes results from its variable rate debt instruments which are vulnerable to
changes in short term United States prime interest rates. At December 31, 2004,
2003 and 2002, the Company had approximately $2,500,000, $2,500,000 and
$5,800,000, respectively, in variable rate debt outstanding. A hypothetical 10%
change in interest rates underlying these borrowings would result in annual
changes in the Company's earnings and cash flows of approximately $18,200,
$18,200 and $34,300 at December 31, 2004, 2003 and 2002, respectively.

The Company is also exposed to market risk in the exchange rate of the Saudi
Arabian riyal and the Mexican peso as measured against the United States dollar.
The Company does not view these exposures as significant and has not acquired or
issued any foreign currency derivative financial instruments.

The Petrochemical Company purchases all of its raw materials, consisting of
feedstock and natural gas, on the open market. The cost of these materials is a
function of spot market oil and gas prices. As a result, the Petrochemical
Company's revenues and gross margins could be affected by changes in the price
and availability of feedstock and natural gas. As market conditions dictate, the
Petrochemical Company from time to time will engage in various hedging
techniques including financial swap and option agreements. The Petrochemical
Company does not use such financial instruments for trading purposes and is not
a party to any leveraged derivatives. The Company's policy on such hedges is to
buy positions as opportunities present themselves in the market and to hold such
positions until maturity, thereby offsetting the physical purchase and price of
the materials

                                       29
<PAGE>

At the end of 2003, market risk for 2004 was estimated as a hypothetical 10%
increase in the cost of natural gas and feedstock over the market price
prevailing on December 31, 2003. To help mitigate this risk, as of December 31,
2003, the Company had natural gas option agreements in effect expiring in
September 2004 through March 2005. Additionally, the Company entered into option
agreements for natural gas and financial swap agreements for feedstock
throughout the year. Had the option and swap agreements outstanding as of
December 31, 2003 not been in place, and assuming 2004 total product sales
volumes at the same rate as 2003, such an increase would have resulted in an
increase in the cost of natural gas and feedstock of approximately $3,500,000 in
fiscal 2004, The results of the option agreements and financial swaps for 2004
are discussed further in Note 17 to the Consolidated Financial Statements.

At the end of 2004, market risk for 2005 was again estimated as a hypothetical
10% increase in the cost of natural gas and feedstock over the market price
prevailing on December 31, 2004. To mitigate this risk, at December 31, 2004,
the Company had natural gas option agreements in effect expiring in February
2005 and March 2005, which covered approximately 70% of the fuel gas usage.
Additionally, during the first quarter of 2005 the Company entered into natural
gas option agreements that expire through October 2005. The options cover
approximately 50% of the average monthly fuel gas requirements. The Company also
entered into financial swap agreements covering approximately 50% of the
feedstock requirements through the second quarter of 2005. Assuming 2005 total
refined product sales volumes at the same rate as 2004, the 10% market risk
increase will result in an increase in the cost of natural gas and feedstock of
approximately $4,000,000 in fiscal 2005, before considering the effect of the
option and swap agreements outstanding as of December 31, 2004.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements of the Company and the financial statement schedules,
including the report of the independent registered public accounting firm
thereon, are included elsewhere in this document.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

The disclosure required by this item has been previously reported by the Company
by a Current Report on Form 8-K dated January 31, 2003, a Current Report on Form
8-K/A dated January 31, 2003 and a Current Report on Form 8-K dated June 16,
2003.

ITEM 9A.  CONTROLS AND PROCEDURES.

The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's President and
Chief Executive Officer and Treasurer, of the effectiveness of the Company's
disclosure controls and procedures, as of the end of the period covered by this
report. Based upon that evaluation, the President and Chief Executive Officer
and Treasurer concluded that, as of the end of the period covered by this
report, the Company's disclosure controls and procedures were effective such
that information relating to the Company (including its consolidated
subsidiaries) required to be disclosed in the Company's Securities and Exchange
Commission reports (i) is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission rules and
forms and (ii) is accumulated and communicated to the Company's management,
including

                                       30
<PAGE>

the President and Chief Executive Officer and Treasurer, as appropriate to allow
timely decisions regarding required disclosure.

During the quarter ended December 31, 2004, there were no changes in the
Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

                                       31
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following sets forth the name and age of each director of the Company, the
date of his election as a director and all other positions and offices with the
Company presently held by him.

<TABLE>
<CAPTION>
NAME; BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS                             AGE              DATE OF ELECTION
----------------------------------------------                             ---              ----------------
<S>                                                                        <C>              <C>
John A. Crichton.............................................              88                   May 1967
   Chairman of the Board of the Company since 1967;
   Chief Executive Officer of the Company from 1967 to
   February 1994

Hatem El-Khalidi.............................................              80                  April 1968
   President of the Company since 1975; prior to 1975
   Vice President of the Company; Chief Executive
   Officer of the Company since February 1994

Mohammed O. Al-Omair.........................................              61                   May 1993
   Executive Vice President, Saudi Fal Group of
   Companies, Riyadh, Saudi Arabia since 1985
   (investments); President, Advanced Systems Ltd.,
   Riyadh, Saudi Arabia since 1985 (mainframe
   computers)

Ghazi Sultan.................................................              67                September 1993
   Chairman, 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
</TABLE>

Each director of the Company is elected annually to serve until his successor is
elected and qualified. Each person listed in the foregoing table has served as a
director since the date of election indicated. In connection with an increase in
the number of positions on the Board of Directors in 1993, at the request of
Sheik Fahad Al-Athel, the Company appointed Mohammed O. Al-Omair, who had served
as a director of the Company from November 1989 to March 1991, to fill one of
the newly-created vacancies. See Item 3. Legal Proceedings for a discussion of
the cease and desist order entered into with the SEC enjoining Mr. El-Khalidi
from future violations of the federal securities laws.

The Board of Directors of the Company has an Audit Committee which is currently
composed of Messrs. Ghazi Sultan and Mohammed O. Al-Omair. The Board has
determined that each of the members of the Audit Committee meets the Securities
and Exchange Commission and National Association of Securities Dealers standards
for independence. The Board has also determined that Mohammed O. Al-Omair meets
the Securities and Exchange Commission criteria of an "audit committee financial
expert."

                                       32
<PAGE>

The following table sets forth the name of each executive officer of the
Company, his age and all the positions and offices with the Company held by him:

<TABLE>
<CAPTION>
Name                                     Positions                         Age
------------------     -----------------------------------------------     ---
<S>                    <C>                                                 <C>
John A. Crichton       Chairman of the Board and Director                  88
Hatem El-Khalidi       President, Chief Executive Officer and Director     80
Nicholas N. Carter     Secretary and Treasurer/President - TOCCO           58
</TABLE>

Each executive officer of the Company serves for a term extending until his
successor is elected and qualified. Information concerning Messrs. Crichton and
El-Khalidi is set forth above. Mr. Carter was elected Secretary /Treasurer of
the Company effective October 1, 2004 upon the retirement of the previous
officeholder, Mr. Drew Wilson, who had served in that capacity since 1986. Mr.
Carter is a Certified Public Accountant and has worked for Texas Oil and
Chemical Co. and subsidiaries since 1977. Mr. Carter has been President of TOCCO
and its subsidiaries since 1987, prior to which time he served as Treasurer and
Controller of those companies.

The Company has adopted a Code of Ethics that applies to the Company's principal
executive officer, principal financial officer, principal accounting officer and
controller, and to persons performing similar functions. A copy of the Code of
Ethics has been filed as an exhibit to this Annual Report on Form 10-K.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than 10% stockholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. To the best of the Company's knowledge, during the fiscal
year ended December 31, 2004, all Section 16(a) filing requirements applicable
to its officers, directors and greater than 10% beneficial owners were complied
with.

ITEM 11.  EXECUTIVE COMPENSATION.

The following information summarizes annual compensation for services in all
capacities to the Company for the fiscal years ended December 31, 2004, 2003 and
2002 of the Chief Executive Officer and the other four most highly compensated
executive officers of the Company:

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                   RESTRICTED   SECURITIES   LONG-TERM
                                                    OTHER ANNUAL      STOCK     UNDERLYING   INCENTIVE    ALL OTHER
      NAME AND                  SALARY     BONUS    COMPENSATION    AWARD(S)     OPTIONS/      PLAN      COMPENSATION
PRINCIPAL POSITION(1)   YEAR    ($) (2)     ($)          ($)           ($)       SARS (#)   PAYOUTS($)     ($) (3)
---------------------   ----   --------   -------   ------------   ----------   ----------  ----------   ------------
<S>                     <C>    <C>        <C>       <C>            <C>    <C>   <C>         <C>          <C>
Hatem El-Khalidi,       2004   $ 72,000        --         --           --           --          --          $8,000
  President and Chief   2003   $ 72,000        --         --           --           --          --          $8,000
  Executive Officer     2002   $ 72,000        --         --           --           --          --          $8,000

Nicholas N. Carter      2004   $139,629   $10,680         --           --           --          --              --
  President, TOCCO      2003   $113,874   $26,250         --           --           --          --              --
                        2002   $ 84,500   $61,700         --           --           --          --              --
</TABLE>

                                       33
<PAGE>

(1)   Except for Mr. Carter, no executive officer of the Company had total
      annual salary and bonus in excess of $100,000 during the fiscal year ended
      December 31, 2004.

(2)   Includes $28,591, $37,639 and $55,898 in compensation for the fiscal years
      ended December 31, 2004, December 31, 2003 and December 31, 2002,
      respectively, that was deferred at the election of Mr. El-Khalidi. All
      present deferred compensation owing to Mr. El-Khalidi aggregating $910,746
      is considered, and future deferred compensation owing to Mr. El-Khalidi,
      if any, will be considered payable to Mr. El-Khalidi on demand.

(3)   Includes $8,000 in termination benefits for each of the fiscal years ended
      December 31, 2004, December 31, 2003 and December 31, 2002, 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, 2004 was $284,000.

In accordance with Saudi Arabian employment laws, the Company is required to
accrue termination benefits for Mr. El-Khalidi. The amount accrued for the
benefit of Mr. El-Khalidi is based on the number of years of service and
compensation. Accrued benefits are payable upon termination of employment. The
Company has engaged in other transactions and entered into other arrangements,
directly or indirectly, with its officers and directors, the primary purpose of
certain of which was to provide additional compensation to such persons. See
Item 13,Certain Relationships and Related Transactions.

The Company is authorized to pay its non-employee directors a fee of $200 for
each Board meeting and $100 for each committee meeting which they attend, in
addition to reimbursing them for expenses incurred in connection with their
attendance. No compensation or expense was paid in relation to Board activities
during 2004.

                       AGGREGATED OPTION/SAR EXERCISES IN
             LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS/SAR VALUES

The following table shows information concerning the exercise of stock options
during the fiscal year ended December 31, 2004 by the executive officers named
in the Summary Compensation Table and the estimated value of unexercised options
held by such individuals at year-end:

<TABLE>
<CAPTION>
                                                                NUMBER OF SECURITIES         VALUE OF UNEXERCISED
                                                               UNDERLYING UNEXERCISED            IN-THE-MONEY
                                 SHARES                           OPTIONS/SARS AT               OPTIONS/SARS AT
                              ACQUIRED ON        VALUE               FY-END(#)                   FY-END ($)(1)
         NAME                 EXERCISE (#)    REALIZED($)    EXERCISABLE/UNEXERCISABLE     EXERCISABLE/UNEXERCISABLE
----------------------        ------------    -----------    -------------------------     -------------------------
<S>                           <C>             <C>            <C>                           <C>
Hatem El-Khalidi......             0               0                 400,000/0                       $0/0
</TABLE>

(1)   Based on the closing price of $.14 of the Company's Common Stock on the
      Pink Sheets on December 31, 2004.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth, as of December 31, 2004, information as to the
beneficial ownership of the Company's Common Stock by each person known by the
Company to beneficially own more than 5% of the Company's outstanding Common
Stock, by each of the Company's executive officers named in the Summary
Compensation Table, by each of the Company's directors and by all directors and
executive officers of the Company as a group.

                                       34
<PAGE>

<TABLE>
<CAPTION>
                                                                               SHARES
 NAME AND ADDRESS                                                           BENEFICIALLY           PERCENT
OF BENEFICIAL OWNER                                                          OWNED (1)             OF CLASS
-------------------                                                         ------------           --------
<S>                                                                         <C>                    <C>
Fahad Mohammed Saleh Al-Athel....................................            3,586,468              15.8%
c/o Saudi Fal
P. O. Box 4900
Riyadh, Saudi Arabia 11412

Mohammad Salem ben Mahfouz.......................................            1,500,000               6.6%
c/o National Commercial Bank
Jeddah, Saudi Arabia

Harb S. Al Zuhair................................................            1,300,000               5.7%
P.O. Box 3750
Riyadh, Saudi Arabia

Prince Talal Bin Abdul Aziz......................................            1,272,680               5.6%
P. O. Box 930
Riyadh, Saudi Arabia

Hatem El-Khalidi.................................................              474,000(2)            2.0%
10830 North Central Expressway, Suite 175
Dallas, Texas 75231

John A. Crichton.................................................                  650                  *
10830 North Central Expressway, Suite 175
Dallas, Texas 75231

Mohammed O. Al-Omair.............................................               25,000                  *
c/o Saudi Fal
P. O. Box 4900
Riyadh, Saudi Arabia 11412

Ghazi Sultan.....................................................               25,000                  *
P.O. Box 5360
Jeddah, Saudi Arabia  21422

Nicholas N. Carter...............................................               34,500                  *
P.O. Box 1636
Silsbee, Texas 77656

All directors and executive officers as a group (6 persons)......              559,150(3)            2.5%
</TABLE>

(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 400,000 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.

                                       35
<PAGE>

Based on its stock ownership records, the Company believes that, as of December
31, 2004, Saudi Arabian stockholders currently hold approximately 61% of the
Company's outstanding Common Stock, without giving effect to the exercise of
presently exercisable stock options held by certain of such stockholders.
Accordingly, if all or any substantial part of the Saudi Arabian stockholders
were considered as a group, they could be deemed to "control" the Company as
that term is defined in regulations promulgated by the SEC. Although they have
orally waived their rights, certain of the Company's Saudi Arabian stockholders
are parties to written agreements providing them with the right to purchase
their proportionate share of additional shares sold by the Company.

The management of the Company has welcomed the substantial stock investment by
its Saudi stockholders. Saudi investors have contributed vitally needed capital
to the Company since 1974. Whether the Company's Saudi stockholders will be a
continuing source of future capital is not known at this time. In confronting
the need for additional funds, management of the Company will follow the policy
of considering all potential sources consistent with prudent business practice
and the best interests of all its stockholders. In the course of considering
methods of future financing and other matters relating to the operations of the
Company, management of the Company anticipates that in the ordinary course of
business it will receive recommendations and suggestions from its principal
stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company directly owns approximately 55% of the outstanding capital stock of
Pioche. Mr. John A. Crichton is currently a director and President of Pioche,
and Mr. Hatem El-Khalidi is currently a director and Executive Vice President of
Pioche. The Company is providing the funds necessary to cover the Pioche
operations. During 2004 and 2003, the Company made payments of approximately
$19,000 and $17,800, respectively, for such purposes. As of December 31, 2004,
Pioche owed the Company $97,339 as a result of advances made by the Company. The
indebtedness bears no interest.

Pursuant to a sharing arrangement, the Company and its subsidiaries share
personnel, office space and other overhead expenses in Dallas, Texas with Mr.
John A. Crichton, Chairman of the Board of the Company. Monthly rental on the
office space is approximately $1,600. The Company pays approximately $1,100 per
month for rent and approximately $980 per month for personnel and other overhead
expenses pursuant to such arrangement.

During 2004, South Hampton incurred product transportation costs of
approximately $414,000 with Silsbee Trading and Transportation Corp. ("STTC"), a
private trucking and transportation carrier in which Nicholas N. Carter, the
President of TOCCO, and Richard Crain, former Vice President of TOCCO, each had
a 50% equity interest. Mr. Crain resigned on January 2, 2004 as an officer of
TOCCO and a co-owner of STTC. Pursuant to a lease agreement, South Hampton
leases transportation equipment from STTC. Lease payments at the beginning of
2004 were approximately $34,500 per month and were raised to approximately
$45,000 per month as new and additional tractors and trailers were added to the
fleet throughout the year. With the increase in volume of the products produced
with the new expansion of the facility which is currently underway, additional
transportation equipment is expected to be required. Under the lease
arrangement, STTC provides the transportation equipment and all normal
maintenance on such equipment and South Hampton provides the drivers, fuel,
management of transportation operations and insurance on the transportation
equipment. Approximately 95% of STTC's

                                       36
<PAGE>

income will be derived from such lease arrangement. The lease agreement operated
on a month-to-month basis until January 1, 2004, when a new five year agreement
was signed. The transportation company also entered into a capital lease with
South Hampton for acquisition of a motorized man lift. At the end of the five
year lease period, title to the equipment will be transferred to South Hampton
for a final payment of one dollar.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The table below sets forth the fees that Moore Stephens Travis Wolff, LLP billed
the Company for the audit of its financial statements for the fiscal years ended
December 31, 2004 and 2003 and the review of its financial statements for the
quarterly periods in the year ended December 31, 2004, and all other fees Moore
Stephens Travis Wolff, LLP billed the Company for services rendered during the
fiscal years ended December 31, 2004 and December 31, 2003, respectively:

<TABLE>
<CAPTION>
                           2004           2003
                         --------       --------
<S>                      <C>            <C>
Audit Fees               $131,626       $ 96,874

Audit-Related Fees       $      0       $      0

Tax Fees                 $      0       $      0

All Other Fees           $              $   2500
</TABLE>

Under its charter, the Audit Committee must pre-approve all auditing services
and permitted non-audit services (including the fees and terms thereof) to be
performed for the Company by its independent auditor, subject to the de minimis
exceptions for non-audit services under the Securities Exchange Act of 1934, as
amended, which are approved by the Audit Committee prior to the completion of
the audit. The Audit Committee may delegate authority to grant pre-approvals of
audit and permitted non-audit services to subcommittees, provided that decisions
of the subcommittee to grant pre-approvals must be presented to the full Audit
Committee at its next scheduled meeting. During 2004, each new engagement of
Moore Stephens Travis Wolff, LLP was approved in advance by the Audit Committee.

                                       37
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)1. The following financial statements are filed with this Report:

            Reports of Independent Registered Public Accounting Firm.

            Consolidated Balance Sheets dated December 31, 2004 and 2003.

            Consolidated Statements of Operations for the three years ended
                  December 31, 2004.

            Consolidated Statement of Stockholders' Equity for the three years
                  ended December 31, 2004.

            Consolidated Statements of Cash Flows for the three years ended
                  December 31, 2004.

            Notes to Consolidated Financial Statements.

2.    The following financial statement schedules are filed with this Report:

            Schedule II -- Valuation and Qualifying Accounts for the three years
                  ended December 31, 2004.

3.    Independent Auditors' Report covering the financial statements of
Productos Quimicos Coin, S.A. de C.V.

4.    The following documents are filed or incorporated by reference as exhibits
to this Report. Exhibits marked with an asterisk (*) are management contracts or
a compensatory plan, contract or arrangement.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                 DESCRIPTION
-------                                -----------
<S>           <C>

3(a)    -     Certificate of Incorporation of the Company as amended through the
              Certificate of Amendment filed with the Delaware Secretary of State
              on July 19, 2000 (incorporated by reference to Exhibit 3(a) to the
              Company's Annual Report on Form 10-K for the year ended December 31,
              2000 (File No. 0-6247)).

3(b)    -     Bylaws of the Company, as amended through March 4, 1998
              (incorporated by reference to Exhibit 3(b) to the Company's Annual
              Report on Form 10-K for the year ended December 31, 1999 (File No.
              0-6247)).

10(a)   -     Contract dated July 29, 1971 between the Company, National Mining
              Company and Petromin (incorporated by reference to Exhibit 10(a) to
              the Company's Annual Report on Form 10-K for the year ended December
              31, 1999 (File No. 0-6247)).
</TABLE>

                                         38
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                   DESCRIPTION
-------                                  -----------
<S>           <C>
10(b)   -     Loan Agreement dated January 24, 1979 between the Company, National
              Mining Company and the Government of Saudi Arabia (incorporated by
              reference to Exhibit 10(b) to the Company's Annual Report on Form
              10-K for the year ended December 31, 1999 (File No. 0-6247)).

10(c)   -     Mining Lease Agreement effective May 22, 1993 by and between the
              Ministry of Petroleum and Mineral Resources and the Company
              (incorporated by reference to Exhibit 10(c) to the Company's Annual
              Report on Form 10-K for the year ended December 31, 1999 (File No.
              0-6247)).

10(d)   -     Stock Option Plan of the Company, as amended (incorporated by
              reference to Exhibit 10(d) to the Company's Annual Report on Form
              10-K for the year ended December 31, 1999 (File No. 0-6247)).*

10(e)   -     Letter Agreement dated May 3, 1991 between Sheikh Kamal Adham and
              the Company (incorporated by reference to Exhibit 10(j) to the
              Company's Annual Report on Form 10-K for the year ended December 31,
              1999 (File No. 0-6247)).

10(f)   -     Promissory Note dated February 17, 1994 from Hatem El-Khalidi to the
              Company (incorporated by reference to Exhibit 10(k) to the Company's
              Annual Report on Form 10-K for the year ended December 31, 1999
              (File No. 0-6247)).

10(g)   -     Letter Agreement dated August 15, 1995 between Hatem El-Khalidi and
              the Company (incorporated by reference to Exhibit 10(l) to the
              Company's Annual Report on Form 10-K for the year ended December 31,
              1999 (File No. 0-6247)).

10(h)   -     Letter Agreement dated August 24, 1995 between Sheikh Kamal Adham
              and the Company (incorporated by reference to Exhibit 10(m) to the
              Company's Annual Report on Form 10-K for the year ended December 31,
              1999 (File No. 0-6247)).

10(i)   -     Letter Agreement dated October 23, 1995 between Sheikh Fahad
              Al-Athel and the Company (incorporated by reference to Exhibit 10(n)
              to the Company's Annual Report on Form 10-K for the year ended
              December 31, 1999 (File No. 0-6247)).

10(j)   -     Letter Agreement dated November 30, 1996 between Sheikh Fahad
              Al-Athel and the Company (incorporated by reference to Exhibit 10(o)
              to the Company's Annual Report on Form 10-K for the year ended
              December 31, 2001 (File No. 0-6247)).
</TABLE>

                                         39
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                   DESCRIPTION
-------                                  -----------
<S>           <C>
10(l)   -     Purchase and Sale Agreement/Security Agreement dated July 29, 2003
              between Southwest Bank of Texas, N.A. and South Hampton Refining
              Company, together with related Restricted Payments Letter Agreement
              and Guaranty of Texas Oil & Chemical Co. II, Inc. (incorporated by
              reference to Exhibit 10(s) to the Company's Annual Report on Form
              10-K for the year ended December 31, 2002 (File No. 0-6247)).

10(m)   -     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(n)   -     Pledge Agreement dated as of May 15, 2001, by Arabian American
              Development Company, American Shield Refining Company, Fahad
              Al-Athel, Hatem El-Khalidi, Ingrid El-Khalidi and Preston Peak.
              (incorporated by reference to Exhibit 10(p) to the Company's Annual
              Report on Form 10-K for the year ended December 31, 2003 (File
              No. 0-6247)).

10(o)   -     Security Agreement and Deed of Trust dated June 1, 2004 between
              South Hampton Refining Company and Martin Operating Partnership,
              L.P. (incorporated by reference to Exhibit 10(p) to the Company's
              Quarterly Report on Form 10-Q for the quarter ended June 30, 2004
              (File No. 0-6247)).

10(p)   -     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)).

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.
</TABLE>

                                       40
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                   DESCRIPTION
-------                                  -----------
<S>           <C>
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.
</TABLE>

(b)   No reports on Form 8-K were filed during the last quarter of the period
      covered by this Report.

                        -

                        - .

                                       41
<PAGE>

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each of Arabian American Development
Company, a Delaware corporation, and the undersigned directors and officers of
Arabian American Development Company, hereby constitutes and appoints John A.
Crichton its or his true and lawful attorney-in-fact and agent, for it or him
and in its or his name, place and stead, in any and all capacities, with full
power to act alone, to sign any and all amendments to this Report, and to file
each such amendment to the Report, with all exhibits thereto, and any and all
other documents in connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorney-in-fact and agent full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises as fully to all intents and purposes as it
or he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                       ARABIAN AMERICAN DEVELOPMENT
                                       COMPANY

Dated: April 8, 2005                       By: /s/ Hatem El-Khalidi
                                               ---------------------------------
                                           Hatem El-Khalidi
                                           President and Chief Executive Officer

                                       42
<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Company in the
capacities indicated on April 8, 2005.

          SIGNATURE                                  TITLE

  /s/ Hatem El-Khalidi           President, Chief Executive Officer and Director
--------------------------                (principal executive officer)
      Hatem El-Khalidi

 /s/ Nicholas N. Carter                     Secretary and Treasurer
--------------------------        (principal financial and accounting officer)
     Nicholas N. Carter

  /s/  John A. Crichton                Chairman of the Board and Director
--------------------------
      John A. Crichton

/s/ Mohammed O. Al-Omair
--------------------------
    Mohammed O. Al-Omair                            Director

    /s/  Ghazi Sultan
--------------------------
        Ghazi Sultan                                Director

                                       43
<PAGE>

<TABLE>
<CAPTION>
                                                                                      PAGE
<S>                                                                                   <C>
INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm.....................           F-1

Consolidated Balance Sheets at December 31, 2004 and 2003...................           F-3

Consolidated Statements of Operations
     For the Years Ended December 31, 2004, 2003 and 2002...................           F-5

Consolidated Statement of Stockholders' Equity
     For the Years Ended December 31, 2004, 2003 and 2002...................           F-6

Consolidated Statements of Cash Flows
    For the Years Ended December 31, 2004, 2003 and 2002....................           F-7

Notes to Consolidated Financial Statements..................................           F-8

INDEX TO FINANCIAL STATEMENT SCHEDULES

Report of Independent Registered Public Accounting Firm on Schedules........          F-29

Schedule II - Valuation and Qualifying Accounts
    For the Three Years Ended December 31, 2004.............................          F-30

INDEX TO SUPPLEMENTAL INDEPENDENT AUDITORS' REPORTS

Independent Auditors' Report on Productos Quimicos Coin, S.A. DE D.V.
    For the Financial Statements at December 31, 2004.......................          F-31

Independent Auditors' Report on Productos Quimicos Coin, S.A. DE D.V.
    For the Financial Statements at December 31, 2003.......................          F-33

Independent Auditors' Report on Productos Quimicos Coin, S.A. DE D.V.
    For the Financial Statements at December 31, 2002.......................          F-35
</TABLE>

                                       44
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Arabian American Development Company and Subsidiaries
Dallas, Texas

We have audited the accompanying consolidated balance sheets of Arabian American
Development Company and Subsidiaries (the "Company") as of December 31, 2004 and
2003 and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2004. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Productos Quimicos Coin S.A. de. C.V. (Coin), a majority-owned
subsidiary, as of December 31, 2004 and 2003, or for the three years in the
period ended December 31, 2004, the statements of which reflect total assets
constituting 1% and 5%, respectively, and total revenues constituting 10%, 3%
and 10%, respectively, of the consolidated totals. These statements were audited
by other auditors whose reports thereon have been furnished to us and our
opinion, insofar as it relates to amounts included for Coin, is based solely on
the reports of the other auditors.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Arabian American
Development Company and Subsidiaries as of December 31, 2004 and 2003 and the
consolidated results of operations and cash flows for each of the three years in
the period ended December 31, 2004 in conformity with U. S. generally accepted
accounting principles.

                                      F-1
<PAGE>

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the consolidated financial
statements, the Company incurred cumulative losses through December 31, 2004 of
$19,108,460 and had an excess of current liabilities over current assets of
$20,428,408 at December 31, 2004. As discussed in Notes 2 and 8 to the
consolidated financial statements, at December 31, 2004, the Company was in
default of various loan agreements totaling $17,509,108, including accrued
interest. If resolution with the Company's creditors is not achieved, and the
Company does not generate positive cash flow adequate for its operations and
loan obligations, the Company will have to raise debt or equity capital. There
is no assurance that debt financing or capital would be available. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

/s/ MOORE STEPHENS TRAVIS WOLFF, LLP

Dallas, Texas
March 20, 2005

                                      F-2
<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                            ------------------------------
                                                2004              2003
                                            ------------      ------------
<S>                                         <C>               <C>
                  ASSETS

CURRENT ASSETS
    Cash                                    $    623,202      $    177,716
    Trade receivables, net                     3,198,081         2,810,858
    Inventories                                1,243,693           656,481
                                            ------------      ------------

          Total current assets                 5,064,976         3,645,055

PLANT, PIPELINE AND EQUIPMENT - AT COST       14,536,618        18,406,665
    LESS ACCUMULATED DEPRECIATION             (9,044,884)       (9,659,837)
                                            ------------      ------------

PLANT, PIPELINE AND EQUIPMENT, NET             5,491,734         8,746,828

AL MASANE PROJECT                             36,420,565        36,165,120

OTHER INTERESTS IN SAUDI ARABIA                2,431,248         2,431,248

MINERAL PROPERTIES IN THE UNITED STATES        1,058,102         1,211,674

OTHER ASSETS                                     581,258           472,572
                                            ------------      ------------

          TOTAL ASSETS                      $ 51,047,883      $ 52,672,497
                                            ============      ============
</TABLE>

                                      F-3
<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS - CONTINUED

<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                    -------------------------------
                                                                                       2004               2003
                                                                                    -------------     -------------
<S>                                                                                 <C>               <C>
       LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                                                  $   2,649,899     $   7,587,963
  Accrued interest                                                                      4,133,964         3,467,657
  Accrued liabilities                                                                   1,145,399           832,236
  Accrued liabilities in Saudi Arabia                                                   2,749,128         2,671,840
  Notes payable                                                                        11,025,833        11,025,780
  Notes payable to stockholders                                                           718,000           718,000
  Current portion of long-term debt                                                     3,071,161         3,169,821
                                                                                    -------------     -------------

        Total current liabilities                                                      25,493,384        29,473,297

LONG-TERM DEBT                                                                          4,915,534                 -

DEFERRED REVENUE                                                                          175,141           166,543

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                                            816,879           834,956

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Common stock - authorized, 40,000,000 shares of $.10
      par value; issued and outstanding, 22,431,994 shares
      in 2004 and 2003                                                                  2,243,199         2,243,199
  Additional paid-in capital                                                           36,512,206        36,512,206
  Accumulated deficit                                                                 (19,108,460)      (16,557,704)
                                                                                    -------------     -------------

      Total stockholders' equity                                                       19,646,945        22,197,701
                                                                                    -------------     -------------

      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    $  51,047,883     $  52,672,497
                                                                                    =============     =============
</TABLE>

    The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       F-4

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                        FOR THE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                                        2004             2003              2002
                                                                     -----------      -----------       -----------
<S>                                                                  <C>              <C>               <C>
Revenues
  Refined product sales                                              $56,018,926      $35,760,439       $32,638,719
  Processing fees                                                      3,774,528        3,864,294         4,114,281
                                                                     -----------      -----------       -----------
                                                                      59,793,454       39,624,733        36,753,000

Operating costs and expenses
  Cost of refined product sales and processing                        52,465,984       36,374,346        29,529,641
  General and administrative                                           4,257,957        4,387,957         4,087,875
  Depreciation                                                         1,123,474        1,367,218         1,414,202
                                                                     -----------      -----------       -----------
                                                                      57,847,415       42,129,521        35,031,718
                                                                     -----------      -----------       -----------

      Operating income (loss)                                          1,946,039       (2,504,788)        1,721,282

Other income (expense)
  Interest income                                                         28,089           31,954            37,621
  Interest expense                                                    (1,600,718)      (1,244,749)       (1,354,042)
  Minority interest                                                        9,095            9,343             9,064
  Foreign exchange transaction gain (loss)                               (94,040)         149,551           240,106
  Miscellaneous income                                                    61,743           53,326            38,032
  Loss on foreclosure of Coin plant assets (Note 18)                  (2,900,964)               -                 -
                                                                     -----------      -----------       -----------

                                                                      (4,496,795)      (1,000,575)       (1,029,219)
                                                                     -----------      -----------       -----------

       Income (loss) before income taxes                              (2,550,756)      (3,505,363)          692,063

Income tax expense                                                             -                -                 -
                                                                     -----------      -----------       -----------

        Net income (loss)                                            $(2,550,756)     $(3,505,363)      $   692,063
                                                                     ===========      ===========       ===========

Basic and diluted net income (loss) per common share                 $     (0.11)     $     (0.15)      $      0.03
                                                                     ===========      ===========       ===========

Basic and diluted weighted average number of common
   shares outstanding                                                 22,731,994       22,731,994        22,731,994
                                                                     ===========      ===========       ===========
</TABLE>

    The accompanying notes are an integral part of the consolidated financial
                                   statements.

                                       F-5

<PAGE>

             ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

             FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002

<TABLE>
<CAPTION>

                                        COMMON STOCK             ADDITIONAL
                                  -------------------------       PAID-IN        ACCUMULATED
                                    SHARES         AMOUNT         CAPITAL          DEFICIT           TOTAL
                                  ----------     ----------     -----------     ------------      -----------
<S>                               <C>            <C>            <C>             <C>               <C>
DECEMBER 31, 2001                 22,431,994     $2,243,199     $36,512,206     $(13,744,404)     $25,011,001

    Net income                             -              -               -          692,063          692,063
                                  ----------     ----------     -----------     ------------      -----------

DECEMBER 31, 2002                 22,431,994      2,243,199      36,512,206      (13,052,341)      25,703,064

    Net loss                               -              -               -       (3,505,363)      (3,505,363)
                                  ----------     ----------     -----------     ------------      -----------

DECEMBER 31, 2003                 22,431,994     $2,243,199     $36,512,206     $(16,557,704)     $22,197,701

     Net loss                              -              -               -       (2,550,756)      (2,550,756)
                                  ----------     ----------     -----------     ------------      -----------

DECEMBER 31, 2004                 22,431,994     $2,243,199     $36,512,206     $(19,108,460)     $19,646,945
                                  ==========     ==========     ===========     ============      ===========
</TABLE>

    The accompanying notes are an integral part of the consolidated financial
                                   statements.

                                       F-6

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                        FOR THE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                                        2004              2003              2002
                                                                     -----------      -----------        ----------
<S>                                                                  <C>              <C>                <C>
Operating activities
   Net income (loss)                                                 $(2,550,756)     $(3,505,363)       $  692,063
   Adjustments to reconcile net income (loss)
      to net cash provided by operating activities:
      Depreciation                                                     1,123,474        1,367,218         1,414,202
      Increase (decrease) in deferred revenue                              8,598          (11,263)           56,934
      Unrealized (gain) loss on feedstock swaps                          184,800                -          (505,890)
      Loss on foreclosure of Coin plant assets                         2,900,964                -                 -
   Changes in operating assets and liabilities:
      (Increase) decrease in trade receivables                          (387,223)      (1,511,489)         (111,807)
      (Increase) decrease in inventories                                (587,212)         243,580          (176,748)
      (Increase) decrease in other assets                               (108,686)         (36,328)           51,581
      (Decrease) increase in accounts payable and accrued
         liabilities                                                   1,436,722        3,443,594          (871,743)
      Increase in accrued interest                                       853,832          909,179           801,590
      Increase in accrued liabilities in
         Saudi Arabia                                                     77,288          181,835            63,898
      Other                                                              (18,077)         (11,476)          (74,447)
                                                                     -----------      -----------        ----------
         Net cash provided by operating activities                     2,933,724        1,069,487         1,339,633
                                                                     -----------      -----------        ----------

Investing activities
   Additions to Al Masane Project                                       (255,445)        (346,963)         (202,016)
   Additions to plant, pipeline and equipment                         (1,949,760)        (156,363)         (545,939)
   (Additions to) reduction in mineral properties in
      the United States                                                  153,572             (664)              (41)
                                                                     -----------      -----------        ----------

         Net cash used in investing activities                        (2,051,633)        (503,990)         (747,996)
                                                                     -----------      -----------        ----------

Financing activities
    Additions to notes payable and long-term obligations                       -                -           299,236
    Reduction of notes payable and long-term obligations                (436,605)        (706,952)         (771,231)
                                                                     -----------      -----------        ----------

          Net cash used in financing activities                         (436,605)        (706,952)         (471,995)
                                                                     -----------      -----------        ----------

Net increase (decrease) in cash                                          445,486         (141,455)          119,642

Cash at beginning of year                                                177,716          319,171           199,529
                                                                     -----------      -----------        ----------

Cash at end of year                                                  $   623,202      $   177,716        $  319,171
                                                                     ===========      ===========        ==========
</TABLE>

    The accompanying notes are an integral part of the consolidated financial
                                   statements.

                                       F-7

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 1 - BUSINESS AND OPERATIONS OF THE COMPANY AND SUMMARY OF SIGNIFICANT
         ACCOUNTING POLICIES

      BUSINESS AND OPERATIONS OF THE COMPANY

      Arabian American Development Company (the "Company") was organized as a
      Delaware corporation in 1967. The Company's principal business activities
      include manufacturing various specialty petrochemical products (also
      referred to as the "Petrochemical Segment") and developing mineral
      properties in Saudi Arabia and the United States (also referred to as the
      "Mining Segment"). All of its mineral properties are presently undeveloped
      and require significant capital expenditures before beginning any
      commercial operations (see Notes 2, 6 and 7).

      The Company's Petrochemical Segment activities are primarily conducted
      through a wholly-owned subsidiary, American Shield Refining Company (the
      "Petrochemical Company"), which owns all of the capital stock of Texas Oil
      and Chemical Co. II, Inc. ("TOCCO"). TOCCO owns all of the capital stock
      of South Hampton Refining Company ("South Hampton"), and approximately 93%
      of the capital stock of Productos Quimicos Coin S.A. de. C.V. ("Coin").
      South Hampton owns all of the capital stock of Gulf State Pipe Line
      Company, Inc. ("Gulf State"). South Hampton owns and operates a specialty
      petrochemical products facility near Silsbee, Texas that is one of the
      largest domestic manufacturers of pentanes. Gulf State owns and operates
      three pipelines that connect the South Hampton facility to a natural gas
      line, to South Hampton's truck and rail loading terminal and to a marine
      terminal owned by an unaffiliated third party. Coin owns and operates a
      specialty petrochemical products facility in Coatzacoalcos, on the Yucatan
      Peninsula. The Company also owns approximately 55% of the capital stock of
      a Nevada mining company, Pioche-Ely Valley Mines, Inc. ("Pioche"), which
      does not conduct any substantial business activity. Pioche and the
      Company's mineral properties in Saudi Arabia constitute its Mining
      Segment.

      The Company consolidates all subsidiaries for which it has majority
      ownership or voting control that is other than temporary. All material
      inter-company accounts and transactions are eliminated.

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - The Company's
      principal banking and short-term investing activities are with local and
      national financial institutions. Short-term investments with an original
      maturity of three months or less are classified as cash equivalents. At
      December 31, 2004 and 2003, there were no cash equivalents or short-term
      investments.

      INVENTORIES - Finished products and feedstock are recorded at the lower of
      cost, determined on the last-in, first-out method (LIFO), or market for
      inventories in the United States and on the average cost method, or
      market, for inventories held in Mexico.

      MINERAL EXPLORATION AND DEVELOPMENT COSTS - All costs related to the
      acquisition, exploration, and development of mineral deposits are
      capitalized until such time as (1) the Company commences commercial
      exploitation of the related mineral deposits at which time the costs will
      be amortized, (2) the related project is abandoned and the capitalized
      costs are charged to operations, or (3) when any or all deferred costs are
      permanently impaired. At December 31, 2004, none of the projects had
      reached the commercial exploitation stage. No indirect overhead or general
      and administrative costs have been allocated to any of the projects.

      PLANT, PIPELINE AND EQUIPMENT - Plant, pipeline and equipment are stated
      at cost. Depreciation is provided over the estimated service lives using
      the straight-line method. Gains and losses from disposition are included
      in operations in the period incurred.

      OTHER ASSETS - Other assets include catalysts used in petrochemical
      operations, prepaid expenses, a note receivable and certain petrochemical
      assets.

                                       F-8

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 1 - BUSINESS AND OPERATIONS OF THE COMPANY AND SUMMARY OF SIGNIFICANT
         ACCOUNTING POLICIES - CONTINUED

      ENVIRONMENTAL LIABILITIES - Remediation costs are accrued based on
      estimates of known environmental remediation exposure. Ongoing
      environmental compliance costs, including maintenance and monitoring
      costs, are expensed as incurred.

      DEFERRED REVENUE - Deferred revenue represents funds advanced by three
      suppliers and customers to defray development and processing costs and are
      being amortized over five year and fifteen year periods.

      STATEMENTS OF CASH FLOWS - In the statements of cash flows, cash includes
      cash held in the United States, Mexico, and Saudi Arabia. Significant
      non-cash investing and financing activities in 2004 include: (a) South
      Hampton entered into a security agreement with its feedstock supplier on
      an open account of $6.9 million to be reduced quarterly by $250,000, (b)
      South Hampton entered into a capital lease with a transportation equipment
      leasing company for the purchase of a manlift for approximately $137,000,
      and (c) the foreclosure of Coin plant assets resulted in the write-off of
      plant assets of $4,218,256, notes payable of $1,129,767 and accrued
      interest of $187,525 for a loss of $2,900,964. Significant activities in
      2003 include the pay-off of South Hampton's $3.25 million revolving bank
      note with proceeds from sales of accounts receivables under a Purchase and
      Sale Agreement with the bank.

      NET INCOME (LOSS) PER SHARE - The Company computes basic income (loss) per
      common share based on the weighted-average number of common shares
      outstanding. Diluted income (loss) per common share is computed based on
      the weighted-average number of common shares outstanding plus the number
      of additional common shares that would have been outstanding if dilutive
      potential common shares, consisting of stock options and shares which
      could be issued upon conversion of debt, had been issued (Note 14).

      FOREIGN CURRENCY AND OPERATIONS - The functional currency for each of the
      Company's subsidiaries is the US dollar. Transaction gains or losses as a
      result of conversion from the subsidiaries local currency to the US dollar
      are reflected in the statements of operations as a foreign exchange
      transaction gain or loss. The Company does not employ any practices to
      minimize foreign currency risks.

      The Company's foreign operations have been, and will continue to be,
      affected by periodic changes or developments in the foreign countries'
      political and economic conditions as well as changes in their laws and
      regulations. Any such changes could have a material adverse effect on the
      Company's financial condition, operating results or cash flows.

      Saudi Arabian investors, including certain members of the Company's board
      of directors, own approximately 61% of the Company's outstanding common
      stock at December 31, 2004.

      MANAGEMENT ESTIMATES - The preparation of financial statements in
      conformity with accounting principles generally accepted in the United
      States of America requires management to make estimates and assumptions
      that affect the reported amounts of assets and liabilities and disclosure
      of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. Actual results could differ from those estimates.

      STOCK-BASED COMPENSATION - The Company accounts for employee stock options
      under the intrinsic value method prescribed by Accounting Principles Board
      Opinion No. 25 and has adopted the disclosure requirements of Statement of
      Financial Accounting Standards (SFAS) No. 123, as amended by Statement of
      Financial Accounting Standards No. 148. Accordingly, the compensation
      expense of any employee stock options granted is the excess, if any, of
      the quoted market price of the Company's

                                       F-9

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 1 - BUSINESS AND OPERATIONS OF THE COMPANY AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES - CONTINUED

      common stock at the grant date over the amount the employee must pay to
      acquire the stock. See Note 11 for additional information relating to
      stock options.

      DERIVATIVES - Statement of Financial Accounting Standard (SFAS) No. 133,
      "Accounting for Derivative Instruments and Hedging Activities," as amended
      by SFAS Nos. 138 and 149, establishes accounting and reporting standards
      for derivative instruments and hedging activities. SFAS No. 133
      establishes accounting and reporting standards requiring that every
      derivative instrument be recorded in the balance sheet as either an asset
      or liability measured at its fair value. The statement requires that
      changes in the derivative instrument's fair value be recognized currently
      in earnings unless specific hedge accounting criteria are met. Special
      accounting for qualifying hedges allows a derivative instrument's gains
      and losses to offset related results on the hedged item in the income
      statement, to the extent effective, and requires that a company must
      formally document, designate and assess the effectiveness of transactions
      that receive hedge accounting. SFAS No. 133, as amended, was adopted by
      the Company on January 1, 2001 and SFAS No. 149 was adopted on June 30,
      2003.

      The Company has periodically entered into commodity swap derivative
      agreements to decrease the price volatility of its natural gasoline
      feedstock requirements and has entered into option contracts to decrease
      the price volatility of its natural gas fuel requirements in 2003 and
      2004. These derivative agreements were not designated as hedges by the
      Company. (See Note 17.)

      FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company's financial instruments
      include cash and cash equivalents, notes payable and long-term debt. The
      carrying amount of cash and cash equivalents approximates fair value at
      December 31, 2004 and 2003 due to the short-term maturity of these items.
      The Company's long-term debt is fixed rate debt. It is not practical to
      estimate the fair value of the Company's notes payable because quoted
      market prices do not exist for similar type debt instruments, and there
      are no available comparative instruments as a basis to value the notes.

      NEW ACCOUNTING STANDARDS -In August 2001, the Financial Accounting
      Standards Board (FASB) issued Statement of Financial Accounting Standards
      No. 143 "Accounting for Asset Retirement Obligations" (SFAS No. 143), that
      established uniform methodology for accounting for estimated costs
      associated with legal obligations related to retirement of assets. SFAS
      No. 143 is effective for fiscal years beginning after June 15, 2002. The
      adoption of SFAS No. 143 at January 1, 2003 did not have a material impact
      on the consolidated financial statements.

      In April 2002, the FASB issued SFAS No. 145, Rescission of No. 4,
      (Reporting Gains and Losses from Extinguishment of Debt), No. 44
      (Accounting for Intangible Assets of Motor Carriers), No. 64,
      (Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements),
      Amendment of FASB Statement No. 13 (Accounting for Leases) and Technical
      Corrections. The adoption of SFAS No. 145 at January 1, 2003 did not have
      a material impact on the Company's financial position, results of
      operations or cash flows.

      In November 2002, the FASB issued FASB Interpretation (FIN) No. 45,
      "Guarantor's Accounting and Disclosure Requirements for Guarantees,
      Including Indirect Guarantees of Indebtedness of Others, an interpretation
      of FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation
      No. 34". FIN 45 elaborates on the existing disclosure requirements for
      most guarantees, including loan guarantees such as standby letters of
      credit and warranty obligations. The disclosure requirements of FIN 45
      were effective for both interim and annual periods that end after December
      15, 2002. The adoption of FIN 45 did not have a material impact on the
      Company's consolidated financial statements.

                                      F-10

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

      NOTE 1 - BUSINESS AND OPERATIONS OF THE COMPANY AND SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES - CONTINUED

      In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
      Interest Entities" and in December 2003, issued FIN 46R, which superceded
      FIN 46 (collectively FIN 46) to address perceived weaknesses in the
      accounting and financial reporting for investments or interests in
      entities commonly known as special purpose or off-balance-sheet entities.
      The adoption of FIN 46 did not have a material impact on the Company's
      consolidated financial statements.

      In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
      Financial Instruments with Characteristics of both Liabilities and
      Equity". The adoption of SFAS No. 150 did not have a material impact on
      the Company's consolidated financial position.

      In 2004, the FASB issued SFAS No. 123R, "Share-Based Payments", which will
      require that the cost resulting from all share-based payments be
      recognized in the financial statements, based upon the application of a
      fair value-based measurement method. SFAS 123R is effective as of the
      beginning of the third quarter of 2005. The Company does not anticipate
      the adoption of the Statement to have a material impact on the results of
      operations.

      In November 2004, the FASB issued SFAS No. 151, "Inventory Costs". SFAS
      No. 151 amends guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to
      clarify the accounting for abnormal amounts of idle facility expense,
      freight, handling costs, and wasted material (spoilage). The Statement
      requires that these items be recognized as current-period charges. SFAS
      No. 151 is effective for fiscal years beginning after June 15, 2005. The
      Company does not expect the adoption of SFAS No. 151 to have a material
      impact on the results of operations.

      In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary
      Assets". SFAS No. 153 amends APB Opinion No. 29, "Accounting for
      Non-monetary Transactions" to eliminate the exception for non-monetary
      exchanges of similar productive assets and replaces it with a general
      exception for exchanges of non-monetary assets that do not have commercial
      substance. A non-monetary exchange has commercial substance if the future
      cash flows of the entity are expected to change significantly as a result
      of the exchange. The Statement is effective for fiscal periods beginning
      after June 15, 2005. The Company does not expect adoption of SFAS No 153
      to have a material impact on the results of operations.

NOTE 2 - LIQUIDITY MATTERS, REALIZATION OF ASSETS AND BUSINESS RISKS

      The accompanying consolidated financial statements have been prepared in
      conformity with accounting principles generally accepted in the United
      States of America, which contemplate the realization of assets and the
      satisfaction of liabilities in the normal course of business. As shown in
      the financial statements, the Company had an excess of current liabilities
      over current assets of $20,428,408 at December 31, 2004.

<TABLE>
<CAPTION>
                               Saudi Arabia      United States          Mexico            Total
                               ------------     --------------       ------------      ------------
<S>                            <C>               <C>                 <C>               <C>
Current assets                 $    322,964     $    4,429,927       $    312,085      $  5,064,976

Current liabilities              14,856,165          3,584,406          7,052,813        25,493,384
                               ------------     --------------       ------------      ------------

Excess of current liabilities
     over current assets       $(14,533,201)    $      845,521       $ (6,740,728)     $(20,428,408)
                               ============     ==============       ============      ============
</TABLE>

                                      F-11

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 2 - LIQUIDITY MATTERS, REALIZATION OF ASSETS AND BUSINESS RISKS -
CONTINUED

      As discussed in Note 8, the Company's Mining Segment was not in compliance
      with certain covenants in its loan agreements. Also, in the petrochemical
      segment, the plant facilities of Coin have been foreclosed by a lender
      (See Note 18).

      Historically, the Company's cash flows from operating activities in the
      petrochemical segment have been insufficient to meet the operating needs,
      planned capital expenditures and debt service requirements of the mining
      segment. The Company has continually sought additional debt and equity
      financing in order to fund its mineral development and other investing
      activities and experienced difficulties obtaining additional financing.
      The Company presently needs additional financing in order to fund its
      planned mineral development and other activities.

      The Company's mining segment is in the development stage and has no
      operating revenue or cash flow. Its most significant asset is the Al
      Masane mining project in Saudi Arabia, which is a net user of the
      Company's available cash and capital resources. As discussed in Note 6,
      the Company intends to take steps to finance commercial development of the
      Al Masane mining project. However, there is no assurance the Company will
      be able to arrange financing.

      Management is also addressing two other significant financing issues
      within this segment. These issues are the $11.0 million note payable due
      the Saudi Arabian government and accrued salaries and termination benefit
      of approximately $947,000 due employees working in Saudi Arabia (this
      amount does not include amounts due the Company's President and Chief
      Executive Officer who also primarily works in Saudi Arabia and is owed
      accrued salaries and termination benefits of approximately $1,195,000).
      The note payable was originally due in ten annual installments beginning
      in 1984. While the Company has not made any repayments, it has not
      received any payment demands or other communications from the Saudi
      government regarding the note payable. This is despite the fact the
      Company remains active in Saudi Arabia and received the Al Masane mining
      lease at a time when it had not made any of the agreed upon repayment
      installments. Based on its experience to date, management believes as long
      as the Company diligently attempts to explore and develop the Al Masane
      project, that no repayment demand will be made. The Company has
      communicated to the Saudi government that its delay in repaying the note
      is a direct result of the government's lengthy delay in granting the Al
      Masane lease and requested formal negotiations to restructure this
      obligation. Based on its interpretation of the Al Masane mining lease and
      other documents, management believes the government is likely to agree to
      link repayment of this note to the operating cash flows generated by the
      commercial development of the Al Masane project, which would result in a
      long-term installment repayment schedule. In the event the Saudi
      government was to demand immediate repayment of this obligation, which
      management considers unlikely, the Company would be unable to pay the
      entire amount due.

      The second issue is the accrued salaries and termination benefits due
      employees working in Saudi Arabia. The Company plans to continue employing
      these individuals until it is able to generate sufficient excess funds to
      begin payment of this liability. Management will then begin the process of
      gradually releasing certain employees and paying its obligation as they
      are released from the Company's employment.

      A significant component of the Company's assets consists of undeveloped
      mineral deposits. There is no assurance that the Company will ultimately
      successfully develop either the Al Masane project or any of the other
      properties discussed in Notes 6 and 7, and, if developed, whether the
      mineral acquisition and development costs incurred will be recovered. The
      recovery of these costs is dependent upon a number of factors and future
      events, many of which are beyond the Company's control. Furthermore, the
      Company's ability to develop and realize its investment in these
      properties

                                      F-12

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 2 - LIQUIDITY MATTERS, REALIZATION OF ASSETS AND BUSINESS RISKS -
CONTINUED

      is dependent upon (i) obtaining significant additional financing and (ii)
      attaining successful operations from one or more of these projects.

      The Company assesses the carrying values of its mining assets on an
      ongoing basis. Factors which may affect carrying values include, but are
      not limited to, mineral prices, capital cost estimates, the estimated
      operating costs of any mines and related processing, ore grade and related
      metallurgical characteristics, the design of any mines and the timing of
      any mineral production. Prices currently used to assess recoverability,
      based on production to begin no sooner than 2005, are $1.40 per pound for
      copper and $.53 per pound for zinc. Copper and zinc comprise in excess of
      80% of the expected value of production. There are no assurances,
      particularly in the event of a prolonged period of depressed mineral
      prices, the Company will not be required to take a material write-down of
      its mineral properties.

NOTE 3 - CONCENTRATIONS OF REVENUES AND CREDIT RISK

      The Petrochemical Segment sells its products and services to companies in
      the chemical and plastics industries. It performs periodic credit
      evaluations of its customers and generally does not require collateral
      from its customers. The largest customer accounted for 22.3% and 9% of the
      total product sales in 2004 and 2002, respectively. No one customer
      accounted for more than 10% of sales in 2003. The increase in sales to a
      single customer in 2004 was due to industry consolidation for the use of a
      by-product. Additional markets are available for those products. Minimal
      credit losses have been incurred. The carrying amount of accounts
      receivable approximates fair value at December 31, 2004.

      South Hampton's operations are dependent upon one major supplier for its
      feedstock supply. At December 31, 2004, South Hampton owed the supplier
      approximately $5,800,000 for feedstock purchases. In June of 2004, South
      Hampton signed a Purchase Agreement with the feedstock supplier with
      several conditions including a lien on the facility at Silsbee, Texas to
      secure the account. The agreement solidified the supply of feedstock to
      the facility for a two year period as long as certain conditions are met.

      Coin's operations are dependent upon Pemex (Mexican government owned
      vendor) for its feedstock supply. Coin's operations have been negatively
      impacted in 2003, 2002 and 2001 by the inability to obtain feedstock for
      production at a price that would allow it to be competitive in the market.
      In late 2003, Coin secured a purchase contract with Pemex for feedstock
      and purchased material throughout 2004 on a prepaid basis at a price which
      was compatible with normal market pricing.

NOTE 4 - SALE OF ACCOUNTS RECEIVABLE

      The Company accounts for the transfers of accounts receivable as sales
      transactions. South Hampton entered into a $3.25 million revolving credit
      agreement in September 1999 with a bank, which terminated in June 2003. In
      July 2003 a Purchase and Sale (Factoring) Agreement with a limit of $4.5
      million was instituted with the same bank. In July, 2004, the Bank raised
      the limit to $6.0 million on the factoring arrangement to accommodate the
      increased sales volume of the Company and also the higher sales prices
      which created higher Accounts Receivable amounts. The limit was raised to
      $8.5 million in January, 2005 as the sales volume and prices continued to
      increase. As collections reduce previously sold receivables, South Hampton
      may replenish these with new receivables. At December 31, 2004 and 2003,
      approximately $7.4 million and $3.4 million, respectively had been sold
      and, due to the revolving nature of the agreement, also remained
      outstanding. The initial sales proceeds under this agreement were used to
      retire the $3.25 million revolving credit agreement balance outstanding at
      December 31, 2002.

                                      F-13

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 4 - SALE OF ACCOUNTS RECEIVABLE - CONTINUED

      The agreement contains restrictions on dividends payable to the Company by
      South Hampton and is collateralized by accounts receivable. South Hampton
      was not in compliance with the dividend restriction at December 31, 2004.
      The Bank has waived the event of non-compliance as of December 31, 2004.
      The risk South Hampton bears from bad debt losses on U.S. trade
      receivables sold is retained since it holds a retained interest in the
      sold receivables of approximately $1.1 million and $0.5 million at
      December 31, 2004 and 2003, respectively. Receivables sold may not include
      amounts over 90 days past due. Expenses incurred under this program of
      approximately $434,000 and $114,000 are included in interest expense in
      the statements of operations for 2004 and 2003, respectively.

NOTE 5 - INVENTORIES

      Inventories include the following at December 31:

<TABLE>
<CAPTION>
                                                 2004             2003
                                             -----------       -----------
<S>                                          <C>               <C>
Finished products                            $ 1,243,693       $   656,481
                                             ===========       ===========
</TABLE>

      At December 31, 2004 and 2003, current cost exceeded the LIFO value by
      approximately $344,000 and $256,000, respectively.

NOTE 6 - MINERAL EXPLORATION AND DEVELOPMENT COSTS IN SAUDI ARABIA

      In the accompanying consolidated financial statements, the deferred
      exploration and development costs have been presented based on the related
      projects' geographic location within Saudi Arabia. This includes the "Al
      Masane Project" (the "Project") and "Other Interests in Saudi Arabia"
      which primarily pertains to the costs of rentals, field offices and camps,
      core drilling and labor incurred at the Wadi Qatan and Jebel Harr
      properties.

      In 1971, the Saudi Arabian government awarded the Company exclusive
      mineral exploration licenses to explore and develop the Wadi Qatan area in
      southwestern Saudi Arabia. The Company was subsequently awarded an
      additional license in 1977 for an area north of Wadi Qatan at Jebel Harr.
      These licenses have expired. On June 22, 1999, the Company submitted a
      formal application for a five-year exclusive exploration license for the
      Greater Al Masane area of approximately 2,850 square kilometers that
      surrounds the Al Masane mining lease area and includes the Wadi Qatan and
      Jebel Harr areas. Although a license has not been formally granted for the
      Greater Al Masane area, the Company has been authorized in writing by the
      Saudi Arabian government to carry out exploration work on the area. The
      Company previously worked the Greater Al Masane area after obtaining
      written authorization from the Saudi Ministry of Petroleum and Mineral
      Resources, and has expended over $3 million in exploration work. The
      application for the new exploration license is still pending and is
      expected to be acted upon after the proposed new Saudi Arabian Mining Code
      is approved. Geophysical, geochemical and geological work and diamond core
      drilling on the Greater Al Masane area has revealed mineralization similar
      to that discovered at Al Masane. The Company intends to formalize its
      claims in these areas.

      The Al Masane project, consisting of a mining lease area of approximately
      44 square kilometers, contains extensive ancient mineral workings and
      smelters. From ancient inscriptions in the area, it is believed that
      mining activities went on sporadically from 1000 BC to 700 AD. The
      ancients are believed to have extracted mainly gold, silver and copper.
      The Project includes various quantities of proved zinc, copper, gold and
      silver reserves.

      As the holder of the Al Masane mining lease, the Company is solely
      responsible to the Saudi Arabian government for the rental payments and
      other obligations provided for by the mining lease and repayment of the
      previously discussed $11 million loan. The Company's interpretation of the
      mining lease is that repayment of this loan will be made in accordance
      with a repayment schedule to be agreed

                                      F-14

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 6 - MINERAL EXPLORATION AND DEVELOPMENT COSTS IN SAUDI ARABIA -
CONTINUED

      upon with the Saudi Arabian government from the Company's share of the
      project's cash flows. The initial term of the lease is for a period of
      thirty (30) years from May 22, 1993, with the Company having the option to
      renew or extend the term of the lease for additional periods not to exceed
      twenty (20) years. Under the lease, the Company is obligated to pay
      advance surface rental in the amount of 10,000 Saudi Riyals (approximately
      $2,667 at the current exchange rate) per square kilometer per year
      (approximately $117,300 annually) during the period of the lease. At
      December 31, 2003, approximately $586,000 of rental payments was in
      arrears. The Company, in accordance with the most recent agreement with
      the Ministry, paid $266,000 of the back payments on January 3, 2005, and
      is scheduled to pay the remaining $320,000 on December 31, 2005. In
      addition, the Company must pay income tax in accordance with the income
      tax laws of Saudi Arabia then in force and pay all infrastructure costs.
      The Saudi Arabian Mining Code provides that income tax will not be due
      during the first stage of mining operations, which is the period of five
      years starting from the earlier of (i) the date of the first sale of
      products or (ii) the beginning of the fourth year since the issue of the
      mining lease. The lease gives the Saudi Arabian government priority to
      purchase any gold production from the project as well as the right to
      purchase up to 10% of the annual production of other minerals on the same
      terms and conditions then available to other similar buyers and at current
      prices then prevailing in the free market. Furthermore, the lease contains
      provisions requiring that preferences be given to Saudi Arabian suppliers
      and contractors, that the Company employ Saudi Arabian citizens and
      provide training to Saudi Arabian personnel.

      Pursuant to the mining lease agreement, when the Al Masane project is
      profitable the Company is obligated to form a Saudi public stock company
      with the Saudi Arabian Mining Company, a corporation wholly owned by the
      Saudi Arabian government (Ma'aden), as successor to and assignee of the
      mining interests formerly held by the Petroleum Mineral Organization
      ("Petromin"). Ma'aden is the Saudi Arabian government's official mining
      company. In 1994, the Company received instructions from the Saudi
      Ministry of Petroleum and Mineral Resources stating that it is possible
      for the Company to form a Saudi company without Petromin (now Ma'aden),
      but the sale of stock to the Saudi public could not occur until the mine's
      commercial operations were profitable for at least two years. The
      instructions added that Petromin (now Ma'aden) still had the right to
      purchase shares in the Saudi public stock company any time it desires.
      Title to the mining lease and the other obligations specified in the
      mining lease will be transferred to the Saudi public stock company.
      However, the Company would remain responsible for repaying the $11 million
      loan to the Saudi Arabian government.

      On May 11, 1999, the Company informed the Ministry of Petroleum and
      Mineral Resources that implementation of the Al Masane project would be
      delayed until open market prices for the minerals improve. One year later
      in May 2000, a reply was received from the Ministry notifying the Company
      that it must immediately implement the project. In September 2000, the
      Company was further notified that the project should be immediately
      implemented or the mining lease would be terminated. A second notice from
      the Ministry several weeks later stated that the Committee of the Supreme
      Council of Petroleum and Minerals in Saudi Arabia had recommended giving
      the Company six months to take positive steps to implement the project.
      Another notice from the Ministry in August 2001 stated that the Council of
      Ministers of Saudi Arabia had issued a resolution in which it refused the
      Company's request to postpone implementation of the project, that the
      Company must start implementation of the project within six months of the
      date of the resolution and that, if the project was not then started, the
      Ministry was authorized to begin procedures to terminate the mining lease.
      Subsequent correspondence from the Ministry in the fall of 2001 reiterated
      the threat to terminate the mining lease if the project was not
      immediately implemented. A letter from the Ministry in March 2002 stated
      that the six-month period to implement the project had expired without the
      Company taking positive steps towards that end. In September 2002, the
      Company sent a letter to Saudi Arabian Crown Prince Abdullah Ben Abdul
      Aziz, in his capacity as Deputy Chairman of the Saudi Supreme Council of
      Petroleum and Minerals (the King of Saudi Arabia is the chairman), in
      which the Company contested the legality of the threats of the Ministry to
      terminate the mining lease and requested his advice. As stated in its
      letters to the Ministry and the Crown Prince, the Company believes that
      the Ministry's

                                      F-15

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 6 - MINERAL EXPLORATION AND DEVELOPMENT COSTS IN SAUDI ARABIA -
CONTINUED

      letters to the Company asking for the implementation of the project,
      without any regard to metal market conditions, is contrary to the Saudi
      Mining code and the mining lease agreement. In addition, the Company has
      had correspondence and a meeting with the United States Ambassador to
      Saudi Arabia where the Company presented its opinion regarding the
      legality of the Ministry's actions. This opinion also was conveyed in a
      letter to the United States Secretary of Commerce, who replied that the
      United States Embassy is working to set up meetings with Saudi Arabian
      government officials in an effort to resolve the matter. The Secretary of
      Commerce assured the Company that the Department of Commerce has a strong
      commitment in helping United States companies whenever possible.

      On February 23, 2004, the Company's President received a letter from the
      Deputy Minister of Petroleum and Mineral Resources stating that the
      Council of Ministers had issued a resolution, dated November 17, 2003,
      which directed the Minister, or whomever he may designate, to discuss with
      the President of the Company the implementation of a work program, similar
      to that which is attached to the Company's Mining Lease, to start during a
      period not to exceed two years, and also the payment of the past due
      surface rentals. If agreeable, a document is to be signed to that effect.
      The resolution stated further that, if no agreement is reached, the
      Ministry of Finance will give the Council of Ministers its recommendation
      regarding the $11 million loan granted to the Company.

      After discussions with the Deputy Minister, the Company President
      responded, in a letter to the Minister dated March 23, 2004, that the
      Company will agree to abide by the resolution and will start implementing
      the work program to build the mine, treatment plant and infrastructure
      within two years from the date of the signed agreement. The work program
      was prepared by the Company's technical consultants and was attached to
      the letter. The Company also will agree to pay the past due surface
      rentals, which now total approximately $586,000, in two equal
      installments, the first on December 31, 2004 and the second on December
      31, 2005 and will continue to pay the surface rentals as specified in the
      Mining Lease Agreement. On May 15, 2004, an agreement was signed with the
      Ministry covering these provisions. In the event the Company does not
      implement the program during the two-year period, the matter will be
      referred to the concerned parties to seek direction in accordance with the
      Mining Code and other concerned codes. The Company paid $266,000 of the
      back payments on January 3, 2005, and is scheduled to pay the remaining
      $320,000 on December 31, 2005.

      Because of the very significant rise in the price of copper, zinc, gold,
      and silver which can be mined from the Al Masane mine, the Company is in
      the process of updating the feasibility study by its technical
      consultants. This will take approximately eight to ten weeks. When
      updating is completed, and if proven positive, the Company will attempt to
      locate a joint venture partner or partners and acceptable financing to
      develop the Al Masane mining project in accordance with the work program
      agreed upon with the Saudi Ministry of Petroleum and Mineral Resources.
      Once started, it will take approximately twenty-two months to complete. At
      that point, commercial production can begin from the mine.

      The Minister of Petroleum and Mineral Resources announced in October 2004,
      that a new revised Saudi Arabian Mining Code was approved by the Council
      of Ministries, which would expedite the issuance of licenses and has new
      incentives to encourage investment by the private sector, both Saudi and
      foreign, in the development of mineral resources in Saudi Arabia.

      There can be no assurances that the Company will be able to locate a joint
      venture partner, form a joint venture or obtain financing from the Saudi
      Industrial Development Fund ("SIDF") or any other sources. Financing plans
      for the above are currently being studied. In the meantime, the Company
      intends to maintain the Al Masane mining lease through the payment of the
      annual advance surface

                                      F-16

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 6 - MINERAL EXPLORATION AND DEVELOPMENT COSTS IN SAUDI ARABIA -
CONTINUED

      rental, the implementation of a drilling program to attempt to increase
      proven and probable reserves and to attempt to improve the metallurgical
      recovery rates, which may improve the commercial viability of the project.

      Deferred exploration and development costs of the Al Masane Project at
      December 31, 2004, 2003 and 2002, and the changes in these amounts for
      each of the three years then ended are detailed below:

<TABLE>
<CAPTION>
                             Balance at                   Balance at                 Balance at
                            December 31,     Activity    December 31,   Activity    December 31,    Activity
                               2004          for 2004        2003       for 2003        2002        for 2002
                            ------------     ---------   ------------   --------    ------------    --------
<S>                         <C>              <C>         <C>            <C>         <C>             <C>
Property 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    $ 22,036,863     $ 255,445   $ 21,781,418   $346,963    $ 21,434,455    $319,349
  Materials and
    maintenance                6,175,232             -      6,175,232          -       6,175,232           -
  Feasibility study            2,907,771             -      2,907,771          -       2,907,771           -
                            ------------     ---------   ------------   --------    ------------    --------

      Total                   31,119,866       255,445     30,864,421    346,963      30,517,458     319,349
                            ------------     ---------   ------------   --------    ------------    --------

                            $ 36,420,565     $ 255,445   $ 35,165,120   $346,963    $ 35,818,157    $319,349
                            ============     =========   ============   ========    ============    ========
</TABLE>

      The deferred exploration and development costs of the "Other Interests in
      Saudi Arabia," in the total amount of approximately $2.4 million, consist
      of approximately $1.5 million associated with the Greater Al Masane area
      and the balance of approximately $900,000 is associated primarily with the
      Wadi Qatan and Jebel Harr areas. In the event exploration licenses for
      these areas are not granted, then all or a significant amount of deferred
      development costs relating thereto may have to be written off.

NOTE 7 - MINERAL PROPERTIES IN THE UNITED STATES

      The principal assets of Pioche are an undivided interest in 48 patented
      and 5 unpatented mining claims totaling approximately 1,500 acres, and a
      300 ton-per-day mill located on the aforementioned properties in the
      Pioche Mining District in southeast Nevada. In August 2001, 75 unpatented
      claims were abandoned since they were deemed to have no future value to
      Pioche. Due to the lack of capital, the properties held by Pioche have not
      been commercially operated for approximately 35 years.

                                      F-17

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 8 - NOTES PAYABLE, LONG-TERM DEBT AND LONG-TERM OBLIGATIONS

      Notes payable, long-term debt and long-term obligations at December 31 are
      summarized as follows:

<TABLE>
<CAPTION>
                                                                        2004              2003
                                                                    ------------      ------------
<S>                                                                 <C>               <C>
Notes payable:
   Secured note to Saudi Arabian government (See Note A)            $ 11,000,000      $ 11,000,000
   Unsecured demand notes payable to Saudi investors                      13,333            13,280
   Other                                                                  12,500            12,500
                                                                    ------------      ------------

       Total                                                        $ 11,025,833      $ 11,025,780
                                                                    ============      ============

Notes payable to stockholders:
   Secured notes to investors (See Note B)                          $    698,000      $    698,000
   Unsecured note to Saudi investor (See Note C)                          20,000            20,000
                                                                    ------------      ------------

       Total                                                        $    718,000      $    718,000
                                                                    ============      ============

Long-term debt:
   Revolving notes to foreign banks (See Note D)                    $  2,044,096      $  3,169,821
   Secured note with vendor (See Note E)                               5,815,072                 -
   Capital lease with affiliated party (See Note F)                      127,527                 -
                                                                    ------------      ------------

       Total long-term debt                                            7,986,695         3,169,821
   Less current portion                                               (3,071,161)       (3,169,821)
                                                                    ------------      ------------

       Total long-term debt, less Current Portion                   $  4,915,534      $          -
                                                                    ============      ============
</TABLE>

      (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)   Represents loans payable to a stockholder of the Company for
            $445,000 and the Company's President for $53,000. The loans are due
            on demand with interest payable at the LIBOR rate plus 2%. The
            balance also includes loans payable to the wife of the Company's
            President for $100,000 and to a stockholder of the Company for
            $100,000 which are due on demand with interest at 9%. All of these
            loans are secured by a pledge of all shares of stock of American
            Shield Refining Company and all shares of stock of Texas Oil and
            Chemical Co. II, Inc.

      (C)   Represents loan payable to a stockholder of the Company, which is
            due on demand with interest at 9%.

                                      F-18

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 8 - NOTES PAYABLE, LONG-TERM DEBT AND LONG-TERM OBLIGATIONS - CONTINUED

      (D)   Represents two loans payable to Mexican banks of $0 and $2,044,096,
            as of December 31, 2004. The first loan was payable in monthly
            payments through October 2004 and bears an interest rate of 5%. Due
            to economic conditions, neither interest nor principal had been paid
            since 2001. As discussed in Note 18, a loss on foreclosure was
            recorded in the fourth quarter of 2004. The second loan is payable
            in quarterly payments through March, 2007 and bears interest at the
            LIBOR rate plus seven points (LIBOR was 2.418% at December 31,
            2004). The lender of the second loan holds a second lien on the
            plant facilities. This lender was placed in receivership by the
            Mexican government in 2001 and Coin has been unable to communicate
            with this lender since that occurrence. Coin was in default of the
            loan covenants as a result of not having made its monthly and
            quarterly payments and therefore the loan is classified as current
            in the financial statements. Unpaid interest and penalty interest of
            $3,721,179 and $3,103,009 are included in accrued interest at
            December 31, 2004 and 2003, respectively.

      (E)   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. A provision of the contract states
            that South Hampton will begin reducing the current debt to the
            supplier by $250,000 per quarter beginning July 1, 2004. Therefore,
            $1,000,000 of the balance of $5,815,072 has been classified as
            current at December 31, 2004.

      (F)   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.

      Principal payments of long-term debt for the next five years and
            thereafter ending December 31 are as follows:

<TABLE>
<CAPTION>
                                                                           Capital Lease
      Year Ending December 31,                     Long-Term Debt           Obligations
<S>                                                <C>                     <C>
                2005                               $    3,044,096          $     33,471
                2006                                    4,815,072                33,471
                2007                                            -                33,471
                2008                                            -                33,471
                2009                                            -                19,523
             Thereafter                                         -                     -
                                                   --------------          ------------

                Total                              $    7,859,168               153,407
                                                   ==============
 Less: Amount representing interest                                             (25,880)
                                                                           ------------

Present value of future minimum lease                                      $    127,527
              payments                                                     ============

</TABLE>

      Interest of $ 746,444, $335,397 and $552,452 was paid in 2004, 2003, and
      2002, respectively.

                                      F-19

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 9 - ACCRUED LIABILITIES IN SAUDI ARABIA

      Accrued liabilities in Saudi Arabia at December 31 are summarized as
      follows:

<TABLE>
<CAPTION>
                                                         2004              2003
                                                      ----------        ----------
<S>                                                   <C>               <C>
Salaries                                              $1,433,712        $1,407,821
Termination benefits                                     708,317           683,010
Surface rentals                                          586,666           543,246
Other liabilities                                         20,433            37,763
                                                      ----------        ----------

          Total                                       $2,749,128        $2,671,840
                                                      ==========        ==========
</TABLE>

NOTE 10 - COMMITMENTS AND CONTINGENCIES

      South Hampton has leased, on a month to month basis, various vehicles and
      equipment from Silsbee Trading and Transportation Corp. ("STTC"), a
      trucking and transportation company currently owned by the President of
      TOCCO, at a monthly cost which varies according to the amount of equipment
      in service. Effective January 1, 2004, South Hampton and STTC entered into
      a five year lease agreement requiring a monthly rental of $32,835 which
      was raised to approximately $42,000 per month as new and additional
      tractors and trailers were added to the fleet throughout the year. Total
      rental costs were approximately $414,000 in 2004, $388,000 in 2003 and
      $422,000 in 2002. See Note 16.

      The Company is the holder of the Al Masane Mining lease requiring annual
      rental payments of approximately $117,300 through 2023, with an option to
      extend the lease for an additional twenty years. At December 31, 2004
      annual payments due totaled $586,666. See Note 6.

      Future minimum lease payments under these lease agreements are as follows:

<TABLE>
<CAPTION>
Year Ending
December 31
<S>                          <C>
  2005                       $ 1,090,666
  2006                           621,300
  2007                           621,300
  2008                           621,300
  2009                           117,300
  Thereafter                   1,760,162
                             -----------

           Total             $ 4,832,028
                             ===========
</TABLE>

      South Hampton, in 1977, guaranteed a $160,000 note payable of a limited
      partnership in which it has a 19% interest. Included in Accrued
      Liabilities at December 31, 2004 and 2003 is $66,570 related to this
      guaranty.

      In October 2004, a $100,000 irrevocable standby letter of credit was
      issued by a bank in favor of the Company's trading partner for financial
      swap and option agreements. The letter of credit will expire on October
      31, 2006.

      South Hampton is presently a defendant in ten lawsuits. The suits, seven
      of which are filed in Madison County, Illinois, and which include up to 70
      other defendants, primarily claim illness and disease resulting from
      alleged exposure to chemicals, including benzene, butadiene and/or
      isoprene, during their employment at various occupations. The plaintiffs
      claim that the companies engaged in

                                      F-20

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 10 - COMMITMENTS AND CONTINGENCIES - CONTINUED

      the business of manufacturing, selling and/or distributing these chemicals
      in a manner which subjected them to liability for unspecified actual and
      punitive damages. South Hampton does not believe the plaintiffs in the
      Illinois lawsuits ever came in contact with its products and is vigorously
      defending itself against these claims. The Company also believes it has
      adequate insurance coverage to protect it financially from any damage
      awards that might be incurred.

      South Hampton is a defendant in two lawsuits filed in Jefferson County,
      Texas. The first lawsuit was filed on September 2001, and alleges that the
      plaintiff became ill from exposure to asbestos while employed by South
      Hampton from 1961 through 1975. Mediation occurred during 2003 in which
      the plaintiff made a financial offer. South Hampton counter-offered a
      structured settlement. To date the plaintiff has not accepted or rejected
      the counter-offer or withdrawn settlement offer. A new trial date has been
      set for September 2005. Due to the time period in which the claimant was
      allegedly injured, the Company has not been able to locate insurance
      coverage for this particular suit. The Company plans on continuing
      negotiations in an attempt to settle the case. The consolidated financial
      statements do not include any amounts related to this case. The second
      lawsuit was filed on May 29, 2003, and alleges that the plaintiff was
      exposed to asbestos containing products in his duties as a welder,
      pipefitter assistant, laborer, floor hand and mud hand/derrick hand from
      1950 - 1984. Plaintiff claims that he suffers from an asbestos related
      disease, although this has not been confirmed by a pathologist. Plaintiff
      testified in his deposition that he worked as a pipefitter assistant
      building a plant for South Hampton in Vidor, Orange County, Texas for
      approximately three months. Plaintiff made a settlement demand and South
      Hampton has countered. This matter is currently number 46 on the Court's
      trial docket for May, 2005. Due to the time period in which the claimant
      was allegedly injured, the Company has not been able to locate insurance
      coverage for this particular suit. The Company plans to vigorously defend
      this matter and continue negotiations to settle the case for nuisance
      value. The consolidated financial statements do not include any amounts
      related to this case.

      In 1993, at the request of the Texas Commission on Environmental Quality
      ("TCEQ"), formerly Texas Natural Resources Conservation Commission
      ("TNRCC"), South Hampton drilled a well to check for groundwater
      contamination under a spill area. Based on the results, two pools of
      hydrocarbons were discovered. The recovery process was initiated in June
      1998, and is expected to continue for several years until the pools are
      reduced to an acceptable level.

      In August 1997, the TCEQ notified South Hampton that it had violated
      various rules and procedures. It proposed administrative penalties
      totaling $709,408 and recommended that South Hampton undertake certain
      actions necessary to bring its petrochemical operations into compliance.
      The violations generally relate to various air and water quality issues.
      Appropriate modifications have been made by South Hampton where it
      appeared there were legitimate concerns.

      On February 2, 2000, the TCEQ amended its pending administrative action
      against South Hampton to add allegations dating through May 21, 1998 of 35
      regulatory violations relating to air quality control and industrial solid
      waste requirements. The TCEQ proposed that administrative penalties be
      increased to approximately $765,000 and that certain corrective actions be
      taken. On April 11, 2003, the TCEQ reduced the penalties to approximately
      $690,000. On May 25, 2003, a settlement hearing with the TCEQ was held and
      additional information was submitted to the TCEQ on June 2, October 2 and
      November 4, 2003. South Hampton believes the original penalty and the
      additional allegations are incorrect and intends to continue to vigorously
      defend against these allegations, the proposed penalties and proposed
      corrective actions. Management has accrued an estimate for a proposed
      settlement. There are no assurances that the amounts settled will not be
      different than the amounts accrued. Negotiations between South Hampton and
      the TCEQ are expected to continue in order to reach a final

                                      F-21

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 10 - COMMITMENTS AND CONTINGENCIES- CONTINUED

      settlement. South Hampton has a liability of $200,000 recorded at December
      31, 2004 and 2003, related to these environmental issues.

      A further amendment on separate issues was made by the TCEQ on December
      13, 2001 for further violations relating to air quality control and waste
      requirements. The TCEQ proposed administrative penalties of $59,000. South
      Hampton settled this particular claim with the TCEQ in April 2002 for
      approximately $5,900.

      Amounts charged to expense for various activities related to environmental
      monitoring, compliance, and improvements were approximately $232,100 in
      2004, $232,500 in 2003 and $291,000 in 2002.

      By letter dated March 11, 2003, the Company was advised that the Division
      of Enforcement of the Securities and Exchange Commission ("SEC") was
      conducting an informal, non-public inquiry concerning matters relating to
      the Al Masane project and the Ministry's threatened termination of the Al
      Masane mining lease. The Company fully cooperated with the SEC in the
      conduct of the investigation, which became a formal investigation.

      On October 16, 2003, without admitting or denying any findings of fact or
      conclusions of law, the Company agreed to a cease-and-desist order with
      the SEC settling alleged violations of the federal securities laws
      asserted by the SEC relating to developments not previously disclosed
      concerning the Company's mining lease for the Al Masane area of Saudi
      Arabia. In connection with the settlement, the Company agreed to (i) cease
      and desist from violating certain provisions of the Securities Exchange
      Act of 1934 and (ii) comply with certain undertakings designed to improve
      its reporting and record keeping practices and enhance its internal
      accounting controls. On the same date, without admitting or denying any
      findings of fact or conclusions of law, the Company's President and Chief
      Executive Officer, Hatem El-Khalidi, agreed to a cease-and-desist order
      with the SEC settling alleged violations of the federal securities laws
      relating to the same matter and agreeing to pay a $25,000 penalty. In
      connection with the settlement, Mr. El-Khalidi agreed to cease and desist
      from violating certain provisions of the Securities Exchange Act of 1934.

NOTE 11 - STOCK OPTIONS

      STOCK OPTIONS - The Company's Employee Stock Option Plan (the "Employee
      Plan") provided for the grant of incentive options at the market price of
      the stock on the date of grant and non-incentive options at a price not
      less than 85% of the market price of the stock on the date of grant. The
      Company had reserved up to 500,000 shares of common stock for grant
      pursuant to the Employee Plan. At December 31, 2004, no options to
      purchase shares were outstanding under the Employee Plan. The options
      vested at such times and in such amounts as is determined by the
      Compensation Committee of the Board of Directors at the date of grant. The
      Employee Plan was registered with the Securities and Exchange Commission
      and expired May 16, 2003.

      The Company had periodically granted stock options to various parties,
      including certain officers and directors, who made loans to or performed
      critical services for the Company. Most of these options allowed the
      parties to purchase common stock for $1.00 per share.

                                      F-22

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 11 - STOCK OPTIONS- CONTINUED

      Additional information with respect to all options outstanding at December
      31, 2004, and changes for the three years then ended was as follows:

<TABLE>
<CAPTION>
                                                                         2002
                                                            ------------------------------
                                                                          Weighted average
                                                             Shares        exercise price
                                                            ----------    ----------------
<S>                                                         <C>           <C>
Outstanding at beginning of year                               872,000         $1.12
Forfeited                                                      (62,000)         1.38
                                                            ----------         -----

Options at end of year                                         810,000         $1.10
                                                            ==========         =====
Options exercisable at December 31, 2002                       810,000         $1.10
                                                            ==========         =====
</TABLE>

<TABLE>
<CAPTION>
                                                                         2003
                                                            ------------------------------
                                                                          Weighted average
                                                             Shares        exercise price
                                                            ----------    ----------------
<S>                                                         <C>           <C>
Outstanding at beginning of year                               810,000         $1.10
Forfeited                                                     (365,000)         1.13
                                                            ----------         -----

Outstanding at end of year                                     445,000         $1.08
                                                            ==========         =====

Options exercisable at December 31, 2003                       445,000         $1.08
                                                            ==========         =====
</TABLE>

<TABLE>
<CAPTION>
                                                                         2004
                                                            ------------------------------
                                                                          Weighted average
                                                             Shares        exercise price
                                                            ----------    ----------------
<S>                                                         <C>           <C>
Outstanding at beginning of year                               445,000         $1.08
Forfeited                                                      (45,000)         1.75
                                                            ----------         -----

Outstanding at end of year                                     400,000         $1.00
                                                            ==========         =====

Options exercisable at December 31, 2004                       400,000         $1.00
                                                            ==========         =====
</TABLE>

      Additional information about stock options outstanding at December 31,
      2004 is summarized as follows:

<TABLE>
<CAPTION>
                                                    Options outstanding and exercisable
                                                 -----------------------------------------
                                                                   Weighted average
                                                            ------------------------------
                                                               Remaining          Exercise
Range of exercise prices                          Number    contractual life        price
------------------------                         -------    ----------------      --------
<S>                                              <C>        <C>                   <C>
$1.00                                            400,000         10 years         $   1.00
</TABLE>

                                      F-23

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 12 - INCOME TAXES

      Income tax expense (benefit) for the years ended December 31, 2004, 2003,
      and 2002 differs from the amount computed by applying the applicable U.S.
      corporate income tax rate of 34% to net income before income taxes. The
      reasons for this difference are as follows:

<TABLE>
<CAPTION>
                                                                 2004           2003                2002
                                                             ------------    -------------       -----------
<S>                                                          <C>             <C>                 <C>
Income taxes at U.S. statutory rate                          $   (867,257)   $  (1,191,823)      $   235,301
State taxes, net of federal benefit                                37,013          270,844            64,170
Net operating losses expired                                            -        3,704,513           155,079
Change in valuation allowance                                    (460,734)      (3,344,171)         (799,426)
Foreign operations losses with no
  benefit provided                                              1,276,609          580,210           337,946
Other items                                                        14,369          (19,573)            6,930
                                                             ------------    -------------       -----------

   Total tax expense                                         $          -    $           -       $         -
                                                             ============    =============       ===========
</TABLE>

      The tax effects of temporary differences that give rise to significant
      portions of Federal and state deferred tax assets and deferred tax
      liabilities were as follows:

<TABLE>
<CAPTION>
                                                                               December 31,
                                                             -----------------------------------------------
                                                                2004             2003               2002
                                                             ------------    -------------       -----------
<S>                                                          <C>             <C>                 <C>
Deferred tax liabilities:
   Plant, pipeline and equipment                             $   (377,000)   $    (396,000)      $  (481,000)

Deferred tax assets:
   Accounts receivable                                             36,000           82,000            76,000
   Mineral interests                                              236,000          236,000           236,000
   Accrued liabilities                                            184,000          149,000           123,000
   Net operating loss and contribution
       carry-forwards                                           2,870,000        3,389,000         6,837,000
   Tax credit carry-forwards                                      212,000          212,000           212,000
   Deferred gain on sale of property                               50,000           63,000            76,000
   Unrealized losses on swap agreements                            64,000                -                 -
                                                             ------------    -------------       -----------

   Gross deferred tax assets                                    3,652,000        4,131,000         7,560,000

Valuation allowance                                            (3,275,000)      (3,735,000)       (7,079,000)
                                                             ------------    -------------       -----------

   Net deferred tax assets                                        377,000          396,000           481,000
                                                             ------------    -------------       -----------

   Net deferred taxes                                        $          -    $           -       $         -
                                                             ============    =============       ===========
</TABLE>

      The Company has provided a valuation allowance against the deferred tax
      assets because of uncertainties regarding their realization.

      At December 31, 2004, the Company had approximately $7,610,000 of net
      operating loss carry-forwards. These carry-forwards expire during the
      years 2005 through 2023. In addition, the Company has alternative minimum
      tax credit carry-forwards of approximately $212,000 that may be carried
      over indefinitely.

                                      F-24

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 12 - INCOME TAXES - CONTINUED

      The Company has no Saudi Arabian or Mexican tax liability. At December 31,
      2004, Coin had available net operating loss carry-forwards and recoverable
      tax on assets of approximately $6,514,000 and $562,000, respectively,
      expiring through 2014, which are limited to the income of Coin.

NOTE 13 - SEGMENT INFORMATION

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

<TABLE>
<CAPTION>
                                                                           December 31, 2004
                                                             -----------------------------------------------
                                                              Refining          Mining             Total
                                                             ------------    -------------       -----------
<S>                                                          <C>             <C>                 <C>
Revenue from external customers                              $ 59,793,454    $           -       $59,793,454
Depreciation                                                    1,123,063              411         1,123,474
Operating income (loss)                                         2,559,527         (613,488)        1,946,039

Total assets                                                 $ 10,796,800    $  40,251,083       $51,047,883
</TABLE>

<TABLE>
<CAPTION>
                                                                           December 31, 2003
                                                             -----------------------------------------------
                                                              Refining          Mining            Total
                                                             ------------    -------------       -----------
<S>                                                          <C>             <C>                 <C>
Revenue from external customers                              $ 39,624,733    $           -       $39,624,733
Depreciation                                                    1,365,506            1,712         1,367,218
Operating income (loss)                                        (1,749,691)        (755,097)       (2,504,788)

Total assets                                                 $ 12,787,676    $  39,884,821       $52,672,497
</TABLE>

<TABLE>
<CAPTION>
                                                                           December 31, 2002
                                                             -----------------------------------------------
                                                               Refining          Mining            Total
                                                             ------------    -------------       -----------
<S>                                                          <C>             <C>                 <C>
Revenue from external customers                              $ 36,753,000    $           -       $36,753,000
Depreciation                                                    1,412,389            1,813         1,414,202
Operating income (loss)                                         2,211,310         (490,028)        1,721,282

Total assets                                                 $ 16,114,394    $  39,506,415       $55,620,809
</TABLE>

      Information regarding foreign operations for the years ended December 31,
      2004, 2003 and 2002 follows (in thousands). Revenues are attributed to
      countries based upon the origination of the transaction.

<TABLE>
<CAPTION>
                                                               Year ended December 31,
                                                         -----------------------------------
                                                          2004         2003           2002
                                                         -------      -------        -------
<S>                                                      <C>          <C>            <C>
Revenues
   United States                                         $56,203      $38,852        $34,057
   Mexico                                                  3,590          773          2,696
   Saudi Arabia                                                -            -              -
                                                         -------      -------        -------

                                                         $59,793      $39,625        $36,753
                                                         =======      =======        =======
</TABLE>

                                      F-25

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 13 - SEGMENT INFORMATION - CONTINUED

<TABLE>
<CAPTION>
                                                         Year ended December 31,
                                                     -------------------------------
                                                      2004         2003       2002
                                                     -------      -------    -------
<S>                                                  <C>          <C>        <C>
Long-lived assets
   United States                                     $ 6,550      $ 5,392    $ 6,252
   Mexico                                                  -        4,567      4,915
   Saudi Arabia                                       38,852       38,596     38,249
                                                     -------      -------    -------

                                                     $45,402      $48,555    $49,416
                                                     =======      =======    =======
</TABLE>

NOTE 14 - NET INCOME (LOSS) PER COMMON SHARE

      Net income (loss) per share has been calculated as follows:

<TABLE>
<CAPTION>
                                                                 2004            2003               2002
                                                              -----------     ------------       -----------
<S>                                                           <C>             <C>                <C>
Basic and diluted
   Net income (loss)                                          $(2,550,756)    $ (3,505,363)      $   692,063
   Weighted average shares outstanding                         22,731,994       22,731,994        22,731,994

       Per share                                              $     (0.11)    $      (0.15)      $      0.03
</TABLE>

      In 2004, 2003 and 2002, options for 400,000, 445,000 and 810,000 shares,
      respectively were excluded from diluted shares outstanding because their
      effect was anti-dilutive.

NOTE 15 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

      The quarterly results of operations shown below are derived from unaudited
      financial statements for the eight quarters ended December 31, 2004 (in
      thousands, except per share data):

<TABLE>
<CAPTION>
                                                    Year Ended December 31, 2004
                                        -------------------------------------------------------
                                          First       Second     Third     Fourth
                                         Quarter     Quarter    Quarter   Quarter(1)     Total
                                        --------     --------  ---------  ----------    -------
<S>                                     <C>          <C>       <C>        <C>           <C>
Revenues                                $ 10,916     $ 13,459  $  15,961  $   19,457    $59,793
Net income (loss)                         (1,023)         (57)     1,903      (3,374)    (2,551)
Basic and diluted EPS                   $  (0.04)    $  (0.00) $    0.08  $    (0.15)   $ (0.11)
</TABLE>

<TABLE>
<CAPTION>
                                                    Year Ended December 31, 2003
                                        -------------------------------------------------------
                                          First       Second     Third      Fourth
                                         Quarter     Quarter    Quarter     Quarter      Total
                                        --------     --------  ---------  ----------    -------
<S>                                     <C>          <C>       <C>        <C>           <C>
Revenues                                $  8,900     $  9,890  $  10,703  $   10,132    $39,625
Net income (loss)                         (1,320)        (603)      (746)       (836)    (3,505)
Basic and diluted EPS                   $  (0.06)    $  (0.03) $   (0.03) $    (0.03)   $ (0.15)
</TABLE>

(1) See "Note 18. Coin Assets Foreclosure" for the disclosure of the loss on
foreclosure of $2,900,964 recorded in the fourth quarter.

                                      F-26

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 16 - RELATED PARTY TRANSACTIONS

      At December 31, 2004, the Company has a liability to its President and
      Chief Executive Officer of approximately $1,195,000 in accrued salary and
      termination benefits, a loan payable to him for $53,000 and a loan payable
      to his wife for $100,000. There are also loans payable to two stockholders
      of the Company for $465,000 and $100,000.

      Pursuant to a sharing arrangement, the Company shares personnel, office
      space and other overhead expenses in Dallas, Texas with the Company's
      Chairman of the Board. The Company paid approximately $24,700, $23,500 and
      $24,700 in 2004, 2003 and 2002, respectively, pursuant to such
      arrangement.

      South Hampton incurred product transportation costs of approximately
      $414,000, $388,000 and $397,000 in 2004, 2003 and 2002, respectively, with
      STTC, which is currently owned by the President of TOCCO. A previous 50%
      owner of STTC and officer of TOCCO retired in January 2004.

      On August 1, 2004, South Hampton entered into a $136,876 capital lease
      with STTC for the purchase of a diesel powered manlift. The lease bears
      interest at 6.9% for a 5 year term with monthly payments in the amount of
      $3,250. Title transfers to South Hampton at the end of the term. In 2004,
      gross payments of $16,250 were made.

NOTE 17 - DERIVATIVE INSTRUMENTS

      South Hampton periodically enters into financial instruments to hedge the
      cost of natural gasoline, the primary source of feedstock, and natural
      gas, used as fuel to operate the plant. Since 1992, the Company has used a
      varying number of financial swaps on feedstock and options on natural gas
      to limit the effect of significant fluctuations in price on operating
      results. The effect of these agreements is to limit the Company's exposure
      by fixing the price of a portion of its feedstock purchases, and/or its
      fuel gas costs, over the term of the agreements. The agreements have
      covered approximately 20% to 40% of the average monthly feedstock
      requirements and up to 100% of natural gas purchases. Commodity swap
      agreements were entered into during 2004 with the last agreement expiring
      on June 30, 2005. South Hampton had option contracts outstanding as of
      December 31,2004 covering various natural gas price movement scenarios
      through March of 2005 and covering from 50% to 100% of the natural gas
      requirements for each month.

      For the years ended December 31, 2004, 2003 and 2002 the net realized gain
      (loss) from the derivative agreements was $1,779,240, ($71,492) and
      $1,032,045, respectively. The unrealized gain (loss) for the years ended
      December 31, 2004, 2003, and 2002 was ($184,800), $ -0-, and $505,890,
      respectively. The realized and unrealized gain (loss) is recorded in cost
      of refined product sales and processing in the consolidated statements of
      operations.

NOTE 18 - COIN ASSET FORECLOSURE

      A creditor of Coin, holding a first lien, initiated a mortgage foreclosure
      proceeding that resulted in the court ordered public auction of the plant
      facilities in Mexico on February 23, 2004. As a result, the court awarded
      the plant facilities to the creditor in partial settlement of the
      outstanding debt owed by Coin. The court order required legal transfer of
      the assets to the creditor within three days, however, the transfer had
      not occurred as of December 31, 2004. Management had been engaged with the
      creditor in negotiations to stop the legal transfer. As a result
      management of Coin and Coin's legal counsel were unable to determine if or
      when the legal transfer of ownership would occur. Coin remains in control
      and operates the facility. In March 2005, an additional procedure in the
      process to

                                      F-27

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIAIRES

NOTE 18 - COIN ASSET FORECLOSURE - CONTINUED

      transfer title occurred, such that, management believes that it is
      probable title to the plant in Coatzacoalcos will ultimately be
      transferred to the creditor or its assignee. As a result, management
      recorded the loss on the foreclosure of the facility with a charge to
      consolidated operations of $2,900,964 during the fourth quarter of 2004.

NOTE 19 - SUBSEQUENT EVENTS

      On January 28, 2005 South Hampton signed a contract with a major toll
      processing customer to double the capacity of the White Oils Fractionation
      Unit. Under the terms of the contract, the Company has eight (8) months to
      procure the equipment and complete construction. If construction is not
      completed timely, a monthly penalty will be assessed. The design of the
      addition is completed and all regulatory permits have been granted. The
      customer will reimburse the Company for capital expenditures in monthly
      payments over a five year period. Process fees are based upon the expanded
      capacity and contain minimum throughput requirements. Capital expenditure
      is expected to be approximately $2.0 million.

      On March 1, 2005 South Hampton signed a letter of intent with an
      investment group to finance the expansion of the White Oils Fractionation
      Unit. The interest rate of the note will be 12% and the loan will be
      repaid in quarterly installments over a five year period. The note will be
      secured by the assignment of the capital repayment portion of the proceeds
      of the contract with the customer. Other fees and conditions will apply.
      The loan is expected to close in early April, 2005. The procurement of the
      major equipment is in process and the financing is expected to mesh with
      the cash flow needs of the capital project.

      On March 15, 2005 the Board of Directors approved an agreement whereby a
      shareholder would loan the Company approximately $100,000 to be used to
      update the 1996 feasibility study of the Al Masane project. It is expected
      to take six to eight weeks to update the study.

                                      F-28

<PAGE>

      REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULES

Arabian American Development Company and Subsidiaries

Dallas, Texas

We have audited the consolidated financial statements of Arabian American
Development Company and Subsidiaries (the "Company") as of December 31, 2004 and
2003 and for each of the three years in the period ended December 31, 2004, and
have issued our report thereon dated March 20, 2005. Our audits also include
Schedule II for this Form 10-K. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.

In our opinion, the Schedule II at December 31, 2004, 2003, and 2002 and for the
years then ended, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be set forth therein.

/s/ MOORE STEPHENS TRAVIS WOLFF, LLP

Dallas, Texas
March 20, 2005

                                      F-29

<PAGE>

              ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS

                       Three years ended December 31, 2004

<TABLE>
<CAPTION>
                                                              Charged
                                          Beginning          (credited)                            Ending
Description                                balance          to earnings    Deductions             balance
-----------                               ---------         -----------   ------------            ---------
<S>                                       <C>               <C>           <C>                     <C>
ALLOWANCE FOR DEFERRED
   TAX ASSET

     December 31, 2002                    7,878,919              -            (799,426)(a)(b)     7,079,493

     December 31, 2003                    7,079,493              -          (3,344,171)(a)        3,735,322

     December 31, 2004                    3,735,322              -            (460,734)(b)        3,274,588
</TABLE>

(a) Expiration of carryforwards

(b) Utilization of carryforwards

                                      F-30

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

TO THE SHAREHOLDERS OF
PRODUCTOS QUIMICOS COIN, S.A. DE C.V.
MEXICO CITY, MEXICO

We have audited the accompanying statement of financial position of Productos
Quimicos Coin, S.A. de C.V. as of December 31 2004, and the related statements
of income (loss) and comprehensive income (loss), changes in equity (deficit)
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards
in Mexico. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement and prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audit provides a reasonable basis for our opinion.

As described by the Company in note 2A1 to the financial statements, the
accompanying financial statements are presented using accounting principles
generally accepted in the United States of America and translated into U.S.
dollars to comply with specific request by the shareholders. Separately, the
Company has issued financial statements as of December 31, 2004 and for the year
then ended in conformity with accounting principles generally accepted in Mexico
and are expressed in Mexican currency, as to which we have issued a qualified
opinion on February 22, 2005.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Productos Quimicos Coin, S.A.
de C.V. as of December 31, 2004, the results of its operations and cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.

As described in note 8 to the financial statements, as a result of the mortgage
foreclosure initiated by a Company creditor, the installations where the
industrial facilities are located, by court resolution, were placed for sale
under public auction on February 23, 2004. On March 3, 2004, the court awarded
the industrial facilities in favor of the creditor. On February 22, 2005,
Company's legal counsel and management concluded that there is no reasonable
basis to estimate a date for the formal and legal transfer of ownership of the
industrial facilities to the creditor. In the same manner, the terms and
conditions, and the period during which management would continue to operate the
industrial plant, are unknown. As a result of the legal action, and not
withstanding that formal notarization has not been formalized granting the
creditor ownership of the assets, Company's management has resolved to recognize
in its results for year ended December 31, 2004 the book value loss of the
industrial plant representing an amount of $ 1,330,786, net of the amount in
which Banco Internacional, S.A. obtained judicial award of the industrial plant
for $ 1,059,769. This loss is included in results of operation as an
extraordinary item. Company's management does not foresee to carry out
activities leading to continue with its operations once the Company stops
operating the industrial facilities.

As discussed in note 1 to the financial statements, the Company has reported
accumulated losses for $12,772,428 and the statement of financial position shows
excess of current liabilities over current assets for $6,400,280. Moreover, the
Company has defaulted in meeting scheduled payments of principal and interest
amounts under certain loan agreements, as discussed in notes 8 and 9 to the
financial statements. The default related to a Company creditor gave origin to
the legal transfer of ownership of the industrial facilities mentioned in the
above paragraph. Accumulated losses exceed capital stock, which in conformity
with the provisions of Mexican General Corporate Law, these losses may represent
cause for dissolution of the

                                      F-31

<PAGE>

Company as a result of legal action followed by any business-related third
party. Additionally, during the period January-May 2004, installed production
capacity of the Company was used only partially, representing a cost of
maintaining idle the industrial plant as described in note 1 to the financial
statements.

Additionally, as discussed in note 13 to the financial statements, the Company
has received notice of labor strike by the labor union, to take effect on March
1, 2005. Prior to February 22, 2005, a meeting was held before the Mexican Labor
Authorities, having obtained an extension to formalize an agreement which
guarantees the terms of the current labor contract. The labor union is calling
for a review of the Collective Bargaining Agreement, to include, mainly, salary
increases. If the Company and the labor union do not reach an agreement, the
labor strike will break on March 1, 2005. Company's management estimates that a
satisfactory agreement will be reached, allowing the continuation of production
activities.

The issues described in the preceding three paragraphs raise substantial doubt
about the Company's ability to continue as a going concern. The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of the uncertainties described above.

                                      DESPACHO FREYSSINIER MORIN, S.C.

                                       /s/ C.P. JUAN PABLO SOTO
                                       ------------------------
                                         C.P.C. JUAN PABLO SOTO
                                                PARTNER

Mexico City, Mexico
February 22, 2005

                                      F-32

<PAGE>

                        INDEPENDENT AUDITOR'S REPORT

TO THE SHAREHOLDERS OF
PRODUCTOS QUIMICOS COIN, S.A. DE C.V.
MEXICO CITY, MEXICO

We have audited the accompanying statement of financial position of Productos
Quimicos Coin, S.A. de C.V. as of December 31, 2003, and the related statements
of income (loss) and comprehensive income (loss), changes in equity (deficit)
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards
in Mexico. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement and prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audit provides a reasonable basis for our opinion.

As described by the Company in note 2A1 to the financial statements, the
accompanying financial statements are presented using accounting principles
generally accepted in the United States of America and translated into U.S.
dollars to comply with specific request by the shareholders. Separately, the
Company has issued financial statements as of December 31, 2003 and for the year
then ended in conformity with accounting principles generally accepted in Mexico
and are expressed in Mexican currency, as to which we have issued a qualified
opinion on February 23, 2004.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Productos Quimicos Coin, S.A.
de C.V. as of December 31, 2003, the results of its operations and cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.

As a result of the mortgage foreclosure initiated by a Company creditor, as
explained in note 13 to the financial statements, the installations where the
industrial facilities are located, by court resolution, were placed for sale
under public auction on February 23, 2004. As disclosed in note 13B to the
financial statements, on March 3, 2004, the court awarded the industrial
facilities in favor of the creditor. On May 14, 2004, Company's legal
counsel and management concluded that a there is no reasonable basis to estimate
a date for the formal and legal transfer of ownership of the industrial
facilities to the creditor. In the same manner, the terms and conditions, and
the period during which management would continue to operate the industrial
plant, are unknown.

As discussed in note 1 to the financial statements, the Company has reported
accumulated losses for $ 11,456,068 and the statement of financial position
shows excess of current liabilities over current assets for $ 7,478,468.
Moreover, the Company has defaulted in meeting scheduled payments of principal
and interest amounts under certain loan agreements, as discussed in notes 8 and
9 to the financial statements. The default related to a Company creditor gave
origin to the legal transfer of ownership of the industrial facilities mentioned
in the above paragraph. Accumulated losses exceed capital stock, which in
conformity with the provisions of Mexican General Corporate Law, these losses
may represent cause for dissolution of the Company as a result of legal action
followed by any business-related third party. Additionally, during the period
January-December 2003, installed production capacity of the Company was used
only partially, representing a cost of maintaining idle the industrial plant as
described in note 1 to the financial statements.

                                      F-33

<PAGE>

The issues described in the preceding two paragraphs raise substantial doubt
about the Company's ability to continue as a going concern. The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of the uncertainties described above.

                                         DESPACHO FREYSSINIER MORIN, S.C.

                                           /s/ C.P. JUAN PABLO SOTO
                                           ------------------------
                                             C.P. JUAN PABLO SOTO
                                                    PARTNER

Mexico City, Mexico
February 23, 2004, except for
Note 13B, as to which the date is
May 14, 2004

                                      F-34

<PAGE>

                        INDEPENDENT AUDITOR'S REPORT

TO THE SHAREHOLDERS OF
PRODUCTOS QUIMICOS COIN, S.A. DE C.V.
MEXICO CITY, MEXICO

We have audited the accompanying statement of financial position of Productos
Quimicos Coin, S.A. de C.V. as of December 31, 2002, and the related statements
of income (loss) and comprehensive income (loss), changes in equity (deficit)
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards
in Mexico. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement and prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audit provides a reasonable basis for our opinion.

As described by the Company in note 2A1 to the financial statements, the
accompanying financial statements are presented using accounting principles
generally accepted in the United States of America and translated into U.S.
dollars to comply with specific request by the shareholders. Separately, the
Company has issued financial statements as of December 31, 2002 and for the year
then ended in conformity with accounting principles generally accepted in Mexico
and are expressed in Mexican currency, as to which we have issued a qualified
opinion on February 24, 2003.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Productos Quimicos Coin, S.A.
de C.V. as of December 31, 2003, the results of its operations and cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.

As discussed in note 1 to the financial statements, the Company has reported
accumulated losses for $ 9,762,125 and the statement of financial position shows
excess of current liabilities over current assets for $ 6,149,133. Moreover, the
Company has defaulted in meeting scheduled payments of principal and interest
amounts under certain loan agreements, as discussed in notes 8 and 9 to the
financial statements. Accumulated losses exceed capital stock, which in
conformity with the provisions of Mexican General Corporate Law, these losses
may represent cause for dissolution of the Company as a result of legal action
followed by any business-related third party. Additionally, during the period
January-December 2002, installed production capacity of the Company was only
partially utilized, representing a cost of maintaining idle the industrial plant
as described in note 1 to the accompanying financial statements. As a result of
the preceding issues, the Company may be unable to continue its operations. The
accompanying financial statements have been prepared on the basis applicable to
a going concern and , accordingly, do not purport to give effect to adjustments
relating to the valuation and reclassification of recorded liabilities that may
be necessary in the event the company could not continue its operations.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Productos Quimicos Coin, S.A.
de C.V. as of December 31, 2002, the results of its operations and cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.

                                              DESPACHO FREYSSINIER MORIN, S.C.

                                                /s/ C.P. JUAN PABLO SOTO
                                                -------------------------
                                                  C.P. JUAN PABLO SOTO
                                                        PARTNER

Mexico City, Mexico
February 14, 2003

                                      F-35