FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------
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.
-------------------------
(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)
2211 Norfolk, Suite 1150
Houston, Texas 77098
--------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 807-7100
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 and, (2) has been subject to such filing requirements
for the past 90 days.
YES [ x ] NO [ ]
As of May 15, 1998, Registrant had 51,215,456 shares of its $0.10 par value
common stock issued and outstanding.
<PAGE>
Part I - Summarized Financial Information
Item 1 - Financial Statements
Chaparral Resources, Inc.
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1998 1997
------------ --------------
Assets
Current assets:
Cash and cash equivalents $ 593,000 $ 3,423,000
Accounts receivable:
Other 34,000 102,000
Prepaid expenses 63,000 62,000
------------ ------------
Total current assets 690,000 3,587,000
Oil and gas properties and investments
- full cost method Republic of
Kazakhstan (Karakuduk Field)
not subject to depletion: 22,544,000 19,922,000
Furniture, fixtures and equipment 59,000 13,000
Less accumulated depreciation (5,000) (3,000)
------------ ------------
54,000 10,000
------------ ------------
Total assets $ 23,288,000 $ 23,519,000
============ ============
See accompanying notes to financial statements
-2-
<PAGE>
<TABLE>
<CAPTION>
Chaparral Resources, Inc.
Consolidated Balance Sheets (continued)
(Unaudited)
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable:
Trade $ 247,000 $ 177,000
Accrued liabilities 152,000 54,000
------------ ------------
Total current liabilities 399,000 231,000
Long-term obligations:
Accrued compensation 210,000 210,000
Redeemable preferred stock
- cumulative, convertible:
Series A, 50,000 shares issued
and outstanding, at stated value,
includes $5.00 cumulative annual
dividend, less $500,000 cost of
issuance, $5,000,000 redemption value 4,525,000 4,500,000
Stockholders' equity:
Common stock authorized, 100,000,000 shares
at March 31, 1998 and December 31, 1997, of
$.10 par value; issued and outstanding,
49,965,456 and 49,720,456 shares a
March 31, 1998 and December 31, 1997,
respectively 4,996,000 4,971,000
Capital in excess of par value 30,988,000 30,340,000
Unearned portion of restricted stock awards (169,000) (109,000
Stock subscription receivable (1,770,000) (1,770,000)
Accumulated Deficit (15,891,000) (14,854,000)
------------ ------------
Total stockholders' equity 18,154,000 18,578,000
------------ ------------
Total liabilities and stockholders'equity $23,288,000 $ 23,519,000
============ ============
See accompanying notes to financial statements
-3-
</TABLE>
<PAGE>
Chaparral Resources, Inc.
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
March 31, March 31,
1998 1997
----------- -----------
Revenue:
Oil and gas sales $ -- $ --
Costs and expenses:
Depreciation and depletion 2,000 --
General and administrative 880,000 220,000
----------- -----------
882,000 220,000
----------- -----------
Loss from operations (882,000) (220,000)
Other income (expense):
Interest income 202,000 73,000
Interest expense -- (70,000)
Equity in loss from investment (332,000) (174,000)
----------- -----------
(130,000) (171,000)
----------- -----------
Loss before extraordinary item (1,012,000) (391,000)
Extraordinary loss on sale of
domestic oil & gas properties -- (36,000)
----------- -----------
Net loss $(1,012,000) $ (427,000)
=========== ===========
Basic and Diluted Earnings per Share:
Net loss per share before extraordinary item $ (.020) $ (.010)
Extraordinary loss per share $ -- $ (.001)
Net loss per share~ $ (.020) $ (.011)
Weighted average number of shares
outstanding 49,900,845 37,709,449
See accompanying notes to financial statements
-4-
<PAGE>
<TABLE>
<CAPTION>
Chaparral Resources, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31, March 31,
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,012,000) $ (427,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and depletion 2,000 --
Stock issued for services and bonuses 614,000 --
Changes in assets and liabilities:
Accounts receivable (22,000) (272,000)
Prepaid expenses (1,000) (123,000)
Other -- 306,000
Accounts payable & Accrued Liabilities 167,000 123,000
----------- -----------
Net cash used in operating activities (252,000) (393,000)
Cash flows from investing activities
Additions to property and equipment (45,000) --
Investment in and advances to
foreign oil and gas properties (2,533,000) (131,000)
----------- -----------
Net cash used in investing activities (2,578,000) (131,000)
Cash flows from financing activities
Proceeds from sale of stock -- 90,000
----------- -----------
Net cash provided by financing activities -- 90,000
----------- -----------
Net decrease in cash and cash equivalents (2,830,000) (434,000)
Cash and cash equivalents at beginning
of period 3,423,000 651,000
----------- -----------
Cash and cash equivalents at end of period $ 593,000 $ 217,000
=========== ===========
See accompanying notes to financial statements
-5-
</TABLE>
<PAGE>
Chaparral Resources, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. General
Management has elected to omit substantially all notes to the Company's
financial statements. Reference should be made to the notes to the financial
statements in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
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,
which are, in the opinion of management, necessary to a fair statement of the
results for the interim period presented. The results of operations for the
interim period are not necessarily indicative of the results to be expected for
the year.
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. As of March 31,
1998, substantially all of the Company's assets are invested in the development
of the Karakuduk Field, a shut-in oil field in the central Asian Republic of
Kazakhstan, which will require significant additional funding.
The Company has incurred recurring operating losses and has no operating
assets presently generating cash to fund its operating and capital requirements.
The Company's current cash reserves and cash flow from operations will not be
sufficient to meet the capital spending requirements to develop the Karakuduk
Field through fiscal 1998. Should the Company not meet its capital requirements,
the Company's rights to the Karakuduk Field can be terminated. The Company
believes that additional financing will be available; however, there is no
assurance that additional financing will be available, or if available, that it
will be timely or on terms favorable to the Company. The Company's continued
existence as a going concern is dependent upon the success of future operations,
which are, in the near term, dependent on the successful financing and
development of the Karakuduk Field, of which there is no assurance.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
4. Equity Based Compensation
On January 23, 1998, the Company ratified the grants of options to purchase
257,000 shares of the Company's Common Stock to various employees of, and
consultants to, the Company, granted options to purchase 82,500 shares of the
Company's Common Stock to various employees of, and consultants to, the Company,
granted 90,000 shares of the Company's Common Stock to the directors of the
Company and granted 185,000 shares of the Company's Common Stock to various
employees of, and consultants to, the Company, of which 30,000 shares will vest
with respect to 10,000 shares on each of January 30, 1999, 2000, and 2001. On
February 26, 1998, the Company granted an option to purchase 10,000 shares of
the Company's Common Stock to a consultant to the Company.
-6-
<PAGE>
Chaparral Resources, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
5. Redeemable Preferred Stock and Related Common Stock Warrants
On November 24, 1997, the Company executed a Subscription Agreement
("Agreement") with an unaffiliated investor for 225,000 shares of three classes
of Redeemable $5.00 Cumulative Convertible Preferred Stock ("Preferred Stock").
The investor agreed to purchase 75,000 shares of each of the Company's Series A,
B and C Preferred Stock. Pursuant to the Agreement, the Company initially sold
to the investor 50,000 shares of the Company's Series A Preferred Stock, no par
value, for a purchase price of $100.00 per share, equal to the redemption value,
or an aggregate purchase price of $5,000,000. The number of shares of Common
Stock issuable upon conversion of each share of Series A Preferred Stock is
determined by dividing $100 by the conversion price of $2.25 per share. The
Company is not required to establish a sinking fund, however, the Preferred
Stock dividends in arrears must be paid before dividends can be paid on Common
Stock. The basis difference representing issuance costs is being amortized
directly to additional paid-in-capital for the period through the redemption
date.
The Series A Preferred Stock has scheduled redemptions beginning November
30, 2002.
The five-year aggregate redemption amounts are as follows:
1998 --
1999 --
2000 --
2001 --
2002 $5,000,000
----------
Total $5,000,000
==========
Allen & Company Incorporated (Allen & Company), a significant shareholder
of the Company, acted as placement agent in connection with the subscription for
the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock pursuant to the Agreement. Allen & Company elected to receive its fees in
the form of warrants to purchase 900,000 shares of the Company's Common Stock
that were all originally exercisable through November 25, 2002, at an exercise
price of $.01 per share.
In March 1998, prior to the receipt of the funds for any additional
purchases the investor was to make under the Agreement, the Company and the
investor mutually released each other from any further obligations under the
Agreement. The investor retained the initial 50,000 shares of Series A Preferred
Stock. The Company is not required to issue any additional Preferred Stock under
the Agreement and the investor has no other obligation to provide funds to the
Company in exchange for such stock.
In an agreement dated March 31, 1998, the Company has agreed to allow Allen
& Company to retain, subject to certain performance criteria, the warrants to
purchase 700,000 shares (presented as a $1,770,000 stock subscription receivable
in equity) of the Company's Common Stock related to the $17,500,000 subscription
not received under the original terms of the Agreement. The unearned warrants to
purchase 700,000 shares of the Company's Common Stock held by Allen & Company
are fully restricted from exercise unless Allen & Company assists the Company in
raising additional capital for the Company that is acceptable to the Company's
Board of Directors. For each $25 of additional capital raised, a warrant to
purchase one share of Common Stock will be deemed to be earned. If, before
November 25, 1999, Allen & Company fails to assist the Company in raising the
additional capital for the Company under terms acceptable to the Company, the
unearned portion of the warrants will expire.
-7-
<PAGE>
Chaparral Resources, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
6. Subsequent Events
Effective on April 3, 1998, the Company sold 1,250,000 shares of the
Company's Common Stock for $2.00 per share for at total of $2,500,000 to a
private investor. Allen & Company, Incorporated acted as placement agent in
connection with the sale of the 1,250,000 shares. As a result, Allen & Company,
Incorporated's warrants to purchase 900,000 shares of the Company's Common
Stock, originally issued as commission in connection with the Preferred Stock
sale on November 24, 1997, became exercisable for an additional 100,000 shares
of the Company's Common Stock. The warrants to purchase the additional 100,000
shares of the Company's Common Stock are exercisable through November 25, 2002,
at an exercise price of $0.01 per share. Of the total warrants to purchase
900,000 shares of Common Stock issued to Allen & Company, Incorporated on
November 24, 1997, warrants to purchase 300,000 shares of the Company's Common
Stock are currently exercisable.
On April 15, 1998, the Company granted options to purchase 45,000 shares of
the Company's Common Stock to an employee of, and a consultant to, the Company.
-8-
<PAGE>
Karakuduk-Munay Inc
Statement of Expenses and Accumulated Deficit
For the Three Month Periods Ended March 31, 1998 and 1997
(Amounts in US Dollars)
(Unaudited)
March 31, March 31,
1998 1997
---------- ----------
Management Service Fee $ 120,000 $ 90,000
General and Administrative Expenses 363,000 189,000
Interest Expense 181,000 70,000
---------- ----------
Net Loss 664,000 349,000
Accumulated deficit, beginning of period 4,016,000 2,351,000
---------- ----------
Accumulated deficit, end of period $4,680,000 $2,700,000
========== ==========
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1. Liquidity and Capital Resources
Prior to 1997, the Company's primary source of capital was from oil and gas
sales from domestic properties. 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) (CAP-G). KKM is a closed joint stock company
in Kazakhstan.
The Company has previously 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. Since January 1, 1998, the Company raised $2,500,000 through the
sale of Common Stock, The Company may seek to obtain additional capital 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 any financing that may be
needed in the future. There can be no assurance that the debt or equity
financing that might be required to fund the Company's operations and
obligations in the future will be available to the Company on economically
acceptable terms if at all.
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
incurred recurring operating losses and has no operating assets presently
generating sufficient cash to fund its operating and capital requirements. The
Company does not anticipate that its current cash reserves and cash flow from
operations will be sufficient to meet its capital requirements through fiscal
1998.
As of March 31, 1998, substantially all of the Company's assets are
invested in the development of the Karakuduk Field. Since the Karakuduk Field is
in the early stage of development, the Karakuduk 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 December 31, 1997, of at least $10,000,000,
which has been satisfied. Additional requirements of $34.5 million and $12
million exist for the years ending December 31, 1998 and 1999, respectively.
Without additional funding and significant revenues from oil sales, of which
there are no assurances, the Company will not be able to provide sufficient
funds to satisfy these requirements and the Company's interest in the Karakuduk
Field may be lost.
The Company received an extension to June 30, 1998, from the Overseas
Private Investment Corp. ("OPIC") for political risk insurance. OPIC granted the
Company a binding executed letter of commitment on September 25, 1996. The
Company has a standby facility for which it has made seven payments of $31,250.
The Company expects to execute the contract on or before June 30, 1998.
The Company has no other material commitments for cash outlay and capital
expenditures other than for normal operations.
-10-
<PAGE>
2. Results of Operations
The Company changed to a December 31 year end from the previous November 30
year end, effective in the second quarter of 1997. As a result of this change,
quarterly data is as of March 31 for 1998 and as of March 31 for 1997.
In 1996, the Company accounted for its investment in KKM using pro rata
consolidation. In 1997, the Company changed to the equity method in order to
reflect the legal ownership right of the other shareholders in KKM. The
consolidated financial statements for the quarter ended March 31, 1997 reported
herein have been reclassified to reflect the equity method. There was no impact
on previously reported earnings.
Three Months Ended March 31, 1998 Compared with the Three Months Ended March 31,
1997
The Company's operations during the three months ended March 31, 1998,
resulted in a net loss of $1,012,000 compared to a net loss of $427,000 for the
three months ended March 31, 1997. The increase in net loss is primarily due to
$614,000 in stock based compensation paid to officers, directors, employees, and
consultants to the Company and KKM.
Interest income increased by $129,000 from the three months ended March 31,
1997, due to increased financing of 100% of KKM's operations in Kazakhstan. As
of December 31, 1997, the Company held a 50% equity interest in KKM.
General and administrative costs increased by $660,000 from the three
months ended March 31, 1997, primarily due to $614,000 in stock based
compensation awarded to officers, directors, employees, and consultants to the
Company and KKM. Without consideration of the stock based compensation, a
non-cash item, general and administrative costs increased by $46,000 due to the
Company's management of expanding workover and exploration operations in
Kazakhstan. Accordingly, the Company's equity loss in KKM increased by $158,000
from the three months ended March 31, 1997, due to increased operational costs
directly related to development of oil and gas properties held by KKM.
Interest expense decreased by $70,000 from the three months ended March 31,
1997, due to the retirement of all interest-bearing obligations of the Company
during 1997. The Company did not have any other debt obligations outstanding as
of March 31, 1998.
The Company recognized a $36,000 extraordinary loss in the three months
ended March 31, 1997 from the disposition of the Company's domestic properties.
No extraordinary items were recognized by the Company during the three months
ended March 31, 1998.
3. Quantitative and Qualitative Disclosures About Market Risks
Not Applicable.
-11-
<PAGE>
Part II - Other Information
Item 1 - Changes in Securities
On January 23, 1998, the Company ratified the grants of options to purchase
257,000 shares of the Company's Common Stock to various employees of, and
consultants to, the Company, granted options to purchase 82,500 shares of the
Company's Common Stock to various employees of, and consultants to, the Company,
granted 90,000 shares of the Company's Common Stock to the directors of the
Company and granted 185,000 shares of the Company's Common Stock to various
employees of, and consultants to, the Company, of which 30,000 shares will vest
with respect to 10,000 shares on each of January 30, 1999, 2000, and 2001. The
Company made the grants in reliance upon the exemption from registration under
Section 4(2) of the Securities Act. Such persons had available to them all
material information concerning the Company. The options have and the
certificates evidencing the shares underlying the options and representing the
shares granted bear an appropriate restrictive legend under the Securities Act.
No underwriter was involved in the transaction.
On February 26, 1998, the Company granted options to purchase 10,000 shares
of the Company's Common Stock to a consultant to the Company. The Company made
the grants in reliance upon the exemption from registration under Section 4(2)
of the Securities Act. Such person had available to him all material information
concerning the Company. The option has and the certificates evidencing the
shares underlying the option and representing the shares granted bear an
appropriate restrictive legend under the Securities Act. No underwriter was
involved in the transaction.
Item 2 - Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On March 18, 1998, the Company filed a current report on Form 8-K reporting
under Item 5 thereof the termination of the Subscription Agreement for
shares of the Company's Series A, B, and C Preferred Stock and filing under
Item 7 a copy of the Termination Agreement.
-12-
<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: May 19, 1997
Chaparral Resources, Inc.,
a Colorado corporation
By: /s/ Howard Karren
-----------------------------------------
Howard Karren
President and Chief Executive Officer
By: /s/ Arlo G. Sorensen
-----------------------------------------
Arlo G. Sorensen, Chief Financial Officer
And Principal Accounting Officer
-13-
<PAGE>
Exhibit Index
27 Financial Data Schedule
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 593,000 3,423,000
<SECURITIES> 0 0
<RECEIVABLES> 34,000 102,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 690,000 3,587,000
<PP&E> 22,603,000 19,935,000
<DEPRECIATION> 5,000 3,000
<TOTAL-ASSETS> 23,288,000 23,519,000
<CURRENT-LIABILITIES> 399,000 231,000
<BONDS> 0 0
4,525,000 4,500,000
0 0
<COMMON> 4,996,000 4,971,000
<OTHER-SE> 13,158,000 13,607,000
<TOTAL-LIABILITY-AND-EQUITY> 23,288,000 23,519,000
<SALES> 0 0
<TOTAL-REVENUES> 202,000 73,000
<CGS> 0 0
<TOTAL-COSTS> 882,000 220,000
<OTHER-EXPENSES> 332,000 174,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 70,000
<INCOME-PRETAX> (1,012,000) (427,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,012,000) (391,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (36,000)
<CHANGES> 0 0
<NET-INCOME> (1,012,000) (427,000)
<EPS-PRIMARY> (.02) (.011)
<EPS-DILUTED> (.02) (.011)
</TABLE>
