SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 1, 1996
CHAPARRAL RESOURCES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 0-7261 84-0630863
--------------------------- ------------------- ------------------
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
621 Seventeenth Street, Suite 1301, Denver, Colorado 80293
- ---------------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (303) 293-2340
24 Total Pages
- 1 -
<PAGE>
This Report on Form 8-K/A amends Registrant's report previously filed on
Form 8-K dated and April 1, 1996.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a)(1) Financial statements of Central Asian Petroleum Guernsey Limited.
(a)(2) Financial statements of Karakuduk Munay Joint Venture.
(b) Pro forma financial information of Chaparral Resources, Inc.
and subsidiary.
(c) Exhibits
Exhibit 10.1 -- Chaparral Resources, Inc. Warrant Certificate for
1,022,000 shares of common stock. (Previously filed)
- 2 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: July 3, 1996
CHAPARRAL RESOURCES, INC.
By /s/ Matthew R.. Hoovler
-----------------------------
Matthew R. Hoovler, Vice President
- 3 -
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
- ------- ----------- --------
10.1 Chaparral Resources, Inc. Warrant Certificate for N/A
1,022,000 shares of common stock.
- 4 -
<PAGE>
CENTRAL ASIAN PETROLEUM
(GUERNSEY) LIMITED
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
TOGETHER WITH AUDITORS' REPORT
<PAGE>
To the Board of Directors of
Central Asian Petroleum (Guernsey) Limited:
We have audited the accompanying consolidated balance sheet of Central
Asian Petroleum (Guernsey) Limited (a Guernsey Corporation), as of December 31,
1995 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the year then ended. Our audit was made
in accordance with International Standards on Auditing and, accordingly,
included such tests of the accounting records and such other auditing procedures
as we considered necessary in the circumstances.
As further explained in Note 11, we have qualified our opinion dated May
17, 1996 on the grounds that the Company has not consolidated its investment in
Karakuduk-Munay Inc. (KKM) at 50% and also has not made accrual for interest
income and expenses due to loans obtained from Chapparal Resources Inc. and
loans given to KKM. Subsequent to issuance of the report, the Company has made
consolidation and interest accruals and thus, we have reissued our report by
examining the accompanying financial statements from May 17, 1996 to the date of
this report only to the extent related with the matters as explained in Note 11.
The accompanying financial statements have been prepared assuming that KKM
will continue as a going concern. As more fully described in Note 12, KKM has
incurred an operating loss and also does not currently have a means of
generating revenue and certain permits and licences have not yet been obtained.
Additionally, KKM has not complied with certain government regulations relating
to Charter Fund contributions and registration. Furthermore, the Ministry of
Finance of the Republic of Kazakhistan issued a letter to KKM indicating that
the agreement can not be valid for taxation purposes. These conditions raise
substantial doubt about KKM's ability to continue as a going concern. The
accompanying consolidated financial statements do not include any adjustment
that might result from the outcome of this uncertainty.
In our opinion, except for the adjustments that may be required should the
going concern basis of preparation not prove appropriate, the consolidated
financial statements referred to above present fairly the consolidated financial
position of Central Asian Petroleum (Guernsey) Limited as of December 31, 1995
and the consolidated results of its operations and its cash flows for the year
then ended, in accordance with International Accounting Standards issued by the
International Accounting Standards Committee.
This report replaces our report dated May 17, 1996 in which we originally
reported only on the financial statements of the Company as of December 31, 1995
and for the year then ended.
An Affiliated Firm of Ernst & Young International
Once Serbest Muhasebeci Mali Mupavirlik
Anonim pirketi
Mehmet Gulepci, CPA
June 6, 1996
Istanbul, Turkey
(2)
<PAGE>
<TABLE>
<CAPTION>
CENTRAL ASIAN PETROLEUM (GUERNSEY) LIMITED
CONSOLIDATED BALANCE SHEET -- DECEMBER 31, 1995
(Currency -- U.S. Dollars)
ASSETS
<S> <C>
CURRENT ASSETS :
Cash .................................................... 212,447
Prepaid expenses and other
current assets ....................................... 48,353
--------
Total current assets .......................... 260,800
--------
DUE FROM A RELATED COMPANY (Note 3) ......................... 183,959
DUE FROM KAZAKH SHAREHOLDERS (Note 4) ....................... 50,000
FIXED ASSETS, net (Notes 2 and 5) ........................... 15,218
CAPITALIZED SIGNATURE BONUS (Note 8) ........................ 256,500
ACCUMULATED AMORTIZATION .................................... (2,565)
--------
253,935
--------
763,912
========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES :
Accounts payable and accrued
liabilites (Note 7) ...................................... 75,892
Accrual for paid leave indemnity (Note 2) ................. 7,833
Taxes payable ............................................. 1,710
Signature bonus payable (Note 8) .......................... 256,500
---------
Total current liabilities ....................... 341,935
---------
LONG-TERM DEBT (Note 6) ....................................... 323,545
SHAREHOLDERS' EQUITY :
Share capital-
Authorized, issued and fully paid
500,000 shares of par value of
U.S. Dollar one (Note 9) ............................... 500,000
Current year net loss ..................................... (401,568)
---------
Total shareholders' equity ...................... 98,432
---------
763,912
=========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
(3)
<PAGE>
<TABLE>
<CAPTION>
CENTRAL ASIAN PETROLEUM (GUERNSEY) LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(Currency -- U.S. Dollars unless otherwise indicated)
<S> <C>
SERVICE INCOME (Note 2) ...................................... 159,375
INTEREST INCOME .............................................. 1,207
SERVICE EXPENSES (Note 2) .................................... (55,459)
GENERAL AND ADMINISTRATIVE EXPENSES .......................... (112,464)
DEPRECIATION ON FIXED ASSETS ................................. (291)
AMORTIZATION OF SIGNATURE BONUS .............................. (2,565)
START-UP SERVICE EXPENSES (Notes 2 and 13) ................... (324,076)
INTEREST EXPENSE ............................................. (3,545)
TAX LIABILITY IN KAZAKHISTAN (Note 3) ........................ (63,750)
--------
Net Loss ....................................... (401,568)
========
</TABLE>
The accompanying notes are an integral part of this statement.
(4)
<PAGE>
<TABLE>
<CAPTION>
CENTRAL ASIAN PETROLEUM (GUERNSEY) LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
(Currency -- U.S. Dollars )
Share Unappropriated
Total Shareholders' Equity Capital Profit (Loss)
- -------------------------- -------- ------- --------
<S> <C> <C> <C>
Balances at January 1, 1995 ........ -- -- --
Share capital increase-
Cash proceeds ............... 500,000 -- 500,000
Current year net loss .............. -- (401,568) (401,568)
-------- -------- --------
Balances at December 31, 1995 ...... 500,000 (401,568) 98,432
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
(5)
<PAGE>
<TABLE>
<CAPTION>
CENTRAL ASIAN PETROLEUM (GUERNSEY) LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(Currency -- U.S. Dollars unless otherwise indicated)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. (401,568)
Items not requiring outlay of funds-
Depreciation on fixed assets .......................... 291
Amortization of signature bonus ....................... 2,565
--------
Operating loss before working capital changes ......... (398,712)
Increase in prepaid expenses and other current assets ........ (48,353)
Increase in due from Kazakh shareholders ..................... (50,000)
Increase in accounts payable and accrued liabilities ......... 75,892
Increase in paid leave indemnity ............................. 7,833
Increase in taxes payable .................................... 1,710
Accrued interest income on due from a related company ........ (1,207)
Accrued interest expense on long-term debt ................... 3,545
--------
Net cash used for operating activities ................ (409,292)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ................................. 320,000
Increase in share capital - cash proceeds .................... 500,000
--------
Net cash provided from financing activities ........... 820,000
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in due from a related company ....................... (182,752)
Purchase of fixed assets ..................................... (15,509)
--------
Net cash used for investing activities ................ (198,261)
--------
NET INCREASE IN CASH AND CASH EQUIVALENTS .................... 212,447
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR ....... --
--------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR ............. 212,447
========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
(a) For the purpose of the statement of cash flows, cash in banks is
considered as cash and cash equivalents.
The accompanying notes are an integral part of this statement.
(6)
<PAGE>
CENTRAL ASIAN PETROLEUM (GUERNSEY) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
(Currency U.S. Dollars unless otherwise indicated)
(1) ORGANIZATION AND NATURE OF ACTIVITIES:
Central Asian Petroleum (Guernsey) Limited (the Company) was founded in
September 9, 1994 under the Records of the Island of Guernsey as a private
company and is registered in Guernsey and the branch office was established in
Ankara, Turkey. The Company has no legal entity in Turkey although the book
keeping functions are performed in Ankara.
The Company was established for the purpose of exploration, exploitation,
developing and producing hydrocarbons and other natural resources, especially
petroleum and gas. In October 1994, the Company participated in the Karakuduk
Munay Inc. (KKM, a Kazakhistan Joint Venture Stock Company) shares by 50%.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES :
The major accounting principles followed in the preparation of the
accompanying financial statements are set out below :
(a) Investment in Joint Venture
Proportionate consolidation is applied for Karakuduk Munay Inc.
(KKM) at which the Company has 50% interest. Interest of the
Company in KKM is reported using line-by-line reporting format.
All material transactions between the Company and KKM are
eliminated to the extent of which the remaining balances are
attributable to the interest of the other venturers; Kazakh
shareholders.
(b) Service Income
Service income represents the invoices issued for the management
services provided by the Company to KKM.
(c) Service Expenses
Service expenses represent expenses incurred by the Company to
give such services to KKM in accordance with service contract.
(7)
<PAGE>
(d) Start-up Service Expenses
Start-up service expenses represent the operational and technical
services provided by Darka Petroleum Limited (Darka) on behalf of
the Company and KKM during the investment stage.
(e) Accrual for paid leave indemnity
Consultants entitled to have 1 month paid leave for each 3 monhts
worked in Kazakhistan. Accrual for paid leave indemnity for each
consultant is calculated by taking into consideration the period
worked and monthly fee on a time proportion basis.
(f) Depreciation and Capitalization of Fixed Assets
The consolidated KKM's policy is to capitalise fixed assets
greater than U.S. Dollars 1,000. Depreciation is calculated based
on the estimated useful lives of the related assets. Rates of
depreciation are as follows :
Office equipment 3 years
Vehicles 5 years
(3) DUE FROM A RELATED PARTY :
According to the founder agreement dated October 26, 1994, the Company
shall provide money for all of the external financial requirements of KKM. All
investments received from the Company shall be repaid by KKM as Investment
Recovery inclusive of libor plus 1% interest rate.
During the term of the agreement, it is expected that the total financial
requirements will reach to an aggregate amount of U.S.Dollars 216,000,000. When
the wells will begin production before the completion of investment, the
financial requirements will decrease approximately to U.S. Dollars 50,000,000.
On October 1, 1995, a service contract was signed between the Company and
KKM. The Company was appointed to provide personnel and to assist KKM within the
exportation of crude oil. This contract included but not limited to such
services. According to the contract, KKM will pay net U.S. Dollars 85,000 per
each month for the services provided by the Company. Therefore, the Company
issues invoices amounting U.S. Dollars 106,250 including Kazakhistan local
withholding tax of 20%. During our audit date, no payment was made to
Kazakhistan Tax Service for withholding tax of all invoices.
(8)
<PAGE>
Total taxes related with these invoices amount to U.S. Dollars 63,750 as of
December 31, 1995. Since the Company is tax exempt in Guernsey where it is
incorporated, those taxes would not be claimed back. Therefore, total taxes of
U.S. Dollars 63,750 is recorded as tax liability in Kazakhistan in the statement
of operations.
Due from a related company majorly consists of the interests of the Kazakh
shareholders (50%) on October, November and December service invoices issued to
KKM amounting U.S. Dollars 318,750, net of applicable taxes of U.S. Dollars
63,750 and cash sent to KKM for its own payments amounting U.S. Dollars 100,000.
Remaining portion is the reimbursable payments such as insurance, bank expenses
and Board of Directors expenses. The balance also includes interest accrual of
U.S. Dollars 2,414 for the receivables from KKM as of December 31, 1995.
(4) INVESTMENT IN JOINT VENTURE:
The Company participated in Karakuduk Munay Inc.'s shares by 50%. Remaining
shareholders are GHK Zharkyn, GHK Munaygaz, Korporatsiya Mangistou Terra
International with 20%, 20% and 10%, respectively. Share capital of KKM is U.S.
Dollars 200,000. The Company paid U.S. Dollars 100,000 as cash and Kazakhistan
side (GHK Munaygaz, GHK Zharkyn and Korporatsiya Mangistau Terra International)
was going to subscribe their shares in the form of geological - geophysical
information which was evaluated as U.S.Dollars 100,000.
The total Charter Fund contribution specified in the Founders Agreement of
Karakuduk-Munay Inc. (dated October 26, 1994) is U.S. Dollars 200,000. As
discussed in Note 12, the Kazakh Shareholders have not contributed their portion
to the Charter Fund. Accordingly, the due from Kazakh shareholders account on
the balance sheet represents the Company's interest at the uncontributed
balance. There is a risk that certain Kazakh authorities, such as the Ministry
of Justice, could determine KKM to be invalid due to this fact and other issues
relating to the KKM's registration.
On August 30, 1995, KKM began to operate in accordance with and under the
existing laws of Republic of Kazakhistan. The license for the right to use
natural deposits and to explorate, to develop, to produce, to refine, to
transport and to sale (including export) of hydrocarbons from Karakuduk oil
field is given to KKM for a period of 30 years.
(9)
<PAGE>
As of December 31, 1995, proportionate consolidation was applied for the
Company's 50% investment at KKM. The Company's interests at KKM which are
reported by using line-by-line format in the accompanying financial statements
as of December 31, 1995 are as follows (for the period August 30, 1995
(inception of KKM) through December 31, 1995):
<TABLE>
<CAPTION>
<S> <C>
Current assets .............................. 63,891
Fixed assets, net ........................... 15,218
Due from Kazakh shareholders ................ 50,000
Current liabilities ......................... 14,982
General and administrative expenses ......... 40,835
Capitalized signature bonus, net ............ 253,935
Signature bonus payable ..................... 256,500
</TABLE>
(5) FIXED ASSETS:
As of December 31, 1995, fixed assets are comprised of the following :
<TABLE>
<CAPTION>
<S> <C>
Office equipment ............................. 7,516
Vehicles ..................................... 7,993
-------
15,509
Accumulated depreciation ..................... (291)
-------
15,218
=======
</TABLE>
Upon full amortization of tangible assets, the right of ownership of the
tangible assets shall be transferred to the Kazakhistan Ministry of Oil and Gas
in accordance with the Agreement. KKM is entitled to the use of the fully
amortized tangible assets during the whole term of the Agreement.
(6) LONG-TERM DEBT:
Chaparral Resources Inc., one of the Company shareholders, committed to
provide up to U.S. Dollars 4,000,000 for the initial investment provided to KKM
by the Company. As of December 31, 1995, total funds obtained amounted to U.S.
Dollars 320,000. Any amounts received by the Company from KKM (in the form of
investment recovery) shall be used to repayment of Chapparal loan. No dividends
or capitalization of profits for any purpose shall be made until the entire loan
are paid to Chaparral. Such repayment shall include interest at a rate of libor
plus 1%. Accordingly, as of December 31, 1995, the Company made an interest
accrual of U.S. Dollars 3,545 for the amounts obtained, and included in
long-term debt balances.
(10)
<PAGE>
(7) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES :
The balance mainly consist of professional fees payable to Chaparral
Resources Inc. amounting U.S. Dollars 9,644, accruals for December fees of the
Company's consultants amounting U.S.Dollars 21,100 and taxes payable of U.S.
Dollars 31,875 (50% of the total taxes of U.S. Dollars 63,750, see Note 3).
(8) SIGNATURE BONUS PAYABLE:
KKM is required to pay an unrecoverable (non-tax deductible) Signature
Bonus to the Kazakhistan Ministry of Geology in the amount of U.S. Dollars
513,000 during monthly installments of U.S. Dollars 73,286 beginning in January
1996 in accordance with the Agreement. This amount has been accrued for at
December 31, 1995, considering the Company's interest in KKM at 50% and is being
amortized over 25 years.
Production based bonuses will be payable to the Kazakhistan Ministry of
Geology in the amounts of U.S. Dollars 500,000 when cumulative production
reaches fifty million barrels. The production bonuses will be considered tax
deductible expenditures in the calculation of profits taxes. No amounts related
to the production bonuses have been accrued for at December 31, 1995 as
production has not yet commenced.
(9) SHARE CAPITAL:
The shareholders of the Company and their percentages of ownership at
December 31, 1995, is as follows:
<TABLE>
<CAPTION>
Percentage
Shareholders Amount of ownership
------------ ------- ------------
<S> <C> <C>
Chaparral Resources Inc. .................... 125,000 25 %
Darka Petroleum Limited ..................... 125,000 25 %
Pet Oil, Guntekin Koksal .................... 125,000 25 %
Central Asian Petroleum,
Delaware ................................... 100,000 20 %
Overseas Consulting
Services Co. Inc. (OSCO) ................... 25,000 5 %
------- -----
500,000 100 %
======= =====
</TABLE>
(11)
<PAGE>
(10) TAX:
As discussed in Note 3, the Company is tax exempt in Guernsey, where it is
incorporated. KKM is permitted to carryforward tax losses of the current period
for five years; however, certain uncertainties exist as to the amount of the
carryforward due to the issues discussed in Note 12. The Agreement specifies
profits taxes and other taxes applicable to KKM. As discussed in Note 8, the
Signature Bonus is not recoverable or deductible in calculating tax profits.
No deferred tax asset has been provided due to the uncertainties described
in Note 12.
(11) REVISION OF FINANCIAL STATEMENTS:
The auditor's opinion dated May 17, 1996 on the financial statements of the
Company as of December 31, 1995 was qualified due to two reasons. First, the
Company has not applied proportionate consolidation for its investment in KKM at
50%. Second, the Company has not accrued interest for the loan obtained from
Chaparral and loans given to KKM. Subsequent to May 17, 1996, the Company has
applied proportionate consolidation and has also made accruals for interest
income and interest expense. Therefore, the 1995 financial statements have been
revised and reissued.
(12) GOING CONCERN:
These financial statements have been prepared assuming that KKM will
continue as a going concern. KKM has incurred an operating loss and also does
not currently have a means of generating revenue. These conditions raise
substantial doubt about KKM's ability to continue as a going concern. The
financial statements do not include any adjustment that might result from the
outcome of this uncertainty.
The shareholders of KKM have not complied with certain government
regulations relating to Charter Fund contributions and registration. First, the
Kazakh Shareholders have not contributed their portion to the Charter Fund in
accordance with the time allowable under Kazakh regulations. Second, KKM has not
performed an audit of the contributions to the Charter Fund. Under Kazakh
legislation, all Charter Fund contributions not in the form of Kazakh Tenge
shall be audited or the Ministry of Justice may consider KKM to be invalid.
Third, KKM has not re-registered with the Kazakh authorities.
(12)
<PAGE>
Due to these circumstances, there is a risk that KKM could be considered
invalid and liquidated. Should these circumstances be rectified in 1996, then
there would not likely be any material impact on KKM. The accompanying
consolidated financial statements do not include any adjustment that might
result from the outcome of this uncertainty. Management has represented that the
issues relating to KKM's registration are in the process of being resolved.
On March 20, 1996, the Ministry of Finance of the Republic of Kazakhistan
issued a letter to KKM relating to a specific inquiry on a certain tax issue
discussed in the Agreement. The letter indicated the Ministry of Finance
considers that the "regulations established by the Agreement can not be applied
for taxation purposes." This contradicts a 1995 letter from the Ministry of
Finance in which the Ministry of Finance approved the Agreement in general
terms. Management has represented that KKM is in the process of resolving this
issue by clarifying the position of the Ministry of Finance.
These conditions raise substantial doubt about KKM's ability to continue as
a going concern. The financial statements do not include any adjustment that
might result from the outcome of this uncertainty.
(13) START-UP SERVICE EXPENSES:
On March 31, 1995, a service contract was signed between the Company and
Darka, one of the shareholders of the Company.
The Company appointed Darka to represent the Company in Turkey, by
maintaining an office, to keep the accounting books, to operate and to control
the technical and administrative activities related to Karakuduk field, to
assist the operations in Kazakhistan, to organise the relationship between the
shareholders of the Company and to initiate other projects on behalf of the
Company. This representation was on a non-profit basis and only the actual costs
of Darka in relation with the activities of the Company would be issued to the
Company. All the expenses charged by Darka had been recognized as an expense by
the Company and will not be charged back to KKM.
This contract was effective from January 1, 1995 to December 1, 1995.
(13)
<PAGE>
Breakdown of start-up service expenses charged to the Company by Darka is
as follows :
<TABLE>
<CAPTION>
<S> <C>
Salaries and wages .................... 149,816
Office expenses ....................... 19,869
Office establishment expenses ......... 32,848
Rent expenses ......................... 17,484
Travel expenses ....................... 68,185
Karatube project expenses ............. 35,874
-------
324,076
=======
</TABLE>
(14) SUBSEQUENT EVENTS :
(a) While, OSCO and Darka transferred all of their shares to
Chaparral, Guntekin Koksal transferred only 15% of its shares to
Chaparral.
New share distribution is as follows:
<TABLE>
<CAPTION>
Percentage of
Shareholders Ownership
------------ -------------
<S> <C>
Chaparral Resources, Inc. ................. 70%
Central Asian Petroleum, Delaware ......... 20%
Guntekin Koksal ........................... 10
</TABLE>
(b) A subsidiary of the Company named "Road Runner Service Company,
Inc." was established in March 1996 and all rights and
obligations under the Service Contract signed between the Company
and KKM assigned to Road Runner Service Company, Inc.
(14)
<PAGE>
Karakuduk-Munay Joint Venture
Financial Statements
For the Period August 30, 1995 (Inception)
through December 31, 1995
with Report of Independent Auditors
<PAGE>
Karakuduk-Munay Joint Venture
Table of Contents
For the Period August 30, l995 (Inception)
through December 31, 1995
Section
Report of Independent Auditors .................................. 1-2
Balance Sheet ................................................... 3
Statement of Expenses and Accumulated Deficit ................... 4
Statement of Cash Flows ......................................... 5
Notes to Financial Statements ................................. 6-10
<PAGE>
ERNST & YOUNG Ernst & Young Phone: (7-3272) 41 47 38
Kazakhstan (7-3272) 50 94 94
Almaty 480009 (7-3272) 50 94 23
Prospekt Abaya 153A Fax: (7-3272) 50 94 97
Report of Independent Auditors
The Board of Directors
Shareholders of Karakuduk-Munay Joint Venture,
We have audited the accompanying balance sheet of Karakuduk-Munay Joint Venture
as of December 31, 1995 and the related statements of expenses and accumulated
deficit, and cash flows for the period August 30, 1995 (inception) through
December 31, 1995, all expressed in US dollars. These financial statements are
the responsibility of the management of Karakuduk-Munay Joint Venture (the
"Joint Venture"). Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing.
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 audit provides a reasonable basis for our opinion.
The accompanying financial statements were prepared on the basis of accounting
prescribed in the Agreement for Exploration, Development and Production of Oil
in the Karakuduk Oil Field in Mangistau Oblast of the Republic of Kazakstan (the
"Agreement") as described in Note 2 to the financial statements.
We draw your attention to Note 9 to the financial statements which states that
the Joint Venture has not obtained approval from the Ministry of Finance of the
Republic of Kazakhstan to maintain financial statements in accordance with
International Accounting Standards. There is a risk that the Ministry of Finance
of the Republic of Kazakhstan may require the Joint Venture to maintain its
accounting and tax records solely in accordance with Standards of Accounting in
the Republic of Kazakhstan. The effect of such an outcome would be that certain
expenses recorded in these financial statements would be deferrable and certain
expenses would not be tax deductible under Standards of Accounting in the
Republic of Kazakhstan. The Ministry of Finance has approved the Agreement as a
whole, but specific approval is required on the method of accounting selected by
the Joint Venture. The financial statements do not include any adjustment that
might result from the outcome of this uncertainty.
The accompanying financial statements have been prepared assuming that
Karakuduk-Munay Joint Venture will continue as a going concern. As more fully
described in Note 3 to the financial statements, the Joint Venture has incurred
an operating loss and the Joint Venture relies solely on the foreign shareholder
to provide all funding in the form of an interest bearing loan. The Joint
Venture does not currently have a means of generating revenue and certain
permits and licenses have not yet been obtained. Additionally. the Joint Venture
has not complied with certain government regulations relating to Charter Fund
contributions and registration. Furthermore, the Ministry of Finance of the
Republic of Kazakhstan issued a letter to the Joint Venture indicating that the
1
<PAGE>
Agreement can not be applied for taxation purposes. These conditions raise
substantial doubt about the Joint Venture's ability to continue as a going
concern. The financial statements do not include any adjustment that might
result from the outcome of this uncertainty.
In our opinion, except for any adjustments that may be required as a result of
the matter discussed in paragraph four, and any adjustments that may be required
should the going concern basis of preparation not prove appropriate, the
financial statements referred to above present fairly, in all material respects,
the financial position of Karakuduk-Munay Joint Venture as of December 31, 1995,
and the results of its operations and its cash flows for the period August 30,
1995 (inception) through December 31, 1995 in conformity with the basis of
accounting described in Note 2 to the financial statements.
/s/ Ernst & Young Kazakhstan [SEAL OF ERNST & YOUNG
Audit & Consulting
Kazakctah]
May 17, 1996
2
<PAGE>
<TABLE>
<CAPTION>
Karakuduk-Munay Joint Venture
Balance Sheet
December 31, 1995
(Amounts in US Dollars)
<S> <C>
ASSETS
Cash ..................................................... $ 35,076
Prepaid and Other ........................................ 92,706
---------
Total Current Assets ................................... 127,782
Equipment ................................................ 31,017
Accumulated Depreciation ................................. (581)
---------
Net Equipment (Note 4) ................................. 30,436
Capitalized Signature Bonus .............................. 513,000
Accumulated Amortization ................................. (5,130)
---------
Net Capitalized Signature Bonus (Note 5) ............... 507,870
---------
TOTAL ASSETS ................................................. $ 666,088
=========
LIABILITIES AND PARTNERS' DEFICIT
Accounts Payable and Accrued Liabilities ................. 21,238
Taxes Payable ............................................ 3,421
Signature Bonus Payable (Note 5) ......................... 513,000
---------
Current Liabilities .................................... 537,659
Loans Payable to Partner (Note 6) ........................ 434,559
Accrued Interest Payable to Partner (Note 6) ............. 2,414
---------
Long Term Liabilities .................................. 436,973
---------
TOTAL LIABILITIES ............................................ 974,632
Commitments and Contingencies (Notes I and 9) ................ --
PARTNERS' DEFICIT
Charter Fund (Note 8) ..................................... 100,000
Accumulated Deficit ....................................... (408,544)
---------
(308,544)
---------
TOTAL LIABILITIES AND PARTNERS' DEFICIT ...................... $ 666,088
=========
</TABLE>
See accompanying notes
3
<PAGE>
<TABLE>
<CAPTION>
Karakuduk-Munay Joint Venture
Statement of Expenses and Accumulated Deficit
For the Period August 30, 1995 (Inception)
through December 31, 1995
(Amounts in US Dollars)
<S> <C>
Management Service Fee (Note 6) .............................. $318,750
General and Administrative Expenses .......................... 81,669
Amortization of Signature Bonus (Note 5) ..................... 5,130
Interest Expense (Note 6) .................................... 2,414
Depreciation on Fixed Assets (Note 4) ........................ 581
--------
Net Loss ................................................... 408,544
Accumulated deficit beginning of period ...................... --
--------
Accumulated deficit end of period ............................ $408,544
========
</TABLE>
See accompanying notes
4
<PAGE>
<TABLE>
<CAPTION>
Karakuduk-Munay Joint Venture
Statement of Cash Flows
For the Period August 30, 1995 (Inception)
through December 31, 1995
(Amounts in US Dollars)
<S> <C>
Cash flows from operating activities:
Net Loss ...................................................... $(408,544)
Adjustments to reconcile net loss to net cash
used by operating activities:
Increase in Prepaid and Other ............................ (92,706)
Depreciation of Fixed Assets ............................. 581
Amortization of Signature Bonus .......................... 5,130
Increase in Accounts Payable and Accrued Liabilities ..... 21,238
Increase in Taxes Payable ................................ 3,421
Increase in Loans Payable ................................ 334,559
Increase in Interest Payable ............................. 2,414
---------
Net cash used by operating activities ................ (133,907)
Cash used by investing activities-purchase of equipment ......... (31,107)
Cash provided by financing activities:
Proceeds from Loan Payable to Partner .................... 100,000
Proceeds from Charter Fund Contribution .................. 100,000
---------
Net cash provided by financing activities ............ 200,000
Net increase in cash ............................................ 35,076
Cash at beginning of period ..................................... --
---------
Cash at end of period ........................................... $ 35,076
=========
</TABLE>
See accompanying notes
5
<PAGE>
Karakuduk-Munay Joint Venture
Notes to the Financial Statements
December 31, 1995
1. Organization and Background Information
Formation
Karakuduk-Munay Joint Venture (the "Joint Venture"), a Kazakhstan Joint Stock
Company of Closed Type, was founded by "Munaygaz" State Holding Company
(formerly Kazakhstanmunaygaz National Petroleum Company), "Jarkin" State Holding
Company (formerly PGO Mangistauneftegazgeologiya), and Korporatsiya
Krambs-Mangistau Inc. (formerly Korporatsiya Mangistau Terra International),
collectively the "Kazakh Shareholders", and Central Asian Petroleum (Guernsey)
Limited. The Joint Venture and the Ministry of Oil and Gas in the Republic of
Kazakhstan entered into an agreement on August 30, 1995 ("Inception") referred
to as the Agreement for Exploration, Development and Production of Oil in
Karakuduk Oil Field in Mangistau Oblast of the Republic of Kazakhstan (the
"Agreement"). The management and operational framework within which the Joint
Venture must conduct its activities are dictated by the Agreement. The Joint
Venture may be terminated under certain conditions specified in the Agreement.
The term of the Agreement is 25 years commencing from the date of the Joint
Venture's registration. The Agreement can be extended to a date agreed between
the Ministry of Oil and Gas and the Joint Venture as long as production of
petroleum and/or gas is continued in the exploration field. The Joint Venture
was in the Exploration Phase at the end of 1995. The Joint Venture's capital and
expenditure program is expected to be US$ 10 million in 1996. The Board of
Directors has approved a budget of US$ 5,044,550 for the first six month period
of 1996.
Principal Activity
The Joint Venture was established for the purposes of exploring, developing, and
producing oil and gas deposits in the Karakuduk Field in the Republic of
Kazakhstan.
2. Basis of Accounting
Basis of Accounting
The accounting policies and procedures of the Joint Venture are specified in the
Accounting Procedure of the Agreement. The intent of the Accounting Procedure is
to establish equitable methods for determining revenues and expenditures
applicable to operations under the Agreement, to provide a method of computing
Kazakh tax on profits and to determine distributable profits. As discussed in
Notes 3 and 9, there exists some uncertainty as to the method of accounting and
the tax regime that will ultimately be accepted by the Ministry of Finance of
the Republic of Kazakhstan.
The Accounting Procedure requires the Joint Venture to maintain its accounting
records and books in US Dollars and prepare them on an accrual basis in
accordance with internationally accepted and recognized accounting systems and
consistent with the standard practice of the international petroleum industry as
well as the provisions of the Agreement. the Articles of Association. and the
Standard Oil and Gas Accounting Systems of the Republic of Kazakhstan. The Joint
Venture has selected International Accounting Standards for the preparation of
these financial statements, however certain contingencies exist related to this
decision as discussed in Notes 3 and 9.
<PAGE>
Karakuduk-Munay Joint Venture
Notes to the Financial Statements
December 31, 1995
(Note 2: Basis of Accounting continued)
The Joint Venture commenced expenditures in October of 1995.
The material accounting principles and policies either specifically prescribed
in the Accounting Procedure or adopted by the Joint Venture pursuant to the
general principles of the Accounting Procedure are described below:
Foreign Currency Translation
Transactions arising in currencies other than US Dollars are translated into US
Dollars at the exchange rate ruling at the date the transaction is recorded in
the books and records.
Cash and other monetary assets held and liabilities denominated in currencies
other than US Dollars are translated to US Dollars at the rates of exchange
ruling as of December 31, 1995 (63.95 Kazakh Tenge per US Dollar). Realized
exchange gains and losses arising from non- US Dollar currency transactions and
unrealized gains and losses arising from translation of non-US Dollar amounts at
the balance sheet date are recognized as an increase or decrease in income for
the period. All other assets and liabilities are held in US Dollars.
Depreciation
Depreciation of equipment is calculated on the straight line method based on the
estimated useful life of the assets as follows:
Office Equipment 3 years
Vehicles 5 years
3. Going Concern
These financial statements have been prepared assuming that Karakuduk-Munay
Joint Venture will continue as a going concern. The Joint Venture has incurred
an operating loss and the Joint Venture relies solely on CAP(G) to provide all
funding in the form of an interest bearing loan, as discussed in Note 6. The
Joint Venture also does not currently have a means of generating revenue and
certain permits and licenses have not yet been obtained. Management represented
that they fully expect CAP(G) to provide all funding necessary for the Joint
Venture to continue as a going concern and that the Joint Venture is in the
process of obtaining all necessary permits and licenses.
The Joint Venture and the Kazakh Shareholders have not complied with certain
government regulations relating to Charter Fund contributions and registration.
First, the Kazakh Shareholders have not contributed their portion to the Charter
Fund in accordance with the time allowable under Kazakh regulations. Second, the
Joint Venture has not performed an audit of the contributions to the Charter
Fund. Under Kazakh legislation, all Charter Fund contributions not in the form
of Kazakh Tenge shall be audited or the Ministry of Justice may consider the
Joint Venture to be invalid. Third. the Joint Venture has not re-registered with
the Kazakh authorities. Due to these circumstances. there is a risk that the
Joint Venture could be considered invalid and liquidated. Should these
circumstances be rectified in 1996. then there would not likely be any material
7
<PAGE>
Karakuduk-Munay Joint Venture
Notes to the Financial Statements
December 31, 1995
(Note 3: Going Concern continued)
impact on the Joint Venture. The financial statements do not include any
adjustment that might result from the outcome of this uncertainty. Management
has represented that the issues relating to the Joint Venture's registration are
in the process of being resolved.
On March 20, 1996, the Ministry of Finance of the Republic of Kazakhstan issued
a letter to the Joint Venture relating to a specific inquiry on a certain tax
issue discussed in the Agreement. The letter indicated the Ministry of Finance
considers that the "regulations established by the Agreement can not be applied
for taxation purposes." This contradicts a 1995 letter from the Ministry of
Finance in which the Ministry of Finance approved the Agreement in general
terms. Management has represented that the Joint Venture is in the process of
resolving this issue by clarifying the position of the Ministry of Finance.
These conditions raise substantial doubt about the Joint Venture's ability to
continue as a going concern. The financial statements do not include any
adjustment that might result from the outcome of this uncertainty.
4. Equipment
Upon full amortization of tangible assets, the right of ownership of the
tangible assets shall be transferred to the Kazakhstan Ministry of Oil and Gas
in accordance with the Agreement. The Joint Venture is entitled to the use of
the fully amortized tangible assets during the whole term of the Agreement. A
summary of equipment at December 31, 1995 is provided in the table below:
<TABLE>
<CAPTION>
Balance at Balance at
Cost inception Additions 12/31/95
---- ---------- --------- ----------
<S> <C> <C> <C>
Office Equipment ................ $ -- $15,031 $15,031
Vehicles ........................ -- 15,986 15,986
------- ------- -------
Total Cost ...................... $ -- $31,017 $31,017
======= ======= =======
<CAPTION>
Accumulated Balance at Balance at
Depreciation inception Additions 12/31/95
------------ ---------- --------- ----------
<S> <C> <C> <C>
Office Equipment ................ $ -- $ 228 $ 228
Vehicles ........................ -- 353 353
------- ------- -------
Total Depreciation .............. $ -- $ 581 $ 581
======= ======= =======
Net Book Value .................. $ -- $30,436 $30,436
======= ======= =======
</TABLE>
8
<PAGE>
Karakuduk-Munay Joint Venture
Notes to the Financial Statements
December 31,1995
5. Bonuses Payable
The Joint Venture is required to pay an unrecoverable (non-tax deductible)
Signature Bonus to the Kazakhstan Ministry of Geology in the amount of US$
513,000 during monthly installments of US$ 73,286 beginning in January 1996 in
accordance with the Agreement. This amount has been accrued for at December 31,
1995 and is being amortized over 2 years.
Production based bonuses will be payable to the Kazakhstan Ministry of Geology
in the amounts of US$ 500,000 when cumulative production reaches ten million
barrels and US$ 1,20,000 when cumulative production reaches fifty million
barrels. The production bonuses will be considered tax deductible expenditures
in the calculation of profits taxes. No amounts related to the production
bonuses have been accrued for at December 31. 1995 as production has not yet
commenced.
6. Long-Term Loan
As discussed in Note 3, the major shareholder, CAP(G) bears sole financial
responsibility for the fulfillment of all funding for the Joint Venture. The
fundings of CAP(G) are treated as long term loans to the Joint Venture and bear
interest at the rate of LIBOR plus 1%. CAP(G) and the parent company of CAP(G),
Chaparral Resources Inc., provide certain management services for a fixed fee of
US$ 106,250 per month. Management services were provided to the Joint Venture
for the last three months of 1995. The weighted average interest rate effective
at December 31, 1995 was approximately 6.7%. The Agreement requires installment
payments on the loan to be calculated and paid on a quarterly basis and be equal
to 65% of gross revenue after deduction of royalties due to the Republic of
Kazakhstan. No payments on the loan have been made or are due as of December
31, 1995.
<TABLE>
<CAPTION>
<S> <C>
Cash Funding ............................... $100,000
Management Services Fee .................... 318,750
Other Expenditures ......................... 15,809
Accrued Interest Payable ................... 2,414
--------
Total Interest and Loan Payable to Partner $436,973
========
</TABLE>
7. Tax
The Joint Venture is permitted to carryforward tax losses of the current period
for five years; however, certain uncertainties exist as to the amount of the
carryforward due to the issues discussed in Notes 3 and 9. The Agreement
specifies profits taxes and other taxes applicable to the Joint Venture. As
discussed in Note 5, the Signature Bonus in not recoverable or deductible in
calculating tax profits.
No deferred tax asset has been provided due to the uncertainties described in
Notes 3 and 9.
9
<PAGE>
Karakuduk-Munay Joint Venture
Notes to the Financial Statements
December 31, 1995
8. Partner's Deficit
The total Charter Fund contribution specified in the Founders Agreement of
Karakuduk-Munay (dated October 26, 1994) is $200,000. As discussed in Note 3,
the Kazakh Shareholders have not contributed their portion to the Charter Fund.
Accordingly, the Charter Fund balance is presented net of uncontributed amounts.
There is a risk that certain Kazakh authorities, such as the Ministry of
Justice, could determine the Joint Venture to be invalid due to this fact and
other issues relating to the Joint Venture's registration. Each of the
Shareholder's portion of the Charter Fund and their respective participating
interest in the Joint Venture is:
<TABLE>
<CAPTION>
Charter Percent
Contribution Interest
------------ --------
<S> <C> <C>
"Munaygaz" State Holding Company ................. $ 40,000 20%
"Jarkin" State Holding Company ................... 40,000 20%
Korporatsiya Krambs-Mangistau Inc. ............... 20,000 10%
Central Asian Petroleum (Guernsey) Limited ....... 100,000 50%
-------- ---
Total Charter Fund ............................... 200,000 100%
===
Less Amount Not Contributed by Kazakh Shareholders 100,000
--------
Net Charter Fund ................................. $100,000
========
</TABLE>
9. Contingencies
The Joint Venture has not obtained approval from the Ministry of Finance of the
Republic of Kazakhstan to maintain financial statements in accordance with
International Accounting Standards. There is a risk that the Ministry of Finance
of the Republic of Kazakhstan may require Karakuduk-Munay Joint Venture to
maintain its accounting and tax records solely in accordance with Standards of
Accounting in the Republic of Kazakhstan. The effect of such an outcome would be
that certain expenses recorded in these financial statements would be deferrable
and certain expenses would not be tax deductible under Standards of Accounting
in the Republic of Kazakhstan. The Ministry of Finance has approved the
Agreement as a whole, but specific approval is required on the method of
accounting selected by the Joint Venture. The financial statements do not
include any adjustment that might result from the outcome of this uncertainty.
10
<PAGE>
Chaparral Resources, Inc. and Subsidiary
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Three months ended February 29, 1996
The following pro forma consolidated financial statements of Chaparral
Resources, Inc. (the Company) and Central Asian Petroleum Guernesey Limited
(CAP-G) for the year ended November 30, 1995 and for the three-months ended
February 29, 1996 are presented as if the merger and private offering, which is
considered an integral part of this transaction, had occurred on December 1,
1994. The pro forma consolidated balance sheet assumes the merger and private
offering occurred as of February 29, 1996. The merger is to be treated as a
purchase transaction.
The pro forma consolidated financial statements are derived from the respective
historical financial statements of the Company and CAP-G. The pro forma balance
sheet combines the Company's February 29, 1996 consolidated balance sheet with
CAP-G's March 31, 1996 balance sheet. The pro forma consolidated statements of
operations combine CAP-G's historical statement of operations for the year ended
December 31, 1995 and the three month period ended November 30, 1995 with the
Company's historical consolidated statements of operations for the year ended
November 30, 1995 and the three month period ended February 29, 1996.
The pro forma data is presented for informational purposes only and may not be
indicative of the future results of operations and financial position of the
Company or what the results of operations and financial position of the Company
would have been had the merger occurred immediately prior to the periods
indicated.
Assumptions underlying the pro forma adjustments are described in the
accompanying notes which should be read in conjunction with the statements.
These statements should also be read in conjunction with the attached financial
statements of CAP-G and notes thereto.
<PAGE>
Chaparral Resources, Inc. and Subsidiary
Three months ended February 29, 1996
Pro forma consist of the following:
1. To eliminate intercompany notes and service income.
2. To capitalize cumulative expenses of the consolidated
affiliate.
3. To recognize private placement proceeds.
4. To recognize additional purchase of 40% interest in CAP-G.
5. To record advances to affiliate for operating costs.
6. To recognize payment of long-term debt.
7. To eliminate consolidated equity of affiliate.
8. To eliminate interest on debt.
<PAGE>
<TABLE>
<CAPTION>
Chaparral Resources, Inc. and Subsidiary
PRO FORMA CONSOLIDATED BALANCE SHEET
February 29, 1996
Historical
----------------------------
Chaparral Pro forma Pro forma
Resources, Inc. Cap-G adjustments balance
-------------- ---------- ----------- -----------
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............... $ 219,000 $ 46,000 $ (750,000)(6) $ 3,853,000
(340,000)(5)
(2,300,000)(4)
6,978,000 (3)
Accounts receivable ..................... 17,000 -- -- 17,000
Other ................................... 1,000 23,000 -- 24,000
------------ ------------ --------- ---------
Total current assets .... 237,000 69,000 3,588,000 3,894,000
PROPERTY AND EQUIPMENT - AT COST
Oil and gas properties -full cost
Subject to depletion .................. 16,089,000 -- -- 16,089,000
Not subject to depletion .............. 47,000 257,000 (257,000)(2) 47,000
Less accumulated depletion and
depreciation and impairment ........... (15,738,000) -- -- (15,738,000)
----------- ---------- --------- ----------
398,000 257,000 (257,000) 398,000
Furniture, fixtures and equipment, net .. 24,000 58,000 -- 82,000
OTHER ASSETS
Investment in and advances to affiliate.. 5,851,000 501,000 340,000 (5) 8,802,000
855,000 (2)
(620,000)(1)
2,300,000 (4)
(425,000)(7)
Other ................................... 21,000 98,000 -- 119,000
----------- ---------- --------- ----------
5,872,000 599,000 2,450,000 8,921,000
----------- ---------- --------- ----------
$ 6,531,000 $ 983,000 $ 5,781,000 $ 13,295,000
=========== ========== ========= ==========
<PAGE>
<CAPTION>
Chaparral Resources, Inc. and Subsidiary
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
February 29, 1996
Historical
----------------------------
Chaparral Pro forma Pro forma
Resources, Inc. Cap-G adjustments balance
-------------- ---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable ........................ $ 72,000 $ 258,000 $ -- $ 330,000
Accrued liabilities ..................... 38,000 203,000 -- 241,000
----------- ---------- --------- ----------
Total current liabilities ... 110,000 461,000 -- 571,000
LONG-TERM OBLIGATIONS
Note payable ............................ 793,000 620,000 (750,000)(6) 43,000
(620,000)(1)
MINORITY INTEREST ......................... -- -- 75,000 (7) 75,000
STOCKHOLDERS' EQUITY
Common stock ............................ 2,111,000 500,000 1,400,000 (3) 3,511,000
(500,000)(7)
Capital in excess of par value .......... 13,305,000 -- 5,578,000 (3) 18,883,000
Preferred stock ......................... -- -- -- --
Retained earnings (deficit) ............. (9,788,000) (598,000) 598,000 (2) (9,788,000)
----------- ---------- --------- ----------
5,628,000 (98,000) 7,076,000 12,606,000
----------- ---------- --------- ----------
Total liabilities and
stockholders' equity... $ 6,531,000 $ 983,000 $ 5,781,000 $ 13,295,000
========== ========== ========= ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Chaparral Resources, Inc. and Subsidiary
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year ended November 30, 1995
Historical
----------------------------
Chaparral Pro forma Pro forma
Resources, Inc. Cap-G adjustments balance
--------------- --------- ----------- --------
<S> <C> <C> <C> <C>
Revenue
Oil and gas sales ............................. $ 255,000 $ -- $ -- $ 255,000
Service income ................................ -- 159,000 (159,000)(1) --
--------- --------- ---------- --------
255,000 159,000 (159,000) 255,000
Costs and expenses
Production/service expenses ................... 115,000 380,000 (380,000)(2) 115,000
Write down of oil and gas
properties .................................. 619,000 -- -- 619,000
Depreciation and depletion .................... 74,000 3,000 (3,000)(2) 74,000
General and administrative .................... 166,000 113,000 (113,000)(2) 166,000
--------- --------- --------- ---------
974,000 496,000 (496,000) 974,000
--------- --------- --------- ---------
(Loss) from operations ........ (719,000) (337,000) 337,000 (719,000)
Other income (expense)
Interest income ............................... 25,000 1,000 -- 26,000
Interest expense .............................. (17,000) (3,000) 16,000 (8) (4,000)
Other - net ................................... 7,000 (63,000) 63,000 (2) 7,000
-------- --------- -------- --------
15,000 (65,000) 79,000 29,000
-------- --------- -------- --------
NET (LOSS) .................... $ (704,000) $ (402,000) $ 416,000 $ (690,000)
======== ========= ======== ========
Net (loss) per share ............................ (.04) (.02)
Weighted average number of shares
outstanding ................................... 18,865,454 34,150,454
</TABLE>
Note: The potential dilution from the exercise of stock warrants is not
material.
<PAGE>
<TABLE>
<CAPTION>
Chaparral Resources, Inc. and Subsidiary
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended February 29, 1996
Historical
----------------------------
Chaparral Pro forma Pro forma
Resources, Inc. Cap-G adjustments balance
--------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue
Oil and gas sales ..................................... $ 34,000 $ -- $ -- $ 34,000
Service income ........................................ -- 127,000 (127,000) --
--------- --------- ------------ ---------
34,000 127,000 (127,000) 34,000
Costs and expenses
Production ............................................ -- -- -- --
Write down of oil and gas
properties .......................................... -- -- -- --
Depreciation and depletion ............................ 16,000 -- -- 16,000
General and administrative ............................ 84,000 42,000 (42,000)(2) 84,000
--------- --------- ------------ ---------
100,000 42,000 (42,000) 100,000
--------- --------- ------------ ---------
Income (loss) from operations ......... (66,000) 85,000 (85,000) (66,000)
Other income (expense)
Interest income ....................................... 2,000 5,000 (5,000)(2) 2,000
Interest expense ...................................... (19,000) -- -- (19,000)
Other - net ........................................... 1,000 -- -- 1,000
--------- --------- ------------ ---------
(16,000) 5,000 (5,000) (16,000)
--------- --------- ------------ ---------
NET (LOSS) ............................ $ (82,000) $ (90,000) $ 90,000 $ (82,000)
========= ========= ============ =========
Net (loss) per share .................................... * *
Weighted average number of shares
outstanding ........................................... 20,692,525 35,977,525
</TABLE>
Note: The potential dilution from the exercise of stock warrants is not
material.
* Indicates less than $.01 per share.
