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. PART 1 - SUMMARIZED FINANCIAL INFORMATION Chaparral Resources, Inc. Consolidated Statements of Operations (Unaudited) For the Three Months Ended -------------------------- February 28, February 29, 1997 1996 ------------ ------------ 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 2 Chaparral Resources, Inc. Consolidated Balance Sheets February 28, 1997 November 30, (Unaudited) 1996 ----------- ------------ 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 3 Chaparral Resources, Inc. Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended -------------------------- February 28, February 29, 1997 1996 ------------ ----------- 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 --------- --------- See accompanying notes to financial statements 4 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 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 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 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 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 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