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, 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 August 18, 1998 Registrant had 57,882,123 shares of its $0.10 par
value common stock issued and outstanding.
Part I - Summarized Financial Information
Item 1 - Financial Statements
Chaparral Resources, Inc.
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
1998 1997
-------------------------------
Assets
Current assets:
Cash and cash equivalents $ 46,000 $ 3,423,000
Restricted cash 800,000 --
Accounts receivable:
Other 33,000 102,000
Prepaid expenses 48,000 62,000
------------ ------------
Total current assets 927,000 3,587,000
Notes Receivable 300,000 --
Oil and gas properties and investments - full cost method
Republic of Kazakhstan (Karakuduk Field)--
not subject to depletion : 25,018,000 19,922,000
Furniture, fixtures and equipment 76,000 13,000
Less accumulated depreciation (9,000) (3,000)
------------ ------------
67,000 10,000
------------ ------------
Total assets $ 26,312,000 $ 23,519,000
============ ============
See accompanying notes to financial statements
2
Chaparral Resources, Inc.
Consolidated Balance Sheets (continued)
(Unaudited)
June 30, December 31,
1998 1997
---------------------------------------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable:
Trade $ 257,000 $ 177,000
Accrued liabilities 413,000 54,000
Notes payable (net of discount) 764,000 --
------------ ------------
Total current liabilities 1,434,000 231,000
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 4,550,000 4,500,000
Stockholders' equity:
Common stock - authorized, 100,000,000
shares at June 30, 1998 and
December 31, 1997, of
$.10 par value; issued and outstanding,
51,215,456 and 49,720,456 shares at
June 30, 1998 and December 31, 1997, respectively 5,121,000 4,971,000
Capital in excess of par value 33,518,000 30,340,000
Unearned portion of restricted stock awards (161,000) (109,000)
Stock subscription receivable (1,517,000) (1,770,000)
Accumulated Deficit (16,843,000) (14,854,000)
------------ ------------
Total stockholders' equity 20,118,000 18,578,000
------------ ------------
Total liabilities and stockholders' equity $ 26,312,000 $ 23,519,000
============ ============
See accompanying notes to financial statements
3
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,
1998 1997 1998 1997
-------------------------------------------------------------------------
Revenue:
Oil and gas sales $ -- $ -- $ -- $ --
Costs and expenses:
Depreciation and depletion 4,000 -- 6,000 1,000
General and administrative 750,000 487,000 1,630,000 742,000
------------ ------------ ------------ ------------
754,000 487,000 1,636,000 743,000
------------ ------------ ------------ ------------
Loss from operations (754,000) (487,000) (1,636,000) (743,000)
Other income (expense):
Interest income 248,000 88,000 450,000 162,000
Interest expense (63,000) (60,000) (63,000) (130,000)
Equity in loss from investment (357,000) (114,000) (690,000) (289,000)
------------ ------------ ------------ ------------
(172,000) (86,000) (303,000) (257,000)
------------ ------------ ------------ ------------
Net loss $ (926,000) $ (573,000) $ (1,939,000) $ (1,000,000)
------------ ------------ ------------ ------------
Basic and diluted earnings per share:
Net loss per share $ (.018) $ (.014) $ (.038) $ (.025)
Weighted average number of shares
Outstanding 51,192,214 40,948,384 50,546,373 39,311,769
See accompanying notes to financial statements
4
Chaparral Resources, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30, June 30,
1998 1997
------------------------------------
Cash flows from operating activities
Net loss $(1,939,000) $(1,000,000)
Adjustments to reconcile net loss to
Net cash used in operating activities:
Equity loss from investment 690,000 289,000
Depreciation and depletion 6,000 1,000
Loss on the sale of oil and gas properties -- 30,000
Write-down of oil and gas properties -- 3,000
Stock issued for services and bonuses 662,000 --
Amortization of note discount 56,000 62,000
Changes in assets and liabilities:
Restricted cash (800,000) --
Accounts receivable 69,000 (43,000)
Prepaid expenses 14,000 (90,000)
Notes receivable (300,000) --
Accounts payable & accrued liabilities 439,000 (403,000)
----------- -----------
Net cash used in operating activities (1,103,000) (1,151,000)
Cash flows from investing activities
Additions to property and equipment (63,000) --
Proceeds from sale of interest in oil & gas properties -- 273,000
Investment in and advances to foreign oil and gas
properties (5,786,000) (1,785,000)
----------- -----------
Net cash used in investing activities (5,849,000) (1,512,000)
Cash flows from financing activities
Proceeds from notes payable 1,075,000
Proceeds from warrant exercise 7,000
Proceeds from sale of stock 2,500,000 2,000,000
----------- -----------
Net cash provided by financing
activities 3,575,000 2,007,000
----------- -----------
Net decrease in cash and
cash equivalents (3,377,000) (656,000)
Cash and cash equivalents at beginning
of period 3,423,000 920,000
----------- -----------
Cash and cash equivalents at end of period $ 46,000 $ 264,000
=========== ===========
See accompanying notes to financial statements
5
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 periods presented. The results of operations for the
interim periods 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 June 30,
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.
6
Chaparral Resources, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
4. Restricted Cash
As of June 30, 1998, the Company held $800,000 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 Payable
On June 4, 1998, the Company borrowed $1,000,000 from two related parties,
one of which is a director of the Company. In connection with the debt
obligation, on June 4, 1998, the Company issued warrants to purchase 1,000,000
shares of the Company's Common Stock at an exercise price of $3.50 per share to
the related party creditors. The note was discounted by the fair value of the
warrants ($367,000), with the discount being amortized over the life of the
note. The Company repaid the entire principal balance of $1,000,000 plus accrued
interest on August 5, 1998.
The fair market value of the warrants was estimated as of June 4, 1998,
using the Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rates of 5.53%, dividend yield of 0%, volatility
factors of the expected market price of the Company's common Stock of .593, and
a weighted average life expectancy of the warrants of 4.5 years.
The warrants are further described in Note 6, Common Stock and Related
Common Stock Warrants.
6. Common Stock and Related Common Stock Warrants
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 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. As of June 30, 1998, warrants to purchase 600,000 shares
remain unexercisable and is reflected as a stock subscription receivable in the
financial statements.
In connection with the $1,000,000 loan referred to in Note 5, on June 4,
1998, the Company issued warrants to purchase 1,000,000 shares of the Company's
Common Stock to two related parties, one of which is a director of the Company.
The warrants are exercisable through November 25, 2002, at an exercise price of
$3.50 per share.
The Company recorded the fair market value of the warrants ($367,000) as a
discount of notes payable, amortizable as interest expense over the life of the
loan. The fair market value of the warrants was estimated as of June 4, 1998,
using the Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rates of 5.53%, dividend yield of 0%, volatility
factors of the expected market price of the Company's common Stock of .593,
and a weighted average life expectancy of the warrants of 4.5 years.
7
Chaparral Resources, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
7. Subsequent Events
On July 3, 1998, the Company borrowed $975,000 from a financial
institution. The note accrues interest at an adjustable prime rate and is
payable in quarterly principal installments of $250,000 beginning December 3,
1998, with a final payment of all unpaid principal and interest due on December
3, 1999.
The $975,000 loan was fully guaranteed with a stand-by letter of credit
from an investor in the Company. In return for issuing the loan guarantee, the
Company paid the guarantor $10,000 plus related costs, issued warrants to
purchase 20,000 shares of the Company's Common Stock at an exercise price of
$.01 per share, and granted the guarantor a security interest in the Company's
Common Stock of Central Asian Petroleum (Guernsey) (CAP-G).
In the event of the Company's default on the $975,000 note, the guarantor's
security interest in the Company's Common Stock in CAP-G cannot be perfected for
at least 30 days after notification of such default. In the event of default,
the Company may make full payment of any outstanding principal and interest on
the note plus any additional charges incurred by the guarantor to completely
remove any security interest held by the guarantor in the Company's investment
in CAP-G.
Effective on July 28 and July 29, 1998, the Company sold 6,666,667 shares
of the Company's Common Stock for $1.50 per share for at total of $10,000,002.50
to certain accredited investors. Allen & Company, Incorporated acted as
placement agent in connection with the sale of the 6,666,667 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 400,000 shares of the Company's Common Stock. The warrants to
purchase the additional 400,000 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 700,000
shares of the Company's Common Stock are currently exercisable.
Due to the fact the sales price of the 6,666,667 shares was below a price
of $2.00 per share, the Company will be required to issue an additional 416,667
shares to the investor who purchased 1,250,000 shares of the Company's common
stock for $2,500,000 in April 1998 in order to satisfy certain price probation
agreements the Company has with such investor.
On August 5, 1998, the Company repaid the $1,000,000 note payable to two
related creditors, one of which is a director of the Company, at the note's face
value. The Company recorded an extraordinary loss on extinguishment of debt of
approximately $235,000.
8
Karakuduk-Munay Inc
Statement of Expenses and Accumulated Deficit
For the Six Month Periods Ended June 30, 1998 and 1997
(Amounts in US Dollars)
(Unaudited)
8. Investments
The results from operations of the Company's equity-based investment in KKM are summarized below:
For The Three Months Ended For The Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Management Service Fee $ 154,000 $ 90,000 $ 274,000 $ 180,000
General and Administrative Expenses 182,000 53,000 545,000 242,000
Depreciation of Fixed Assets 150,000 -- 150,000 --
Interest Expense 230,000 85,000 411,000 155,000
---------- ---------- ---------- ----------
Net Loss 716,000 228,000 1,380,000 577,000
Accumulated deficit, beginning of period 4,680,000 2,700,000 4,016,000 2,351,000
---------- ---------- ---------- ----------
Accumulated deficit, end period $5,396,000 $2,928,000 $5,396,000 $2,928,000
---------- ---------- ---------- ----------
9
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 $12,500,000 through the
sale of Common Stock and $2,070,000 through debt obligations. The Company repaid
notes payable of $95,000 to Howard Karren on July 30, 1998, and repaid notes
payable to two related parties, one of which is a director of the Company, on
August 5. 1998 using proceeds raised from the sale of Common Stock.
As of August 18, 1998, the Company's only debt obligation outstanding was
$975,000, borrowed by the Company from a financial institution on July 3, 1998.
The note accrues interest at an adjustable prime rate and is payable in
quarterly principal installments of $250,000 beginning December 3, 1998, with a
final payment of all unpaid principal and interest due on December 3, 1999. The
proceeds of the loan were used by the Company for the winterization and
refurbishment of a drilling rig to be used by KKM in Kazakhstan, expansion of
KKM's existing camp facilities, and partial construction of an 18-mile pipeline
between the camp and the existing export pipeline.
The $975,000 loan was fully guaranteed with a stand-by letter of credit
from an investor in the Company. In return for issuing the loan guarantee, the
Company paid the guarantor $10,000 plus related costs, issued warrants to
purchase 20,000 shares of the Company's Common Stock at an exercise price of
$.01 per share, and granted the guarantor a security interest in the Company's
Common Stock of CAP-G. There are no other material negative covenants in the
loan agreement.
In the event of the Company's default on the $975,000 note, the guarantor's
security interest in the Company's Common Stock in CAP-G cannot be perfected for
at least 30 days after notification of such default. In the event of default,
the Company may make full payment of any outstanding principal and interest on
the note plus any additional charges incurred by the guarantor to completely
remove any security interest held by the guarantor in the Company's investment
in CAP-G.
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.
10
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 June 30, 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. The
capital requirements required under the license will be primarilly used to fund
KKM's drilling operations for the Karakuduk Field, to build the required Field
infrastructure and camp facilities necessary to support drilling and production
operations, to construct an 18-mile pipeline between the field and the export
pipeline, and to construct a central processing unit (cpu) to process oil
production from the Field. 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.
As of August 18, 1998, KKM has not recognized any revenue, although KKM has
placed approximately 3,000 tons of oil production into the export pipeline. When
KKM has placed oil production of a minimum of 5,000 tons into the pipeline,
Munay-Impex, a subsidiary of KazakhOil, is obligated to purchase oil from KKM
under an existing one year contract. KKM will record oil revenues when a sale
has been completed.
The Company requested and received an additional extension to September 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
eight payments of $31,250. The Company expects to execute the contract on or
before September 30, 1998. The Company has no other material commitments for
cash outlay and capital expenditures other than for normal operations.
2. Results of Operations
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 June 30, 1997 reported
herein have been reclassified to reflect the equity method. There was no impact
on previously reported earnings.
Three Months Ended June 30, 1998 Compared with the Three Months
Ended June 30, 1997
The Company's operations during the three months ended June 30, 1998,
resulted in a net loss of $926,000 compared to a net loss of $573,000 for the
three months ended June 30, 1997.
Interest income increased by $160,000 from the three months ended June 30,
1997, due to increased financing provided by CAP-6 to KKM for KKM's operations
in Kazakhstan.
11
General and administrative costs increased by $263,000 during the three
months ended June 30, 1998 as compared to the three months ended June 30, 1997.
Without consideration of the stock based compensation, a non-cash item, general
and administrative costs increased by $51,000 due to increased overhead incurred
by the Company in connection with the expanding workover and exploration
operations in Kazakhstan. Also, the Company's equity loss in KKM increased by
$243,000 during the three months ended June 30, 1998 as compared to the three
months ended June 30, 1997, due to increased operational costs directly related
to development of oil and gas properties held by KKM.
Interest expense increased by $3,000 during the three months ended June 30,
1998 as compared to the three months ended June 30, 1997, almost entirely due to
interest expense from amortization of the discount of notes payable. Without
consideration of the discount amortization, the Company's interest expense would
have decreased by $53,000 due to the Company's retirement of all
interest-bearing obligations during the last six months of 1997 and the fact
that the Company did not borrow any additional funds until May 27, 1998.
Therefore, the Company's $1,075,000 in outstanding notes payable as of June 30,
1998 had only accrued interest for approximately one month as of June 30, 1998.
Six Months Ended June 30, 1998 Compared with the Six Months Ended June 30, 1997
The Company's operations during the six months ended June 30, 1998,
resulted in a net loss of $1,939,000 compared to a net loss of $1,000,000 for
the six months ended June 30, 1997.
Interest income increased by $288,000 from the six months ended June 30,
1997, due to increased financing provided by CAP-6 to KKM for KKM's operations
in Kazakhstan.
General and administrative costs increased by $888,000 during the six
months ended June 30, 1998 as compared to the six months ended June 30, 1997.
Without consideration of the stock based compensation, a non-cash item, general
and administrative costs increased by $292,000 due to increased overhead
incurred by the Company in connection with the expanding workover and
exploration operations in Kazakhstan. Also, the Company's equity loss in KKM
increased by $401,000 during the six months ended June 30, 1998 as compared to
the six months ended June 30, 1997, due to increased operational costs directly
related to development of oil and gas properties held by KKM.
Interest expense decreased by $67,000 during the six months ended June 30,
1998 as compared to the six months ended June 30, 1997. The Company retired all
interest-bearing obligations during the last six months of 1997 and did not
borrow any additional funds until May 27, 1998. The Company's outstanding notes
payable of $1,075,000 as of June 30, 1998, however, are subject to a $311,000
discount, fully amortizable during the 1998 fiscal year.
12
3. Quantitative and Qualitative Disclosures About Market Risks
Not Applicable.
13
Part II - Other Information
Item 2 - Changes in Securities and Use of Proceeds
(c) 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. The Company sold the shares in reliance upon the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended. The
investor had available to the investor all material information concerning the
Company. The certificate evidencing the shares bears an appropriate restrictive
legend under the Securities Act of 1933, as amended. 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.
During the quarter ended June 30, 1998, the Company granted 5-year options
to purchase 56,500 shares of the Company's Common Stock to employees of, and
consultants to, the Company. The Company also granted 5,000 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 persons had available to them all material information
concerning the Company. The options will have an appropriate restrictive legend
under the Securities Act of 1933, as amended. Due to terminations of employment
or consulting relationships, options to purchase 35,000 shares have been
cancelled and the 5,000 shares were never issued when vesting provisions of the
options and share grant were not satisfied. No underwriter was involved in the
transactions.
In connection with a $1,000,000 loan, on June 4, 1998, the Company granted
warrants to purchase 1,000,000 shares of the Company's Common Stock to two
related parties, one of which is a director of the Company. The warrants to
purchase the additional 1,000,000 shares of the Company's Common Stock are
exercisable through November 25, 2002, at an exercise price of $3.50 per share.
The Company made the grants in reliance upon the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.. Such persons had
available to them all material information concerning the Company. The warrant
certificates bear an appropriate restrictive legend under the Securities Act of
1933, as amended. No underwriter was involved in the transaction.
Item 4 - Submission of Matters to a Vote of Security Holders
On January 26, 1998, the Company held its Annual Meeting of Stockholders.
The Company's stockholders elected the following seven persons as directors,
each to serve until the next Annual Meeting of Stockholders or until his
successor is elected or appointed: Howard Karren, John G. McMillian, J. Michael
Muckleroy, Ted E. Collins, Richard Grant, David A. Dahl, and Arlo G. Sorensen.
The Company's stockholders also voted to adopt, separately, the Company's 1998
Incentive and Nonstatutory Stock Option Plan and the selection by the Board of
Directors of Ernst & Young LLP as the independent auditors of the Company for
the fiscal year ended December 31, 1998.
The number of shares voted and withheld with respect to each director were
as follows:
Election of Directors For Withheld
--------------------- --- --------
Howard Karren 35,330,140 777,183
John G. McMillian 35,806,190 301,133
J. Michael Muckleroy 35,710,490 396,833
Ted Collins, Jr. 35,828,730 278,593
Richard L. Grant 35,827,720 279,603
David A. Dahl 35,566,880 540,443
Arlo G. Sorensen 35,548,780 558,543
14
The number of shares voted (and broker non votes) with respect to the
adoption of the Company's 1998 Incentive and Nonstatutory Stock Option Plan was
as follows:
For Against Abstain Broker Non Votes
--- ------- ------- ----------------
25,445,753 1,209,747 537,967 8,937,056
The number of shares voted with respect to the approval of Ernst & Young
LLP as the Company's independent auditors was as follows:
For Against Abstain
--- ------- -------
35,789,991 187,922 129,410
Item 5 - Other Information
Effective June 29, 1998, the United States Securities and Exchange
Commission adopted new rules relating to stockholder proposals which
stockholders do not request be included in the Company's proxy statement to be
used in connection with the Company's Annual Meeting of Stockholders. Under
these new rules, proxies that confer discretionary authority will not be able to
be voted on a stockholder proposal to be presented at the Annual Meeting of
Stockholders if the stockholder provides the Company with advance written notice
of the stockholder proposal on a date in the current year that is at least 45
days prior to the date the prior year's proxy materials were mailed to the
Company's stockholders. If a stockholder fails to so notify the Company, proxies
that confer discretionary authority will be able to be voted when the proposal
is presented at the Annual Meeting of Stockholders.
In accordance with the new rules, proxies which confer discretionary
authority will be able to be voted on stockholder proposals that the
stockholders do not request be included in the Company's proxy statement but
plan to present at the Company's next Annual Meeting of Stockholders unless the
Company receives notice of the proposals by no later than April 14, 1999.
On May 27, 1998 and July 1, 1998, the Company borrowed $75,000 and $20,000
from Howard Karren, the Chairman and Chief Executive Officer of the Company,
respectively. The notes were payable 180 days after the date of issuance at an
interest rate of 7%. The notes were fully repaid by the Company on July 30,
1998.
Item 6 - Exhibits and Reports on Form 8-K
Exhibits
10.1 Subordinated Loan Agreement date as of June 4, 1998 between
the Company and Allen & Company, Incorporated
10.2 Warrants issued to Allen & Company, Incorporated and
John G. McMillian
10.3 Loan agreements between the Company and Howard Karren
dated May 27, 1998 and July 1, 1998, respectively
27 Financial Data Schedule
Reports on Form 8-K
On April 14, 1998, the Company filed a Current Report on Form 8-K dated
April 3, 1998, reporting under Item 5 thereof the sale of 1,250,000 shares of
the Company's Common Stock to one investor for a purchase price of $2.00 per
share or an aggregate purchase price of $2,500,000 and filing the related
Subscription Agreement under Item 7.
15
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: August 18, 1998
Chaparral Resources, Inc.,
a Colorado corporation
By: /s/ Howard Karren
-----------------------------------------
Howard Karren
President and Chief Executive Officer
By: /s/ Michael B. Young
-----------------------------------------
Michael B. Young, Treasurer and Controller
And Principal Accounting Officer
16
Exhibit Index
10.1 Subordinated Loan Agreement date as of June 4, 1998 between
the Company and Allen & Company, Incorporated
10.2 Warrants issued to Allen & Company, Incorporated and
John G. McMillian
10.3 Loan agreements between the Company and Howard Karren dated
May 27, 1998 and July 1, 1998, respectively
27 Financial Data Schedule
17