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, 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
incorporation or organization) Identification No.)
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 17, 1999 Registrant had 977,954 shares of its $0.0001 par value
common stock issued and outstanding.
Part I - Summarized Financial Information
Item 1 - Financial Statements
Chaparral Resources, Inc.
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1999 1998
------------ -------------
Assets
Current assets:
Cash and cash equivalents $ 1,183,000 $ 121,000
Restricted cash 711,000 756,000
Accounts receivable 23,000 25,000
Prepaid expenses 80,000 76,000
Current portion of note receivable 546,000 420,000
------------ ------------
Total current assets 2,543,000 1,398,000
Note receivable 463,000 589,000
Oil and gas properties and investments
- full cost method
Republic of Kazakhstan (Karakuduk Field)-
Not subject to depletion: 34,615,000 32,261,000
Furniture, fixtures and equipment 98,000 93,000
Less accumulated depreciation (23,000) (17,000)
------------ ------------
75,000 76,000
------------ ------------
Total assets $ 37,696,000 $ 34,324,000
============ ============
See accompanying notes to financial statements
2
Chaparral Resources, Inc.
Consolidated Balance Sheets (continued)
(Unaudited)
March 31, December 31,
1999 1998
------------ ------------
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 358,000 $ 223,000
Accrued liabilities 440,000 522,000
Short-term notes payable, net of discount 4,772,000 940,000
------------ ------------
Total current liabilities 5,570,000 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, $5,312,500 redemption value 4,938,000 4,850,000
Stockholders' equity:
Common stock - authorized, 100,000,000 shares
at March 31, 1999 and December 31, 1998, of
$.0001 par value; issued and outstanding,
977,954 and 972,980 shares at
March 31, 1999 and December 31, 1998 -- --
Capital in excess of par value 48,208,000 47,611,000
Unearned portion of restricted stock awards (577,000) (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 (20,147,000) (19,470,000)
------------ ------------
Total stockholders' equity 26,978,000 27,579,000
------------ ------------
Total liabilities and stockholders' equity $ 37,696,000 $ 34,324,000
============ ============
See accompanying notes to financial statements
3
Chaparral Resources, Inc.
Consolidated Statements of Operations
(Unaudited)
For Three Months Ended
March 31, March 31,
1999 1998
----------- -----------
Revenue:
Oil and gas sales $ -- $ --
Costs and expenses:
Production costs -- --
Depreciation and depletion 5,000 2,000
General and administrative 433,000 880,000
----------- -----------
438,000 882,000
----------- -----------
Loss from operations (438,000) (882,000)
Other income (expense):
Interest income 406,000 202,000
Interest expense (54,000) --
Equity loss from investment (537,000) (332,000)
Heartland legal settlement 34,000 --
----------- -----------
(151,000) (130,000)
----------- -----------
Net loss $ (589,000) $(1,012,000)
=========== ===========
Cumulative annual dividend accrued
Series A Redeemable Preferred Stock (63,000) --
Discount accretion
Series A Redeemable Preferred Stock (25,000) (25,000)
----------- -----------
Net loss available to common stockholders $ (677,000) $(1,037,000)
=========== ===========
Basic and diluted earnings per share:
Net loss per share $ (.69) $ (1.25)
Weighted average number of shares
Outstanding 977,388 831,681
See accompanying notes to financial statements
4
Chaparral Resources, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
---------------------------
March 31, March 31,
1999 1998
----------- -----------
Cash flows from operating activities
Net loss $ (589,000) $(1,012,000)
Adjustments to reconcile net loss to
Net cash used in operating Activities:
Equity loss from investment 537,000 332,000
Depreciation and depletion 5,000 2,000
Stock issued for services and bonuses 194,000 614,000
Expired stock warrants (117,000) --
Amortization of note discount 12,000 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 2,000 68,000
Prepaid expenses (4,000) (1,000)
Increase in:
Accounts payable & accrued liabilities 53,000 167,000
----------- -----------
Net cash used in operating activities $ 93,000 $ 170,000
Cash flows from investing activities
Additions to property and equipment $ (5,000) $ (45,000)
Investment in and advances to foreign oil and
gas properties (2,891,000) (2,955,000)
Increase in other assets -- --
----------- -----------
Net cash used in investing activities (2,896,000) (3,000,000)
Cash flows from financing activities
Net proceeds from notes payable $ 3,820,000 $ --
Restricted cash 45,000 --
Repayment of note payable -- --
----------- -----------
Net cash provided by financing activities 3,865,000 --
----------- -----------
Net increase in cash and
cash equivalents 1,062,000 (2,830,000)
Cash and cash equivalents at beginning
of period 121,000 3,423,000
=========== ===========
Cash and cash equivalents at end of period $ 1,183,000 $ 593,000
=========== ===========
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, 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
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,
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 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 the Karakuduk Field can 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.
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 March 31, 1999, the Company held $711,000 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 March 31, 1999, the Company had an outstanding note receivable for
$1,009,000 from a third-party drilling contractor (Contractor) originally
entered into on September 10, 1998. 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 the Contractor for drilling
services provided to Karakuduk Munay, Inc. (KKM). Under the revised terms of the
note, the Company will receive principal payments of approximately $42,000 per
month, plus accrued interest, through approximately February 2001. As of March
31, 1999, the Company had not received any payments on the note. See Note 8,
Subsequent Events.
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, or
before, 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. The Company made the initial interest
payment due on February 28, 1999. As of March 31, 1999, the stated prime rate on
the note was 7.75%.
On January 4, 1999, Howard Karren, the Company's former Chairman and Chief
Executive Officer, advanced the Company $50,000. The Company is accruing
interest at 8% on the advance.
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.
As collateral for the note, Allen & Company received a 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 December 31, 1998. If the Company issues convertible
securities on or before March 31, 2000, Allen & Company has the right to
exchange the outstanding balance of the note, plus 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.
7
Chaparral Resources, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
6. Notes Payable (continued)
During March 1999, Whittier loaned the Company an aggregate of $1,000,000
for ongoing operations. The Company issued two notes for $500,000 each, dated
March 10, 1999, and March 19, 1999, respectively. 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 one received by Allen &
Company above, and is subordinated to the security interest retained by Whittier
for providing the collateral for the $975,000 Chase note. 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 fair 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 settlement of a lawsuit by the Company. 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's shareholders approved a 1 for 60 reverse
stock split, effective immediately. 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 shareholders also
approved the reincorporation of the Company 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.
The reincorporation was effected by merging the Company with and into Chaparral
Delaware. Upon completion of the reincorporation, the Company ceased to exist in
accordance with the Colorado Business Corporation Act and Chaparral Delaware
operates the business of the Company under the existing Company name, Chaparral
Resources, Inc. Pursuant to the Plan and Agreement of Merger between the Company
and Chaparral Delaware, each outstanding share of Common Stock and Series A
Preferred Stock will automatically be converted into one share of Chaparral
Delaware common stock, par value $0.0001 per share, or preferred stock, no par
value, as appropriate. Since there were no shares of the Series B Preferred
Stock and the Series C Preferred Stock issued or outstanding, there was no
conversion thereof and the Series B Preferred Stock and Series C Preferred Stock
ceased to exist.
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.
8
Chaparral Resources, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
9. Subsequent Events
On April 21, 1999, at a special meeting the Company's shareholders approved
a one-for-sixty reverse stock split, effective immediately. All references and
calculations involving outstanding common stock have been adjusted to reflect
the reverse split. On the same date, the shareholders also approved the
reincorporation of the Company from Colorado to Delaware.
On April 30, 1999, warrants expired to purchase 12,500 shares of the
Company's common stock at an exercise price of $15 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.
On April 5, 1999, the government 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 exchange rate
declined from 87.5 tenge to the U.S. dollar to 142 tenge to the U.S. dollar. The
devaluation decreases 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, the only impact will relate to assets and liabilities denominated
in tenge. The net impact is not expected to be material to the Company's
financial statements.
On March 30, 1999, KKM entered into a contract with KazakhOil, JSC, the
national oil company of Kazakhstan and a shareholder of KKM, for the sale of up
to 19,000 tons (138,700 barrels) of the Company's crude oil production in 1999.
Under the terms of the contract, the Company has been granted a transit quota to
export 19,000 tons of crude oil to the far abroad and near abroad markets, with
KazakhOil acting as broker for the sale.
According to the contract, net revenue to the Company is based upon a
formula indexed to the price of Brent crude on the date of sale, adjusted for
transportation costs and other minor charges. On April 21, 1999, KKM sold 13,000
tons (95,000 barrels) of crude oil on the world export market for approximately
$850,000, net of transportation costs.
The owner of the drilling rig currently working in the Karakuduk Field, Oil
& Gas Exploration Company Cracow, Ltd., terminated its contract with Challenger,
subsequent to the amendment to the Challenger drilling contract with KKM. On
April 14, 1999, 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, subsequently, received notification of the
beginning of arbitration proceedings pursuant to the contract. Drilling in the
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 April 30, 1999, the Company appeared before the Nasdaq Qualifications
Hearing Panel. We expect to be notified of the outcome of the hearing before
June 30, 1999, however, no assurances can be made as to the Company's continued
listing on Nasdaq.
9
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:
Karakuduk-Munay Inc
Statement of Expenses and Accumulated Deficit
For the Three Month Period Ended March 31, 1999 and 1998
(Amounts in US Dollars)
(Unaudited)
For The Three Months Ended
--------------------------------
March 31, March 31,
1999 1998
--------------------------------
Management service fee $193,000 120,000
General and administrative expenses 552,000 363,000
Depreciation of fixed assets 125,000 -
Interest expense 204,000 181,000
--------------------------------
Net loss 1,074,000 664,000
Accumulated deficit, beginning of period 7,503,000 4,016,000
--------------------------------
--------------------------------
Accumulated deficit, end period $8,577,000 $4,680,000
--------------------------------
10
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 $3,820,000 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 revenue 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 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 costs
of capital for foreign investments, such as the Karakuduk Field, are typically
higher than for similar investments in western countries, such as the United
States. 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'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
sufficient 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 Karakuduk-Munay, Inc. (KKM), held through a wholly owned
subsidiary of the Company, Central Asian Petroleum (Guernsey) (CAP-G). KKM is a
closed joint stock company in Kazakhstan and has the right to develop the
Karakuduk Field in western Kazakhstan. As of March 31, 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.
The terms of KKM's revised license require an expenditure commitment of $30
million for the year ending December 31, 1999. 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. If the 1999
expenditure requirement is not satisfied, KKM's License with the government of
Kazakhstan may be terminated and the Company's interest in the Karakuduk Field
may be lost.
On February 14, 1999, KKM spudded Well #101, the first well drilled by the
Company in the Karakuduk Field. On April 29, 1999, KKM successfully completed
Well #101, which is currently undergoing extended production tests. Test results
will be announced as soon as they are available. KKM currently trucks all
production to the pipeline terminal at Say-Utes, over 89 km from the Field. KKM
11
1. Liquidity and Capital Resources (continued)
has received approval to begin trucking production to the pipeline terminal at
Station 6, approximately 30 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 trucking restrictions and the lack of certain production
facilities required for processing additional oil production for delivery to the
pipeline.
On April 21, 1999, KKM sold 13,000 tons (95,000 barrels) of crude oil on
the world export market, for approximately $850,000. KKM expects to nominate an
additional sale in early June, on either the local or export market. KKM will
nominate some or all of the available crude oil production in inventory
depending on the available terms at that time. As of May 17, 1999, KKM had
approximately 11,500 tons (84,000 barrels) of crude oil stored as inventory in
the KazTransOil pipeline. 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
Company.
On March 17, 1999, KKM retroactively amended its drilling contract with
Challenger Oil Services, PLC (Challenger), originally entered into on April 7,
1998. The Company is subject to the following terms of the amended contract:
Amount
------------
Operational rate $12,500/Day
Stand-by-rate with crews 11,250/Day
Stand-by rate without crews 8,500/Day
Rig move rate 20,000/Move
Rig demobilization (one time charge only) $250,000
Lease term 2 years
The owner of the drilling rig currently working in the Karakuduk Field, Oil
& Gas Exploration Company Cracow, Ltd., terminated its contract with Challenger,
subsequent to the amendment to the Challenger drilling contract with KKM. In
April, KKM notified Challenger of its request to begin arbitration proceedings
pursuant to the drilling contract. Drilling in the 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 continue its
drilling program.
On March 31, 1999, the Company requested and received an additional
extension to June 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 three additional
payments of $15,625. The Company expects to execute the contract on or before
June 30, 1999.
The Company has no other material commitments for cash outlays and capital
expenditures other than for normal operations.
2. Results of Operations
Three Months Ended March 31, 1999 Compared with the Three Months Ended March 31,
1998
The Company's operations during the three months ended March 31, 1999,
resulted in a net loss of $589,000 compared to a net loss of $1,012,000 for the
three months ended March 31, 1998.
12
2. Results of Operations (continue)
Interest income increased by $204,000 from the three months ended March 31,
1998, due to increased financing provided by CAP-G to KKM for the development of
the Karakuduk Field. Interest expense increased by $54,000 from the three months
ended March 31, 1998, due to $3,800,000 in various short-term borrowings made by
the Company during the quarter ended March 31, 1999 along with a $975,000 loan
outstanding originally borrowed by the Company in 1998.
General and adminstrative costs decreased by $444,000 from the quarter
ended March 31, 1998, due to a reduction in stock based compensation and
expiration of common stock warrants. Without consideration of stock-based
compensation , a non-cash item, general and administrative costs increased by
$55,000 from the quarter ended March 31, 1998. The Company's equity loss in KKM
increased by $205,000, related to increased operational costs associated with
the development of the Karakuduk Field.
Inflation.
The Company cannot control prices in its oil and gas sales, and to the
extent the Company is unable to pass on increases in operating costs, it may be
affected by inflation.
3. 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. After
consulting with major vendors, contractors, and technical field personnel, the
Company does not anticipate any material costs to result from Year 2000 problems
impacting the Company's operations.
Item 3 - Quantitative and Qualitative Disclosures About Market Risks
Not Applicable.
13
Part II - Other Information
Item 1 - Legal Proceedings
The owner of the drilling rig currently working in the Karakuduk Field, Oil
& Gas Exploration Company Cracow, Ltd., has terminated its contract with
Challenger Oil Services, PLC, the drilling contractor. On April 14, 1999, 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, subsequently, received notification of the beginning of
arbitration proceedings pursuant to the contract. Drilling in the 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
On January 15, 1998, the Company issued 16,667 shares of restricted common
stock to Dr. Jack Krug, the President and Chief Operating Officer of the
Company, of which 13,333 shares vest with respect to 3,333.25 shares on January
15, 2000, 2001, 2002, and 2003. The Company issued the common stock in reliance
upon the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended. The guarantor had available all material information
concerning the Company. The stock certificate bears an appropriate restrictive
legend under the Securities Act of 1933, as amended. No underwriter was involved
in the transaction.
On April 21, 1999, the Company approved a 1 for 60 reverse stock split
in a special meeting of the Company's shareholders, effective immediately. The
reverse stock split did not impact the rights of the Company's shareholders of
either the Common Stock or Series A Preferred Stock, except for reducing the
total number of shares outstanding. Each shareholder's proportional voting and
economic rights remained unchanged.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Employment agreement of Dr. Jack A. Krug dated January 15, 1999.
27 Financial Data Schedule
(b) Reports on Form 8-K
On April 29, 1999, the Company filed a current report on Form 8-K reporting
under Item 5 thereof a special meeting of the Company's shareholders to vote on
proposals for a 1 for 60 reverse stock split and reincorporation of the Company
from the state of Colorado to the State of Delaware.
14
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 17, 1999
Chaparral Resources, Inc.,
a Delaware corporation
By: /s/ Dr. Jack A. Krug
------------------------------------------
Dr. Jack A. Krug
President and Chief Operating Officer
By: /s/ Michael B. Young
------------------------------------------
Michael B. Young, Treasurer and Controller
And Principal Accounting Officer
15
Exhibit Index
10.1 Employment agreement of Dr. Jack A. Krug dated January 15, 1999.
27 Financial Data Schedule
16