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 June 30, 1999
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)
Delaware 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 August 16, 1999 the Registrant had 977,954 shares of its common
stock, par value $0.0001 per share issued and outstanding.
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Part I - Summarized Financial Information
Item 1 - Financial Statements
Chaparral Resources, Inc.
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
1999 1998
------------ ------------
Assets
- ------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 556,000 $ 121,000
Restricted cash 667,000 756,000
Accounts receivable 13,000 25,000
Prepaid expenses 4,000 76,000
Current portion of note receivable -- 420,000
------------ ------------
Total current assets 1,240,000 1,398,000
Note receivable 1,060,000 589,000
Oil and gas properties and investments - full cost method
Republic of Kazakhstan (Karakuduk Field)--
Not subject to depletion: 35,516,000 32,261,000
Furniture, fixtures and equipment 98,000 93,000
Less accumulated depreciation (28,000) (17,000)
------------ ------------
70,000 76,000
------------ ------------
Total assets $ 37,886,000 $ 34,324,000
============ ============
See accompanying notes to financial statements
2
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Chaparral Resources, Inc.
Consolidated Balance Sheets (continued)
(Unaudited)
June 30, December 31,
1999 1998
------------ ------------
Liabilities and stockholders' equity
- ------------------------------------
Current liabilities:
Trade accounts payable $ 419,000 $ 223,000
Accrued interest payable 91,000 --
Accrued liabilities 475,000 522,000
Short-term notes payable, net of discount 5,783,000 940,000
------------ ------------
Total current liabilities 6,768,000 1,685,000
Accrued compensation 210,000 210,000
Redeemable preferred stock - cumulative, convertible,
Series A, 50,000 issued and outstanding,
at stated value, $5.00 cumulative annual
Dividend, $5,375,000 redemption value 5,025,000 4,850,000
Stockholders' equity:
Common stock - authorized, 100,000,000
shares at June 30, 1999 and
December 31, 1998, of
$.0001 par value; issued and outstanding,
977,954 and 972,980 shares at
June 30, 1999 and December 31, 1998 -- --
Capital in excess of par value 48,210,000 47,611,000
Unearned portion of restricted stock awards (537,000) (56,000)
Preferred stock - 1,000,000 shares authorized,
75,000 shares designated of Series A -- --
Stock subscription receivable (506,000) (506,000)
Accumulated deficit (21,284,000) (19,470,000)
------------ ------------
Total stockholders' equity 25,883,000 27,579,000
------------ ------------
Total liabilities and stockholders' equity $ 37,886,000 $ 34,324,000
============ ============
See accompanying notes to financial statements
3
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Chaparral Resources, Inc.
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenue:
<S> <C> <C> <C> <C>
Oil and gas sales $ -- $ -- $ -- $ --
Costs and expenses:
Depreciation 5,000 4,000 11,000 6,000
General and administrative` 825,000 750,000 1,258,000 1,630,000
----------- ----------- ----------- -----------
830,000 754,000 1,269,000 1,636,000
----------- ----------- ----------- -----------
Loss from operations (830,000) (754,000) (1,269,000) (1,636,000)
Other income (expense):
Interest income 450,000 248,000 857,000 450,000
Interest expense (113,000) (63,000) (167,000) (63,000)
Heartland Settlement -- -- 34,000 --
Equity in loss from investment (557,000) (357,000) (1,094,000) (690,000)
----------- ----------- ----------- -----------
(220,000) (172,000) (370,000) (303,000)
----------- ----------- ----------- -----------
Net loss $(1,050,000) $ (926,000) $(1,639,000) $(1,939,000)
----------- ----------- ----------- -----------
Cumulative annual dividend accrued
Series A Redeemable Preferred Stock (25,000) (25,000) (50,000) (50,000)
Discount accretion
Series A Redeemable Preferred Stock (62,000) -- (125,000) --
----------- ----------- ----------- -----------
Net loss available to common stockholders $(1,137,000) $ (951,000) $(1,814,000) $(1,989,000)
=========== =========== =========== ===========
Basic and diluted earnings per share:
Net loss per share $ (1.16) $ (1.11) $ (1.86) $ (2.36)
Weighted average number of shares
Outstanding 977,954 853,203 977,649 842,440
See accompanying notes to financial statements
4
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<CAPTION>
Chaparral Resources, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30, June 30,
1999 1998
----------- -----------
Cash flows from operating activities
- ------------------------------------
<S> <C> <C>
Net loss $(1,639,000) $(1,939,000)
Adjustments to reconcile net loss to
Net cash used in operating
Activities:
Equity loss from investment 1,094,000 690,000
Depreciation 11,000 6,000
Bad debt expense 14,000 --
Stock issued for services and bonuses 235,000 662,000
Amortization of note discount 23,000 56,000
Expired Warrants (117,000) --
Changes in assets and liabilities:
Accounts receivable (2,000) 69,000
Prepaid expenses 72,000 14,000
Notes receivable (51,000) (300,000)
Accounts payable and accrued liabilities 240,000 439,000
----------- -----------
Net cash used in operating activities (120,000) (303,000)
Cash flows from investing activities
- ------------------------------------
Additions to property and equipment (5,000) (63,000)
Investment in and advances to foreign oil and gas
Properties (4,349,000) (5,786,000)
----------- -----------
Net cash used in investing activities (4,354,000) (5,849,000)
Cash flows from financing activities
- ------------------------------------
Proceeds from notes payable 4,820,000 1,075,000
Restricted cash 89,000 (800,000)
Proceeds from sale of stock -- 2,500,000
----------- -----------
Net cash provided by financing
Activities 4,909,000 2,775,000
----------- -----------
5
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Chaparral Resources, Inc.
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
Net increase (decrease) in cash and
Cash equivalents 435,000 (3,377,000)
Cash and cash equivalents at beginning
of period 121,000 3,423,000
----------- -----------
Cash and cash equivalents at end of period $ 556,000 $ 46,000
=========== ===========
Supplemental cash flow disclosure
- ---------------------------------
Interest paid $ 45,000 $ 2,000
See accompanying notes to financial statements
6
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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/A for the fiscal year
ended December 31, 1998.
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 periods presented. The results of operations for the
interim periods are not necessarily indicative of the results to be expected for
any future interim period or 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 June 30,
1999, substantially all of the Company's assets are invested in the development
of the Karakuduk Field, an 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 enough cash to fund its operating and capital
requirements. The Company's current cash reserves and cash flow from operations
are not sufficient to meet the capital spending requirements required to develop
the Karakuduk Field through fiscal 1999. Should the Company not meet its capital
requirements, the Company's rights to develop the Karakuduk Field may be
terminated. 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.
The Company does not presently have the cash reserves required to satisfy
$5,070,000 in short-term debt obligations coming due in August and September
1999 (fully described in Note 6), which may lead to the Company's default on
some, or all, of the Company's outstanding loans. In the event of default, the
Company may be required to transfer its ownership in CAP-G, and therefore all
rights to KKM and the Karakuduk Field, to the Company's creditors and the
Company's investment in the Karakuduk Field would be lost. The Company is
currently seeking additional debt financing and restructuring of existing loans
to timely satisfy all short-term obligations outstanding. There are no
assurances, however, that additional financing or revised terms of existing
loans will be available to the Company, or if available, that it will be timely
or on terms favorable to the Company.
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 such uncertainties.
7
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Chaparral Resources, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
4. Restricted Cash
As of June 30, 1999, the Company held $667,000 cash on hand, as collateral
for loans made by a financial institution to KKM for the acquisition of tangible
equipment used in the Karakuduk Field.
5. Notes Receivable
On June 30, 1999, the Company had an outstanding note receivable for
$1,009,000, plus accrued interest of $51,000, from a third-party drilling
contractor, Challenger Oil Services, PLC (Challenger). On March 17, 1999, the
Company amended the terms of the note to extend the repayment period from twelve
to twenty four months, beginning with the first payment made to Challenger for
drilling services provided to Karakuduk Munay, Inc. (KKM) in 1999. Under the
revised terms of the note, the Company would receive principal payments of
approximately $42,000 per month, plus accrued interest, through approximately
February 2001. As of June 30, 1999, however, the Company had not received any
payments on the note.
In April 1999, the owner of the drilling rig operated by Challenger in the
Karakuduk Field, Oil & Gas Exploration Company Cracow, Ltd. (OGECC), terminated
its contract with Challenger. As a result of the termination of the contract
between Challenger and OGECC, the KKM Board of Directors passed a resolution
approving the termination of the drilling contract between KKM and Challenger.
Challenger was informed of KKM's decision and, KKM promptly instituted
arbitration proceedings pursuant to the contract. Drilling in the Karakuduk
Field has been suspended temporarily until the arbitration is resolved or until
another drilling rig can be procured. KKM is currently exploring strategic
alternatives to its drilling program.
6. Notes Payable
On February 28, 1999, the $975,000 note between the Chase Bank of Texas,
N.A. (Chase) and the Company was amended. The revised note requires the Company
to make an initial principal payment of $250,000, originally due February 28,
1999, on August 31, 1999, with the remaining principal of $725,000 due on
November 30, 1999. The note accrues interest at a variable prime rate, as
determined by Chase. Quarterly interest payments are due on May 31, 1999, August
31, 1999, and November 30, 1999. Interest payments are due quarterly. As of June
30, 1999, the stated prime rate on the note was 7.75%.
During January and February 1999, Allen & Company, Incorporated (Allen &
Company) loaned the Company, in a series of transactions, a total of $1,750,000,
at an interest rate of 8% per annum. On March 31, 1999, the Company issued a
promissory note to Allen & Company in the principal amount of $2,769,978,
representing an additional $1,000,000 loan to the Company on March 31, 1999, and
the retirement of the January and February loans, plus accrued interest. The
promissory note bears interest at a rate of 8% per annum and matures on August
31, 1999. On June 3, 1999, the Company borrowed an additional $1,000,000 from
Allen & Company. The promissory note also bears interest at a rate of 8% per
annum and matures on September 3, 1999.
8
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Chaparral Resources, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
6. Notes Payable (continued)
As collateral for the notes, Allen & Company received a non-exclusive
security interest in 100% of the Company's shares in Central Asian Petroleum
(Guernsey), Ltd. (CAP-G), which owns 50% of KKM. The security interest in the
CAP-G shares is subordinated to a similar security interest held by Whittier
Ventures, LLC (Whittier) in conjunction with providing collateral for the
$975,000 Chase note outstanding as of June 30, 1999. If the Company issues
convertible securities, including any debt or equity instrument convertible into
the Company's common stock on or before March 31, 2000, Allen & Company has the
right to exchange the outstanding balance of the note, together with accrued
interest, for such convertible securities. The number of convertible securities
potentially to be issued will be determined by dividing the outstanding
principal balance of the loans, together with accrued but unpaid interest, by
the issue price of the convertible securities.
During March 1999, Whittier loaned the Company an aggregate of $1,000,000
for ongoing operations. The loans are due and payable on August 31, 1999 and
accrue interest at 8% per annum. As collateral for the notes, Whittier received
a security interest in 100% of the Company's shares in CAP-G. The security
interest has identical rights to the Allen & Company security interest, but is
subordinated to the security interest retained by Whittier for providing the
collateral for the $975,000 Chase loan described in Note 6 above. If the Company
issues convertible securities within one year from the date of each of the
notes, Whittier has the right to exchange the outstanding balance of the loans,
together with accrued interest, for such convertible securities. The amount of
convertible securities potentially to be issued to Whittier will be determined
by dividing the outstanding principal balance of the loans, together with
accrued but unpaid interest, by the issue price of the convertible securities.
7. Common Stock and Related Common Stock Warrants
On January 15, 1999, the Company granted Dr. Jack A. Krug, the President
and Chief Operating Officer of the Company, 16,667 shares of the Company's
common stock, of which 13,333 shares will vest with respect to 3,333.25 shares
on January 15, 2000, 2001, 2002, and 2003. The Company recorded the common stock
at its intrinsic value on the date of grant of $719,000, and is amortizing the
value of the shares subject to vesting restrictions ratably over four years.
Certain warrants to purchase the Company's common stock expired relating to
a 1998 legal settlement. The Company recognized the fair value of the warrants
on the date of grant, $34,000, as other income in 1999.
On April 21, 1999, the Company effected a 1 for 60 reverse stock split. The
voting and economic rights of the shareholders of Common Stock and the Series A
Redeemable Preferred Stock were not effected by the reverse stock split. On the
same date, the Company reincorporated from Colorado to Delaware. The financial
statements included herein retroactively reflect the adjustments to shares
outstanding as a result of the reverse stock split and reincorporation. Since
there were no shares of the Company's Series B Preferred Stock and the Series C
Preferred Stock issued or outstanding, they were eliminated in the
reincorporation.
9
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Chaparral Resources, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
7. Common Stock and Related Common Stock Warrants (continued)
On April 30, 1999, warrants expired to purchase 12,500 shares of the
Company's common stock at an exercise price of $16.80 per share. The warrants
were originally issued as part of the 1989 Stock Warrant Plan to a former
Chairman and Chief Executive Officer and a former Vice President of the Company.
8. Series A Redeemable Preferred Stock
During 1998, the Company accrued the $250,000 annual dividend on its Series
A Redeemable Preferred Stock in the fourth quarter. For 1999, the Company will
accrue the dividend on its Series A Redeemable Preferred Stock on a quarterly
basis. Management believes this will more fairly present the fair value of its
Series A Redeemable Preferred Stock. As of June 30, 1999, the Company has
accrued a $125,000 annual dividend on its Series A Redeemable Preferred Stock.
9. Subsequent Events
In early July 1999, KKM sold 20,000 tons (approximately 146,000 barrels) of
hydrocarbons produced from the Karakuduk Field on the local Kazakhstan market
for $1,060,000, net of transportation costs.
10
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Chaparral Resources, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
10. Investments
The results from operations of the Company's equity-based investment in KKM
are summarized below:
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Karakuduk-Munay Inc
Statement of Expenses and Accumulated Deficit
For the Six Month Period Ended June 30, 1999 and 1998
(Amounts in US Dollars)
(Unaudited)
For The Three Months Ended For The Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Management service fee $ 87,000 $ 154,000 $ 280,000 $ 274,000
General and administrative expenses 547,000 182,000 1,098,000 545,000
Depreciation of fixed assets 125,000 150,000 250,000 150,000
Interest expense 355,000 230,000 560,000 411,000
---------- ---------- ---------- ----------
Net loss 1,114,000 716,000 2,188,000 1,380,000
Accumulated deficit, beginning of period 8,577,000 4,680,000 7,503,000 4,016,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Accumulated deficit, end of period 9,691,000 $5,396,000 9,691,000 $5,396,000
---------- ---------- ---------- ----------
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As of June 30, 1999, KKM had received approximately $850,000, net of
transportation costs, as proceeds from the sale of hydrocarbons produced from
the Karakuduk Field. Until such time as the production from the Karakuduk Field
reaches commercially viable levels, the net proceeds from the sales of
hydrocarbons will be accounted for on a cost recovery basis and will be offset
against KKM's oil and gas investment.
11
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1. Liquidity and Capital Resources
Since January 1, 1999, the Company raised a net of $4,820,000 through
various debt obligations and restructured the existing $975,000 note payable to
the Chase Bank of Texas, N.A., deferring a $250,000 principal payment due on
February 28, 1999 until August 31, 1999. The loans are fully described in Note 6
of Item 1. The funds have been, and will be, utilized to finance the development
of the Karakuduk Field and to satisfy the Company's working capital needs in the
short-term. The Company has no assurance that future debt or equity financing
will be available, from existing creditors and shareholders, or any other party.
The Company is currently seeking additional capital. To meet long-term
capital needs, the Company is pursuing debt financing and public and/or private
equity placements of the Company's common or preferred stock. To satisfy
short-term liquidity requirements, the Company is seeking additional short-term
debt financing, restructuring of existing loans, if necessary, and proceeds from
the sale of oil by KKM. The present environment for financing the acquisition or
ongoing operations of oil and gas properties is uncertain, due in part, to
instability of oil and gas prices in recent years. The Company's small size, and
the early stage of development of the Karakuduk Field increases the difficulty
of raising financing that may be needed in the future.
There can be no assurance that the debt or equity financing 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 costs of capital
for foreign investments in emerging markets, such as the Republic of Kazakhstan,
are significantly higher than for similar investments in the United States and
Europe. If the Company fails to obtain the additional capital required to
develop the Karakuduk Field, the Company's investment in the Field may be lost.
The Company does not presently have the cash reserves required to satisfy
$5,070,000 in short-term debt obligations coming due in August and September
1999 (fully described in Note 6), which may lead to the Company's default on
some, or all, of the Company's outstanding loans. In the event of default, the
Company may be required to transfer its ownership in CAP-G, and therefore all
rights to KKM and the Karakuduk Field, to the Company's creditors and the
Company's investment in the Karakuduk Field may be lost. The Company is
currently seeking additional debt financing and restructuring of existing loans
to timely satisfy all short-term obligations outstanding. There are no
assurances, however, that additional financing or revised terms of existing
loans will be available to the Company, or if available, that it will be timely
or on terms favorable to the Company.
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
recurring operating losses and has no operating assets presently generating
enough cash to fund its operating and capital requirements. The Company's
current cash reserves and cash flow from operations are not sufficient to meet
its capital requirements through fiscal 1999.
The only oil and gas interest of the Company at this time is the Company's
investment in KKM, held through a wholly owned subsidiary of the Company, CAP-G.
KKM is a closed joint stock company in the Republic of Kazakhstan and has the
right to develop the Karakuduk Field in western Kazakhstan. As of June 30, 1999,
substantially all of the Company's assets are invested in the development of the
Karakuduk Field. The Karakuduk Field does not currently produce revenues capable
of funding the development of the project, and requires substantial amounts of
additional capital.
12
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1. Liquidity and Capital Resources (Continued)
The terms of KKM's revised license requires an expenditure commitment of at
least $30 million and a work commitment of drilling eight wells as of December
31, 1999. As of August 16, 1999, KKM has spent approximately $7 million and
drilled one well against the revised license requirements outstanding. The
expenditures required under the license will be used to conduct drilling
operations in the Karakuduk Field, build the required Field infrastructure
necessary to support drilling and production activities, and market the crude
oil produced. KKM may seek an extension of time to meet the expenditure and work
commitments established by the license. There are no assurances, however, that
KKM will be able to obtain an amendment to the license. If the 1999 expenditure
requirement or work commitment is not satisfied by KKM, KKM's License with the
government of the Republic of Kazakhstan may be terminated and the Company's
interest in the Karakuduk Field may be lost.
On April 29, 1999, KKM completed Well #101, the first well drilled by KKM
in the Karakuduk Field. Test results are currently not available on Well #101,
due to the inability to arrive at accurate test data because of current facility
constraints, including available storage and trucking capacity for KKM's current
production. KKM expects to obtain accurate test results once the pipeline
facilities and the new pumping unit have been completed at Station 6 on the
KazTransOil pipeline. KKM currently trucks all production to the pipeline
terminal at Say-Utes, over 89 km from the Field. KKM has received approval to
begin trucking production to the pipeline terminal at Station 6, which is
located approximately 36 km from the Field, and is currently preparing Station 6
for use as an offloading facility. Total daily production is presently limited,
due to the transportation constraints and the lack of certain production
facilities required for processing additional oil production for delivery to the
pipeline.
As of August 15, 1999, KKM has sold 33,000 tons (approximately 241,000
barrels) of crude oil production for total proceeds of approximately $1,900,000,
net of transportation costs. KKM expects to continue to sell all available crude
oil production on the best market terms and conditions available. KKM cannot
sustain current operations and future development of the Karakuduk Field from
proceeds received from present oil sales. While the current rise in oil prices
has increased the potential return on the sale of KKM's crude oil, no assurances
can be provided that additional sales will be completed, or, if completed, on
terms favorable to KKM.
In April 1999, the owner of the drilling rig operated by Challenger in the
Karakuduk Field, Oil & Gas Exploration Company Cracow, Ltd. (OGECC), terminated
its contract with Challenger. As a result of the termination of the contract
between Challenger and OGECC, the KKM Board of Directors passed a resolution
approving the termination of the drilling contract between KKM and Challenger.
Challenger was informed of KKM's decision and, KKM promptly instituted
arbitration proceedings pursuant to the contract. Drilling in the Karakuduk
Field has been suspended temporarily until the arbitration is resolved or until
another drilling rig can be procured. KKM is currently exploring strategic
alternatives to its drilling program.
On June 30, 1999, the Company requested and received an additional
extension to September 30, 1999, from the Overseas Private Investment Corp.
("OPIC") for political risk insurance. OPIC originally granted the Company a
binding executed letter of commitment on September 25, 1996. The Company has a
standby facility for which it has made eight payments of $31,250 plus four
additional payments of $15,625. The Company expects to execute the contract on
or before September 30, 1999.
The Company has no other material commitments for cash outlays and capital
expenditures other than for the development of the Karakuduk Field and normal
operating expenses.
13
<PAGE>
Results of Operations
- ---------------------
Six Months Ended June 30, 1999 Compared with the Six Months Ended June 30, 1998
- -------------------------------------------------------------------------------
The Company's operations during the six months ended June 30, 1999,
resulted in a net loss of $1,639,000 compared to a net loss of $1,939,000 for
the six months ended June 30, 1998.
General and administrative costs decreased by $372,000 during the six
months ended June 30, 1999 as compared to the six months ended June 30, 1998 due
to a reduction in stock based compensation and expiration of common stock
warrants. Without consideration of the stock based compensation, a non-cash
item, general and administrative costs increased by $290,000 due to an increase
in corporate overhead incurred by the Company. Also, the Company's equity loss
in KKM increased by $404,000 during the six months ended June 30, 1999 as
compared to the six months ended June 30, 1998, due to increased operational
costs directly related to development of oil and gas properties held by KKM.
Interest income increased by $407,000 from the six months ended June 30,
1998, due to increased financing provided by CAP-G to KKM for KKM's operations
in Kazakhstan.
Interest expense increased by $104,000 during the six months ended June 30,
1999 as compared to the six months ended June 30, 1998, due to the Company
acquiring additional interest-bearing obligations during 1999. The Company's
outstanding notes payable of $5,795,000, as of June 30, 1999, are subject to a
$12,000 discount, fully amortizable during the 1999 fiscal year.
Three Months Ended June 30, 1999 Compared with the Three Months Ended June 30,
1998
- --------------------------------------------------------------------------------
The Company's operations during the three months ended June 30, 1999,
resulted in a net loss of $1,050,000, compared to a net loss of $926,000 for the
three months ended June 30, 1998.
General and administrative costs increased by $75,000 during the three
months ended June 30, 1999, as compared to the three months ended June 30, 1998,
due to increased corporate overhead incurred by the Company. Also, the Company's
equity loss in KKM increased by 200,000 during the three months ended June 30,
1999, as compared to the three months ended June 30, 1998, due to increased
operational costs directly related to development of oil and gas properties held
by KKM.
Interest income increased by $202,000 from the three months ended June 30,
1998, due to increased financing provided by CAP-G to KKM for KKM's operations
in Kazakhstan.
Interest expense increased by $50,000 during the three months ended June
30, 1999, as compared to the three months ended June 30, 1998,. due to the
Company acquiring additional interest-bearing obligations to finance the
development of the Karakuduk Field and to satisfy the Company's working capital
needs in the short-term.
Commodity Prices for Oil and Gas; Inflation.
- --------------------------------------------
The Company's revenues, profitability, growth and value of its oil and gas
properties are highly dependent upon prices of oil and gas. Market conditions
make it difficult to estimate prices of oil and gas or the impact of inflation
on such prices. Oil and gas prices have been volatile, and it is likely that
they will continue to fluctuate in future. Various factors beyond the Company's
control affect prices for oil and gas, including supplies of oil and gas
available worldwide and in Kazakhstan, the ability of the Organization of
Petroleum Exporting Countries (OPEC) to agree to maintain oil prices and
production controls, political instability or armed conflict in Kazakhstan or
other oil producing regions, the price of foreign imports, the level of consumer
demand, the price and availability of alternative fuels, the availability of
transportation routes and pipeline capacity, and changes in applicable laws and
regulations.
14
<PAGE>
Inflation (Continued).
- ----------------------
On April 5, 1999, the government of the Republic of Kazakhstan decided not
to continue its support of the national currency, the tenge, and allowed it to
float freely against the U.S. dollar. Immediately thereafter, the official
exhange rate declined from 87.5 tenge to the U.S. dollar to 142 tenge to the
U.S. dollar. As of August 15, 1999, the official exhange rate was approximately
132 tenge to the U.S. dollar. The devaluation decreased the tenge realizable
value of any U.S. dollar or other hard currency denominated monetary assets held
by the Company, and increases the tenge obligation of any U.S. dollar or other
hard currency denominated monetary liabilities held by the Company. KKM's
financial statements are denominated in U.S. dollars, and the only impact to the
Company will relate to assets and liabilities denominated in tenge. The net
impact of the currency devaluation to the Company is not material.
2. Year 2000 Issue
The Company has assessed the Year 2000 issue and does not expect the Year
2000 problem to have a material impact on the Company's operations. However, it
is unclear as to the extent that the government of the Republic of Kazakhstan
and other organizations who provide significant infrastructure services within
the Former Soviet Union have addressed the Year 2000 issue. There is no
guarantee that the systems of the government or other organizations on which the
Company relies will be timely converted and would not have a material adverse
effect on the Company and its systems.
Item 3 - Quantitative and Qualitative Disclosures About Market Risks
Not Applicable.
15
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
In April 1999, the owner of the drilling rig operated by Challenger in the
Karakuduk Field, Oil & Gas Exploration Company Cracow, Ltd. (OGECC), terminated
its contract with Challenger. As a result of the termination of the contract
between Challenger and OGECC, the KKM Board of Directors passed a resolution
approving the termination of the drilling contract between KKM and Challenger.
Challenger was informed of KKM's decision and, KKM promptly instituted
arbitration proceedings pursuant to the contract. Drilling in the Karakuduk
Field has been suspended temporarily until the arbitration is resolved or until
another drilling rig can be procured. KKM is currently exploring strategic
alternatives to its drilling program.
Item 2 - Changes in Securities and Use of Proceeds
See Item 4 below.
Item 4 - Submission of Matters to a Vote of Security Holders
On April 21, 1999, the Company held a Special Meeting of the Company's
shareholders. The Company's shareholders approved a 1 for 60 reverse stock
split. The voting and economic rights of the shareholders of Common Stock and
the Series A Redeemable Preferred Stock were not effected by the reverse stock
split. On the same date, the Company's shareholders approved the Company's
reincorporation from Colorado to Delaware. Since there were no shares of the
Company's Series B Preferred Stock and the Series C Preferred Stock issued or
outstanding, they were eliminated in the reincorporation.
The number of shares voted with respect to the 1 for 60 reverse stock
split, before consideration of the reverse stock split adjustment, were as
follows:
For Against Abstain
--- ------- -------
30,488,755 3,280,068 985,798
The number of shares voted with respect to the reincorporation of the
Company from Colorado to Delaware, before consideration of the reverse stock
split adjustment, were as follows:
For Against Abstain
--- ------- -------
30,660,657 1,698,176 60,798
16
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On April 21, the Company filed a current report on Form 8-K reporting the
approval of a 1 for 60 reverse stock split of the Company's common stock by the
Company's shareholders at a Special Meeting held on April 21, 1999.
On April 21, the Company filed a current report on Form 8-K reporting the
approval of the Company's reincorporation from Colorado to Delaware by the
Company's shareholders at a Special Meeting held on April 21, 1999.
17
<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 thereunto duly authorized.
Dated: August 20, 1999
Chaparral Resources, Inc.
By: /s/ Michael B. Young
------------------------
Michael B. Young, Treasurer, Controller
and Principal Accounting Officer
18
<PAGE>
Exhibit Index
27 Financial Data Schedule
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 556,000 121,000
<SECURITIES> 0 0
<RECEIVABLES> 13,000 445,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,240,000 1,398,000
<PP&E> 35,614,000 32,354,000
<DEPRECIATION> 28,000 17,000
<TOTAL-ASSETS> 37,886,000 34,324,000
<CURRENT-LIABILITIES> 6,768,000 1,685,000
<BONDS> 0 0
5,025,000 4,850,000
0 0
<COMMON> 0 0
<OTHER-SE> 25,883,000 27,579,000
<TOTAL-LIABILITY-AND-EQUITY> 37,886,000 34,324,000
<SALES> 0 0
<TOTAL-REVENUES> 857,000 450,000
<CGS> 0 0
<TOTAL-COSTS> 1,269,000 1,636,000
<OTHER-EXPENSES> 1,060,000 690,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 167,000 63,000
<INCOME-PRETAX> (1,639,000) (1,939,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,639,000) (1,939,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,639,000) (1,939,000)
<EPS-BASIC> (1.86) (2.36)
<EPS-DILUTED> (1.86) (2.36)
</TABLE>
