SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 25049
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1996
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 0-7261
CHAPARRAL RESOURCES, INC.
-----------------------------
621 - 17th Street, Suite 1301
Denver, Colorado 80293
Phone: (303) 293-2340
Colorado 84-0630863
---------------------- ----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No. [ ]
As of July 19, 1996, the Registrant had 37,376,517 shares of its $0.10 par value
common stock issued and outstanding.
Total Pages 10
1
<PAGE>
PART I - SUMMARIZED FINANCIAL INFORMATION
CHAPARRAL RESOURCES, INC.
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Unaudited
For the three months ended For the six months ended
----------------------------- --------------------------
May 31, May 31, May 31, May 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Oil and gas sales ................. $ 47,000 $ 52,000 $ 81,000 $ 136,000
------------ ------------ ------------ ------------
47,000 52,000 81,000 136,000
Costs and expenses:
Production costs .................. 8,000 28,000 8,000 67,000
Depreciation and depletion ........ 23,000 31,000 39,000 61,000
General and administrative ........ 265,000 38,000 349,000 60,000
------------ ------------ ------------ ------------
296,000 97,000 396,000 188,000
------------ ------------ ------------ ------------
Earnings (loss) from operations ....... (249,000) (45,000) (315,000) (52,000)
Other income (expenses):
Interest income ................... -- 2,000 2,000 3,000
Interest expense .................. -- -- (28,000) --
Other, net ........................ (9,000) 42,000 1,000 39,000
------------ ------------ ------------ ------------
(9,000) 44,000 (25,000) 42,000
------------ ------------ ------------ ------------
Net income (loss) ............. $ (258,000) $ (1,000) $ (340,000) $ (10,000)
============ ============ ============ ============
Earnings (loss) per common share ...... $ (.008) $ (.000) $ (.012) $ (.001)
============ ============ ============ ============
Average number of outstanding shares ... 32,729,967 18,834,609 26,711,246 17,331,380
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
CHAPARRAL RESOURCES, INC.
Consolidated Balance Sheets
May 31,
1996 November 30,
(Unaudited) 1995
--------- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................... $ 2,357,000 $ 501,000
Accounts receivable
Joint interest participants ............................... 15,000 31,000
Oil and gas purchasers .................................... 50,000 46,000
Prepaid expenses ............................................ 2,000 2,000
------------ ------------
Total current assets .................................... 2,424,000 580,000
PROPERTY AND EQUIPMENT - AT COST
Oil and gas properties - full cost
Subject to depletion .................................... 16,161,000 16,149,000
Not subject to depletion ................................ 54,000 40,000
Less accumulated depletion and depreciation and impairment .. (15,760,000) (15,722,000)
------------ ------------
455,000 467,000
Furniture, fixtures and equipment ........................... 202,000 197,000
Less accumulated depreciation ............................... (179,000) (177,000)
------------ ------------
23,000 20,000
------------ ------------
478,000 487,000
OTHER ASSETS
Investments in and advances to affiliates ................... 12,649,000 4,507,000
Other ....................................................... 384,000 21,000
------------ ------------
13,033,000 4,528,000
------------ ------------
$ 15,935,000 $ 5,595,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Purchase commitment ......................................... $ 1,225,000 --
Accounts payable
Trade ..................................................... 529,000 $ 102,000
Joint interest participants - revenue ..................... 42,000 26,000
Accrued liabilities ......................................... 54,000 86,000
------------ ------------
Total current liabilities ............................. 1,850,000 214,000
LONG-TERM OBLIGATIONS
Notes Payable
-- 461,000
------------ ------------
MINORITY INTEREST ............................................. 50,000 --
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - authorized, 50,000,000 shares of $.10 par
value; issued and outstanding, 37,376,517 and 20,484,192
shares at May 31, 1996 and November 30, 1995 ............. 3,738,000 2,048,000
Capital in excess of par value .............................. 20,343,000 12,577,000
Preferred stock - authorized, 1,000,000 shares as of November
30, 1994 no shares issued or outstanding at May 31, 1996 or
November 30, 1995
Retained earnings (deficit) ................................. (10,046,000) (9,705,000)
------------ ------------
Total stockholders' equity .................................... 14,035,000 4,920,000
------------ ------------
Total liabilities and stockholders' equity .................... $ 15,935,000 $ 5,595,000
============ ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
<TABLE>
<CAPTION>
CHAPARRAL RESOURCES, INC.
Consolidated Statements of Cash Flows
Unaudited
For the Six Months Ended
------------------------
May 31, May 31,
1996 1995
---- ----
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities
Net income (loss) ....................................... $ (340,000) $ (10,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and depletion .......................... 38,000 61,000
Changes in assets and liabilities, net of
effects of acquisition
(Increase) decrease in:
Accounts receivable .......................... 12,000 185,000
Prepaid expenses ............................. -- 1,000
Other assets ................................. -- 140,000
Equipment inventory .......................... -- 1,000
Increase (decrease) in:
Accounts payable ............................. (67,000) (102,000)
Accrued liabilities .......................... (40,000) (73,000)
----------- -----------
Net cash provided from (used in) operating activities (397,000) 203,000
Cash flows from investing activities:
Additions to property and equipment ..................... (48,000) (193,000)
Investment in foreign oil and gas properties ............ (1,631,000) (3,383,000)
Payments for acquisition, net of cash acquired .......... (2,889,000) --
Change in certificate of deposit ........................ -- 1,000
Proceeds from sale of oil and gas properties ............ 19,000 --
----------- -----------
Net cash provided from (used in) investing activities (4,549,000) (3,575,000)
Cash flows from financing activities:
Payment of note ......................................... (750,000) --
Proceeds from stock acquisition of CAP(D) ............... -- 3,198,000
Proceeds from sale of stock ............................. 7,552,000 --
----------- -----------
Net cash provided from (used in) financing activities 6,802,000 3,198,000
Net increase (decrease) in cash ..................... 1,856,000 (174,000)
Cash and cash equivalents at beginning of year .............. 501,000 318,000
----------- -----------
Cash and cash equivalents at end of 2nd quarter ............. $ 2,357,000 $ 144,000
=========== ===========
Supplemental Cash Flow Information:
Non-cash financing and investment activities
Interest ................................................ $ 28,000 --
Common stock issued
To retire notes payable - 600,000 shares ............ 300,000 --
To purchase 40% interest in affiliate
- 1,585,000 shares ................................ 1,903,000 --
Purchase commitment ..................................... 1,225,000 --
</TABLE>
Note: The company recognized a purchase commitment of $1,225,000 for the
initial purchase of a 15% interest in affiliate to be paid between
June 11, 1996 and March 11, 1997.
See accompanying notes to financial statements
4
<PAGE>
CHAPARRAL RESOURCES, INC.
Notes to Consolidated Financial Information
Unaudited
(1) GENERAL
Management has elected to omit substantially all notes to the Company's
financial statements. Reference should be made to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1995, for notes to the
Company's year-end financial statements.
(2) UNAUDITED INFORMATION
The information furnished herein was taken from the books and records of the
Company without audit. However, such information reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary to reflect properly the results for the interim periods
presented. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the year.
The November 30, 1995 balance sheet data is derived from the audited
financial statements but does not include all disclosures required by generally
accepted accounting principals.
(3) ACQUISITIONS
The Company acquired an additional 55% of CAP-G in three separate
transactions, the first two of which included the purchase of all of the CAP-G
shares owned by a private Turkish company ("Darka") and by an individual CAP-G
shareholder ("Koksal"), each of which owned 25% of the CAP-G shares outstanding.
The Company paid $2,000,000 in cash plus 685,000 shares of the Company's
Common Stock to Darka for all of its CAP-G shares.
The Company must pay $1,975,000 in cash and issue 900,000 shares of the
Company's Common Stock to Koksal for 60% of Koksal's CAP-G shares (15% of
CAP-G), with an option, after completion of the initial purchase, to purchase
the remaining 40% of his CAP-G shares (10% of CAP-G) for an additional
$1,625,000 and 200,000 shares of the Company's Common Stock. The Company has
paid $750,000 and issued 900,000 shares of the Company's Common Stock. The
remaining cash balance of $1,225,000 for the initial purchase will be paid in
four equal quarterly payments of $306,250 between June 11, 1996 and March 11,
1997. The Company has the option to acquire the remaining 40% of Koksal's CAP-G
shares (10% of CAP-G) at any time following completion of the initial purchase
and prior to December 11, 1997.
Under the third transaction, the Company acquired the remaining 5% of the
outstanding CAP-G shares from a private corporation ("OCSCO") for $250,000.
With the completion of these transactions the Company's beneficial
ownership interest in CAP-G increased to 90% and its beneficial ownership
interest in KKM and the Karakuduk Oil Field to 45%.
(4) GOING CONCERN
The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
over 80% of its assets invested in entities that are pursuing the development of
the Karakuduk Field, a shut in oil field in the central Asian Republic of
Kazakstan, which will require significant additional funding.
The Company completed a private placement of common stock. However, the net
proceeds from the sale of the shares offered, together with the Company's
current cash reserves and cash flow from operations, will not be sufficient to
meet the Company's capital requirements through fiscal 1996. While the Company
believes that additional funds will be available from additional financing,
there can be no assurance that such will be the case. There is also no assurance
that additional financing, if available, can be obtained on terms favorable or
affordable to the Company.
The Company's continued existence as a going concern in its present form is
dependent upon the success of future operations, which is, in the near term,
dependent on the successful financing and development of the Karakuduk Field, of
which there is no assurance.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(1) Liquidity and Capital Resources
The Company's primary source of capital historically has been from oil
and gas sales. The Company had working capital of approximately
$574,000 at May 31, 1996, for a working capital ratio of 1.3 to 1,
an increase from $366,000 at November 30, 1995 (working capital ratio
of 2.7 to 1).
Net cash and cash equivalents increased $1,856,000 from November 30,
1995 to May 31, 1996, primarily due to the completion of a private
placement of 14,000,000 shares of the Company's common stock for gross
proceeds of $7,000,000.
The Company completed purchases of an additional 55% of Central Asian
Petroleum Guernsey Limited ("CAP-G") which owns a 50% interest in KKM,
the holder of oil and gas properties in Kazakstan. The additional 55%
of CAP-G includes the purchase of all of the CAP-G shares owned by
Darka Petrol Ticaret Limited Sirketi, a private Turkish company
("Darka") in one transaction, all of the shares owned by Guntekin
Koksal, an individual CAP-G shareholder ("Koksal") in two separate
transactions, each of which owned 25% of the CAP-G shares outstanding,
and all of the shares owned by a private corporation in the United
States which owned 5% of CAP-G. The company paid a total of $3,000,000
and 1,585,000 shares of the Company's common stock during the period
ended May 31, 1996 to complete these transactions.
The Company paid $306,250 in June and has a remaining cash balance of
$918,750 for the initial purchase of Koksal's 15% of CAP-G, which will
be paid in three quarterly payments of $306,250 between September 11,
1996 and March 11, 1997.
With the completion of the foregoing transactions the Company's
beneficial ownership interest in CAP-G increased to 90% and its
beneficial ownership interest in KKM and the Karakuduk Oil Field to
45%.
The Company also has an option to acquire the remaining 10% of CAP-G
shares owned by Koksal for an additional $1,625,000 and 200,000 shares
of the Company's common stock at any time following completion of the
initial purchase and prior to December 11, 1997. If the Company elects
to exercise this option, the Company's ownership in CAP-G will
ultimately increase to 100%, thus increasing to 50% the Company's
beneficial ownership interest in KKM and the Karakuduk Field.
The Company does not have significant income producing properties and
the Karakuduk Field is substantially undeveloped. The development of
the Karakuduk Field, through KKM, will require substantial amounts of
6
<PAGE>
additional capital. The terms of the license held by KKM require
annual work plans of approximately $10 million in 1996, $34 million in
1997 and $12 million in 1998 which requirements may be waived or
modified only by the licensing authority. The Company's subsidiary,
CAP-G, must advance all of the amounts necessary to complete the work
plan for the Karakuduk Field development. Approximately $1.77 million
has been paid through June 1996, and the balance of amounts necessary
to complete the 1996 development work is to be paid by CAP-G during
1996. The Company is the sole source of capital for CAP-G. The Company
also expects substantial additional expenditures of approximately $1.0
million or more per year for political risk insurance. KKM will notify
the Company of CAP-G's additional capital requirements on an as needed
basis.
In January 1996, the Company received $300,000 in proceeds from two
private unsecured loans from two private investors which were applied
towards CAP-G acquisition costs. During the period ended May 31, 1996,
the two note holders converted their promissory notes into 600,000
shares of the Company's common stock.
During the period ended May 31, 1996, warrants were exercised for
707,325 shares of the Company's common stock resulting in proceeds to
the Company of $273,930. Warrant exercise prices ranged from $0.28 to
$0.40 per share.
The Company completed a private placement of 14,000,000 shares of the
Company's common stock for gross proceeds of $7,000,000 during the
period ended May 31, 1996. In connection with the private placement,
the Company issued a warrant to purchase 1,022,000 shares of the
Company's common stock for a nominal amount, to the placement agent and
paid $21,849 of the placement agent's expenses. To date, the Company
has used the $6,978,151 of net proceeds from the private placement to
complete the acquisitions of CAP-G described above, to repay borrowings
and to pay a portion of CAP-G's share of the second quarter budget for
the Karakuduk Field. The Company estimates that the balance of the net
proceeds will be used to make the 1996 payments due Koksal to complete
the initial transaction of stock of CAP-G, to pay the Company's
remaining portion of the second quarter budget for the Karakuduk Field,
for working capital and for other corporate purposes. The Company's
present cash and other capital resources will not be sufficient to fund
the obligations of CAP-G to pay the Karakuduk Field development
expenses incurred by KKM.
The Company has raised capital to finance a portion of its obligations
in connection with the acquisition of its interest in CAP-G and the
development of the Karakuduk Field and to satisfy working capital needs
in the short term. The Company plans to meet its additional capital
needs through debt or equity offerings, encumbering properties or
entering into arrangements whereby certain costs of development will be
paid by others to earn an interest in the properties, or sale of a
portion of the Company's interest in the Karakuduk Field. The present
environment for financing the acquisition of oil and gas properties or
the ongoing obligations of the oil and gas business is uncertain due,
in part, to instability in oil and gas pricing in recent years. The
Company's small size and the early stage of development of the
7
<PAGE>
Karakuduk Field may also increase the difficulty in raising needed
financing. There can be no assurance that debt or equity financing
expected to be necessary to continue to fund the Company's operations
and obligations will be available to the Company on economically
acceptable terms. If sufficient funds cannot be raised to meet the
continuing obligations with respect to the Karakuduk Field development,
the Company's interest in such property may be adversely affected.
The Company has no other material commitments for cash outlay and
capital expenditures other than for normal operations.
(2) Results of Operations
Six Months Ended May 31, 1996 vs. May 31, 1995
The Company's operations resulted in a net loss of $340,000 in 1996
compared to a net loss of $10,000 during the same period in 1995.
Revenues from oil and gas sales decreased $55,000 or 40.4% due to lower
natural gas prices, certain producing properties being shut-in due to
pricing and sale or abandonment of certain producing properties during
1995.
Cost and expenses increased $208,000 or 110.6%. Production costs
decreased $59,000 or 88.1% due to reimbursement of production taxes
from certain natural gas producing properties which offset current
costs, certain producing properties being shut-in due to pricing and
sale or abandonment of certain producing properties during 1995.
Depreciation and depletion decreased by 36.1% or $22,000 due to reduced
depletion expenses as a result of the write-down of oil and gas
properties at fiscal year-end 1995. General and administrative expenses
increased $289,000 or 481.7% due to costs related to the operation of
the Company's interest in the Karakuduk Field.
Interest expense increased to $28,000 due to interest paid by the
Company on certain promissory notes.
Three Months Ended May 31, 1996 vs. May 31, 1995
The Company's operations resulted in a net loss of $258,000 in 1996
compared to a net loss of $1,000 during the same period in 1995.
Revenues from oil and gas sales decreased $5,000 or 9.6% for the same
reasons cited for the six-month period.
Cost and expenses increased $199,000 or 205.2%. Production costs
decreased $20,000 or 74.4%, depreciation and depletion decreased by
25.8% or $8,000 and general and administrative expenses increased
$227,000 or 597.4% for the same reasons cited for the six-month period.
Interest expense increased to $9,000 for the same reasons cited for
the six-month period.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: July 19, 1995
CHAPARRAL RESOURCES, INC.
A Colorado Corporation
/s/ Paul V. Hoovler
---------------------------------
Paul V. Hoovler
President
/s/ Matthew R. Hoovler
---------------------------------
Matthew R. Hoovler
Principal Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> MAY-31-1996
<CASH> 2,357
<SECURITIES> 0
<RECEIVABLES> 67
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,424
<PP&E> 657
<DEPRECIATION> (179)
<TOTAL-ASSETS> 15,935
<CURRENT-LIABILITIES> 1,850
<BONDS> 0
0
0
<COMMON> 37,377
<OTHER-SE> 10,297
<TOTAL-LIABILITY-AND-EQUITY> 15,935
<SALES> 81
<TOTAL-REVENUES> 81
<CGS> 39
<TOTAL-COSTS> 39
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> (315)
<INCOME-TAX> 0
<INCOME-CONTINUING> (340)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (340)
<EPS-PRIMARY> (.012)
<EPS-DILUTED> (.008)
</TABLE>
