UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 February 28, 1997
[ ] 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.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0630863
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3400 Bissonnet Street, Suite 135
Houston, Texas 77005
--------------------------------------
(Address of principal executive offices)
(Zip Code)
(713) 664-0932
--------------------------------------------------
(Registrant's telephone number, including area code)
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 April 17, 1997, the Registrant had 37,526,517 shares of its $0.10 par
value common stock issued and outstanding.
<PAGE>
PART 1 - SUMMARIZED FINANCIAL INFORMATION
Chaparral Resources, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
Revenue:
Oil and gas sales $ 53,000 $ 34,000
------------ ------------
Cost and expenses:
Production costs 18,000 --
Loss on sale of domestic oil and gas properties 36,000 --
Depreciation and depletion -- 16,000
General and administrative 438,000 84,000
------------ ------------
492,000 100,000
------------ ------------
(Loss) from operations (439,000) (66,000)
Other income (expenses):
Interest income 74,000 2,000
Interest expense (110,000) (19,000)
Other, net 43,000 1,000
------------ ------------
7,000 (16,000)
------------ ------------
Net (loss) $ (432,000) $ (82,000)
------------ ------------
Earnings (loss) per common share $ (0.012) $ (0.004)
------------ ------------
Average number of outstanding shares 37,526,517 20,692,525
------------ ------------
See accompanying notes to financial statements
</TABLE>
2
<PAGE>
Chaparral Resources, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
February 28,
1997 November 30,
(Unaudited) 1996
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 253,000 $ 800,000
Accounts receivable
Joint interest participants 11,000 8,000
Oil and gas purchases 3,000 53,000
Prepaid expenses 18,000 40,000
Oil and gas properties under agreement for sale -- 306,000
------------ ------------
Total current assets 285,000 1,207,000
PROPERTY AND EQUIPMENT - AT COST Oil and Gas Properties - full cost:
Republic of Kazakstan (Karakuduk Field) not subject
to depletion 11,238,000 11,189,000
------------ ------------
11,238,000 11,189,000
Furniture, fixtures and equipment 334,000 441,000
Less accumulated depreciation 90,000 198,000
------------ ------------
244,000 243,000
------------ ------------
11,482,000 11,432,000
OTHER ASSETS
Cash value of insurance and annuities 8,000
Due from Karakuduk-Munay, Inc. 2,561,000 2,012,000
Equipment inventory -- 7,000
Other 90,000 74,000
------------ ------------
2,651,000 2,121,000
------------ ------------
$ 14,418,000 $ 14,760,000
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Trade $ 30,000 278,000
Joint interest participants - revenue -- 42,000
Accrued liabilities 45,000 91,000
Accounts payable CAP-G shares 544,000 744,000
------------ ------------
Total current liabilities 619,000 1,155,000
------------ ------------
LONG TERM OBLIGATIONS:
Notes payable (including $1,000,000 to related party) 1,642,000 1,106,000
Accrued compensation 385,000 385,000
------------ ------------
2,027,000 1,491,000
STOCKHOLDERS' EQUITY
Common stock - authorized, 100,000,000 shares of $.10 par value;
issued and outstanding, 37,526,517 and 37,526,517 shares at
February 28, 1997 and November 30, 1996, respectively 3,771,000 3,753,000
Capital in excess of par value 20,554,000 20,482,000
Preferred stock - authorized 1,000,000 shares as of
February 28, 1997 and November 30, 1996 (no shares
issued or outstanding)
Retained earnings (deficit) (12,553,000) (12,121,000)
------------ ------------
Total stockholders' equity 11,772,000 12,114,000
------------ ------------
Total liabilities and stockholders' equity $ 14,418,000 $14,760,000
============ ===========
See accompanying notes to financial statements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Chaparral Resources, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
--------------------------
February 28, February 29,
1997 1996
------------ -----------
<S> <C> <C>
Cash Flows from operating activities
Net (loss) $(432,000) $ (82,000)
Adjustments to reconcile net (loss) to net cash
used by operating activities:
Depreciation and depletion -- 16,000
Amortization of note discount 36,000 32,000
Loss on the sale of Domestic oil and gas property 33,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 47,000 60,000
Prepaid expenses 22,000 1,000
Other assets 19,000 --
Increase (decrease) in:
Accounts payable (445,000) (56,000)
Accrued liabilities (91,000) (48,000)
--------- ---------
Net cash (used in) operating activities (811,000) (77,000)
Cash flows from investing activities:
Additions to property and equipment (1,000) 60,000
Investment in foreign oil and gas properties -- (616,000)
Additions to Republic of Kazakstan (Karakuduk Field) 49,000)
not subject to depletion
Advances to Karakuduk-Munay, Inc. (549,000)
Proceeds from sale of interest in oil & gas properties 273,000 19,000
--------- ---------
Net cash provided from (used in) investing activities (326,000) (537,000)
Cash flows from financing activities:
Proceeds from notes payable 500,000 332,000
Proceeds from sale of stock 90,000 --
--------- ---------
Net cash provided by financing activities 590,000 332,000
--------- ---------
Net (decrease) in cash and cash equivalents (547,000) (282,000)
Cash and cash equivalents at beginning of period 800,000 501,000
--------- ---------
Cash and cash equivalents at end of 1st quarter $ 253,000 $ 219,000
--------- ---------
</TABLE>
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, 1996, 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, 1996 balance sheet data is derived from the audited financial
statements but does not include all disclosures required by generally accepted
accounting principles.
(3) 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's current cash reserves and cash flow from operations will not be
sufficient to meet the Company's capital requirements through fiscal 1997. 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
Previously, the Company's primary source of capital was from oil and
gas sales from domestic properties. As of the end of the first quarter of 1997,
all domestic properties have been sold or otherwise disposed. The only oil and
gas interest of the Company at this time is as a result of the Company's
investment in Karakuduk-Munay, Inc. (KKM) through Central Asian Petroleum
Guernsey Limited (CAP-G). KKM is the joint venture in Kazakstan.
Due to the timing of the final payment of $543,750 related to the acquisition of
an interest in CAP-G, current liabilities of $619,000 exceed the current assets
of $285,000 at February 28, 1997, resulting in a current ratio of 0.46 to 1.
Without the purchase payment obligation, the current ratio would be 3.8 to 1.
The due date for the final payment on the acquisition of this interest has been
extended to May 15, 1997.
Since the Karakuduk field is in the early stage of development, the field does
not currently produce revenues sufficient to meet its cash outflow needs. The
development of the Karakuduk field , through KKM, will require substantial
amounts of additional capital. The terms of the KKM revised license require a
work plan from the commencement of operations through August 31, 1997, of at
least $10,000,000. Of this amount, approximately $4,500,000 has been expended to
date and the Company's remaining share through August 31, 1997 is estimated at
$5,500,000. Additional requirements exist for the year ending August 31, 1998.
The Company currently owns 90% of CAP-G, providing a 45% beneficial interest in
the Karakuduk field. The Company has an option through December 11, 1997 to
obtain the remaining 10% of CAP-G from an individual shareholder of CAP-G. Upon
exercising this option, the Company will have a 50% beneficial interest in the
Karakuduk field. The other 50% is owned by a Kazakstan government group and two
Kazakstan joint stock companies.
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 and to satisfy working capital needs in the short term. The
Company plans to met its additional capital needs through debt or equity
offerings, encumbering properties, 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 Karakuduk field
may also increase the difficulty in raising needed financing. There can be no
assurance that debt or equity financing anticipated to be necessary to continue
to fund the Company's operations and obligations will be available to the
6
<PAGE>
Company on economically acceptable terms, if at all. 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 lost. Also, if
sufficient funds cannot be raised to provide additional working capital, it is
likely that the Company will not be able to continue operations.
The Company has no other material commitments for cash outlay and capital
expenditures other than for normal operations.
(2) Results of Operations
Three Months Ended February 28, 1997 vs. Three Months Ended February 29,
1996
The Company's operations resulted in a net loss of $432,000 for the three
months ended February 28, 1997 compared to a net loss of $82,000 during the same
period in 1996. Increases in general and administrative costs accounted for most
of this change. This was the result of costs related to the acquisition and
operation of the Company's beneficial interest in the Karakuduk field and
financing and farmout operations related to the project. Interest expense
increased from $19,000 to $110,000, or a 579% increase, as a result of the
Company having obtained increased financing for the Karakuduk field. Interest
income offset most of the interest expense, increasing from $2,000 to $74,000,
or 3,700%.
The Company realized a loss on the sale of the Company's domestic oil and gas
properties that totaled $36,000 in the first quarter of 1997. There was a
$43,000 gain related to subsidiary billings of related party transactions.
7
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment dated April 14, 1997 to Purchase Agreement dated
effective January 12, 1996, between the Company and Guntekin
Koksal.
27 Financial Data Schedule
(b) During the quarter for which this report is filed, the Company filed a
Current Report on Form 8-K dated November 22, 1996 reporting:
Item 5. Other Events
The Company reported borrowing $1,850,000 of interim financing
and the resignation of a director and the appointment of a new
director.
Item 7. Financial Statements and Exhibits
(a) Financial Statements-- Not Applicable.
(b) Exhibits.
(3) Promissory Notes and Modifications of Promissory Notes
(c) During the quarter for which this report is filed, the Company filed a
Current Report on Form 8K dated January 16, 1997 reporting:
Item 4. Changes in Registrant's Certifying Accountant
On January 16, 1997, the Company engaged Ernst & Young LLP as
the Company's principal accountant.
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: April 17, 1997
CHAPARRAL RESOURCES, INC.,
a Colorado Corporation
/s/ Howard Karren
------------------------------------------
Howard Karren
President and Principal Executive Officer
/s/ Arlo G. Sorensen
------------------------------------------
Arlo G. Sorensen, Chief Financial Officer
and Principal Accounting Officer
9
<PAGE>
EXHIBIT INDEX
10.1 Amendment dated April 14, 1997 to Purchase Agreement dated
effective January 12, 1996, between the Company and Guntekin
Koksal.
27 Financial Data Schedule
10
AMENDMENT
This Amendment is executed between Guntekin Koksal ("Koksal") and Chaparral
Resources, Inc. ("Chaparral") on April 14, 1997 in order to amend the Purchase
Agreement dated January 12, 1996 related to the acquisition of 15% (fifteen
percent) of the issued and outstanding capital stock of Central Asian Petroleum
(Guernsey) Limited ("CAP(G)") owned by Koksal by Chaparral ("Purchase
Agreement").
WHEREAS, Chaparral failed to make certain payments in accordance with
Article 1c of the Purchase Agreement; and
WHEREAS, the Parties desire to defer the payment date;
NOW, THEREFORE, the Parties have agreed to amend the Purchase Agreement as
follows:
1. In accordance with the Purchase Agreement Chaparral shall purchase all
of the Shareholder's right, title and interest in and to 75,000 shares
of CAP(G) stock owned by Koksal in return for certain considerations.
2. As of March 11, 1997 Chaparral owes Koksal US $543,750 (Five hundred
forty three thousand seven hundred fifty US Dollars).
3. The Parties agree to make the final deferment for the payment date of
such amount mentioned in Clause 2 above, until the date Chaparral
shall obtain the financing from any source including but not limited
to financial institutions or shareholders, but not later than May 15,
1997.
4. Koksal will be entitled to apply all remedies mentioned in the
Purchase Agreement if Chaparral fails to make the payment mentioned in
Clause 2 above before the date mentioned in Clause 3 above.
5. All other provisions of the Purchase Agreement which are not changed
in this Amendment will stay valid and binding the Parties.
This Amendment is signed in duplicate copies on the date indicated above.
/s/ /s/
------------------------------ -----------------------------
Guntekin Koksal Chaparral Resources, Inc.
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> FEB-28-1997
<CASH> 253
<SECURITIES> 0
<RECEIVABLES> 14
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 285
<PP&E> 11,238
<DEPRECIATION> (90)
<TOTAL-ASSETS> 14,418
<CURRENT-LIABILITIES> 619
<BONDS> 1,642
0
0
<COMMON> 3,771
<OTHER-SE> 8,001
<TOTAL-LIABILITY-AND-EQUITY> 14,418
<SALES> 53
<TOTAL-REVENUES> 53
<CGS> 18
<TOTAL-COSTS> 492
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> (439)
<INCOME-TAX> 0
<INCOME-CONTINUING> (439)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (432)
<EPS-PRIMARY> (.012)
<EPS-DILUTED> (.012)
</TABLE>
