-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IoBYtgdQy9acIXAZzF526VRzFWjRoomf6QjjzTecnB9NGHbNzjfs1rVlS1JUwrpb Tfvbiif9MTY8MHSUh5hP4g== 0000918402-96-000097.txt : 19960709 0000918402-96-000097.hdr.sgml : 19960709 ACCESSION NUMBER: 0000918402-96-000097 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19960708 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAPARRAL RESOURCES INC CENTRAL INDEX KEY: 0000019252 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 840630863 STATE OF INCORPORATION: CO FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-07779 FILM NUMBER: 96592066 BUSINESS ADDRESS: STREET 1: 621 17TH ST STE 1301 CITY: DENVER STATE: CO ZIP: 80293 BUSINESS PHONE: 3032932340 MAIL ADDRESS: STREET 1: 621 17TH STREET SUITE 1301 CITY: DENVER STATE: CO ZIP: 80293 S-1 1 REGISTRATION STATEMENT ON FORM S-1 As Filed with the Securities and Exchange Commission on July __, 1996. Registration No. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------- CHAPARRAL RESOURCES, INC. (Name of small business issuer in its charter) Colorado 1311 84-0630863 --------------------- --------------------------- ----------------- (State or jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or Classification Code Number) Identification No.) organization) PAUL V. HOOVLER 621 Seventeenth Street, Suite 1301 621 Seventeenth Street, Suite 1301 Denver, Colorado 80293 Denver, Colorado 80293 (303) 293-2340 (303) 293-2340 ----------------------------------------- ----------------------------------- (Address and telephone number of principal (Name, address and telephone number executive offices and address of principal of agent for service) place of business) With Copies to: Thomas S. Smith, Esq. Alan W. Peryam, Esq. Hopper and Kanouff, P.C. 1610 Wynkoop Street, Suite 200 Denver, Colorado 80202 (303) 892-6000 Approximate date of proposed sale to the public: As soon as practicable following the date on which the Registration Statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
CALCULATION OF REGISTRATION FEE ==================================================================================================================================== Proposed Maximum Proposed Maximum Amount of Title of Each Class of Amount to be Offering Price Aggregate Registration Securities To Be Registered(1) Registered Per Share Offering Price Fee - ------------------------------ --------------- ---------------- ----------------- ------------- Common Stock............................ 18,783,325 Shares(2) $ 1.50(3) $ 28,174,990 $ 9,715.51(3) Common Stock Underlying Warrants........ 1,802,000 Shares(4) $ 1.50(3) $ 2,704,000 $ 932.07(3) --------- Total XXX XXX XXX $10,647.58 ====================================================================================================================================
(1) In accordance with Rule 416, there are hereby being registered an indeterminate number of additional shares of Common Stock which may be issued as a result of the anti-dilution provisions of the Preferred Stock and Warrants or as a result of any future stock split or stock dividend. (2) Consists of shares of common stock ("Common Stock") previously issued in private placements, for private acquisitions or upon exercise of warrants issued in private placements. (3) The registration fee was calculated in accordance with Rule 457 (c) and is based on the average of the high and low prices of Registrant's Common Stock, as reported on the NASDAQ Small-Cap Market on July 1, 1996. (4) Registered for resale upon exercise of Warrant. Includes Common Stock underlying (i) purchase warrants ("Warrants") for 80,000 shares exercisable at $0.40, (ii) Warrants exercisable for 700,000 shares at $0.25, and (iii) Warrants exercisable for 1,022,000 shares at $0.0000097. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ii
CHAPARRAL RESOURCES, INC. Cross Reference Sheet PART I INFORMATION REQUIRED IN THE PROSPECTUS Item Number Form S-1 Item Number Caption or Location in Prospectus - ------ -------------------- --------------------------------- 1. Forepart of Registration Statement and Front of Registration Statement and Outside Outside Front Cover of Prospectus Front Cover of Prospectus 2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages of of Prospectus Prospectus 3. Summary Information and Risk Factors, and Prospectus Summary and Risk Factors Ratio of Earnings to Fixed Charges 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Price Not Applicable 6. Dilution Not Applicable 7. Selling Security Holders Selling Securityholders 8. Plan of Distribution Front Cover and Plan of Distribution 9. Description of Securities to be Registered Front of Registration Statement, Outside Front Cover of Prospectus and Description of Securities 10. Interests of Named Experts and Counsel Not Applicable 11. Information With Repect to Registrant (a) Description of Business Business (b) Description of Property Business--Properties (c) Legal Proceedings Not Applicable (d) Market Price of and Dividends on the Market Prices of Common Equity, Dividend Registrant's Common Equity and Related Policy and Related Stockholder Matters Stockholder Matters (e) Financial Statements Financial Statements (f) Selected Financial Data Prospectus Summary (g) Supplementary Financial Information Management's Discussion and Analysis of Financial Condition and Results of Operations` (h) Management's Dicsussion and Analysius of Management's Discussion and Analysis of Financial Condition and Results of Opera- Financial Condition and Results of Operations tions (i) Changes in and Disagreements with Accoun- Not Applicable tants on Accounting and Financial Disclosure (j) Directors and Executive Officers Management (k) Executive Compensation Executive Compensation (l) Security Ownership of Certain Beneficial Security Ownership of Certain Beneficial Owners and Management Owners and Management (m) Certain Relationships and Related Transac- Certain Transactions tions 12. Disclosure of Commission Position on Not Applicable Indemnification for Securities Act Liabilities
iii SUBJECT TO COMPLETION DATED JULY __, 1996 PROSPECTUS CHAPARRAL RESOURCES, INC. 20,585,325 Shares of Common Stock This Prospectus relates to the resale by the holders (the "Selling Securityholders") named herein, or the exercise or conversion of other securities of Chaparral Resources, Inc. ("Company"), of up to 20,585,325 shares of the $0.10 par value common stock ("Common Stock") of the Company, of which 18,783,325 shares are currently issued and outstanding, and 1,802,000 shares are issuable upon the exercise of outstanding warrants ("Warrants") to purchase shares of Common Stock. The Common Stock offered hereby for resale and the shares of Common Stock issuable upon exercise of Warrants were, or will be, issued in private transactions by the Company. See "Plan of Distribution" and "Selling Securityholders." The Company will not receive any proceeds from the sale of Common Stock by the Selling Securityholders. If all of the Warrants are exercised, of which there is no assurance, the Company would receive proceeds of up to approximately $207,000. There is no assurance that the all or any portion of the Warrants will be exercised. However, the holders of the Warrants will have to exercise the Warrants in order to sell the shares of Common Stock underlying the Warrants which are offered for resale hereby. ------------------------------------- FOR INFORMATION CONCERNING CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PURCHASERS OF THE COMMON STOCK OFFERED HEREBY AND BY PERSONS WHO EXERCISE WARRANTS, SEE "RISK FACTORS" COMMENCING ON PAGE 8 OF THIS PROSPECTUS. ------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is ________________, 1996 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance with the Exchange Act files periodic reports and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy and information statements and other information filed by the Company with the Commission can be inspected and copied (at prescribed rates) at the Commission's Public Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D. C. 20549, and at the Regional Offices of the Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048. In addition, reports, proxy statements and other information concerning the Company can be inspected and copied at the office of the National Association of Securities Dealers, Inc. 9513 Key West Avenue, Rockville, Maryland 20850-3389. The Company has filed with the Commission a registration statement (the "Registration Statement") under the Securities Act of 1933 (the "Securities Act") with respect to the securities offered hereby. This Prospectus, which is part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto, certain items of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the securities offered hereby, reference is hereby made to the Registration Statement and such exhibits and schedules. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements and related notes appearing elsewhere in this Prospectus. Certain oil and gas terms used in this Prospectus are defined in the Glossary at page 51. The Company Chaparral Resources, Inc. ("Company"), which was incorporated under the laws of the state of Colorado in 1972, is an independent oil and gas exploration and production company based in Denver, Colorado. Historically, the Company has produced and sold crude oil and natural gas to oil and gas purchasers in the immediate area where the oil and gas is produced. The Company owns, acquires and sells oil and gas leases and other mineral interests and drills and participates with others in drilling and operating oil and gas fields and wells. The Company attempts to obtain outside development capital on a joint venture basis and to share the risk of its drilling with others engaged in the oil and gas business by arranging farmouts to and from others. Most of the wells from which the Company currently is receiving production are owned only partially by the Company. Until 1994, the Company's oil and gas activities were concentrated solely in the United States. During early 1994, the management of the Company made a strategic decision to pursue international oil and gas projects, with initial emphasis on the Commonwealth of Independent States (the former Soviet Union). Due to its involvement in the Karakuduk Oil Field Project in Kazakstan ("Karakuduk Field" or "Karakuduk Project") described below, the Company divested its domestic working interest oil and gas properties other than one property located in western Colorado and various small overriding royalty interests in 85 producing wells located in Colorado, North Dakota and Wyoming, from which limited future revenue will be anticipated. See "Business--Markets." The Company has completed the acquisition of a net 45% beneficial interest in Karakuduk Munay Joint Venture ("KKM"), a Kazakstan joint stock company which holds a governmental license to develop the Karakuduk Oil Field, a 16,900 acre oil field in the Republic of Kazakstan which was discovered in 1972 with the drilling of 22 exploratory and development wells by the former Soviet Union. The Karakuduk Field has never been commercially produced. The Company plans to pursue the development and commercial production of expected reserves of oil. See "Properties." The Company's address is 621 Seventeenth Street, Suite 1301, Denver, Colorado 80293 and its telephone number is (303) 293-2340. 3
The Offering Common Stock Outstanding Prior to the Offering ....................... 37,376,517 shares Total Possible Shares of Common Stock Outstanding After the Offering ................................................... 39,178,517 shares including 1,802,000 shares issuable upon the exercise of various outstanding Warrants Use of proceeds ...................................................... Proceeds from any exercise of Warrants and options will be used by the Company for general corporate purposes Securities being offered by the Company .............................. 1,802,000 shares of Common Stock issuable upon the exercise of outstanding Warrants Securities being offered for resale by Selling Securityholders ...................................................... 20,585,325 shares of Common Stock; NASDAQ symbol ........................................................ CHAP for Common Stock - -------------------
The securities offered hereby involve a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. See "Risk Factors." 4 Selected Consolidated Financial Information The following selected consolidated financial information for the years ended November 30, 1991 through November 30, 1995, and for the three months ended February 28, 1995 and 1996, respectively, for the Company are derived from the financial statements of the Company and should be read in conjunction with the Consolidated Financial Statements appearing elsewhere in this Prospectus.
Three Months Ended February 28, Year Ended November 30, ------------------- ------------------------------------------------------------ 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- Oil and gas sales .............. $ 34,000 $ 84,000 $ 255,000 $ 374,000 $ 414,000 $ 492,000 $ 523,000 Total revenue* ................. 34,000 84,000 255,000 374,000 414,000 492,000 607,000 Noncash write-down of oil and gas properties ........... -- -- 619,000 416,000 230,000 -- -- Net (loss) ..................... (82,000) (9,000) (704,000) (474,000) (123,000) (121,000) (154,000) Net (loss) per common share ................. (0.00) (0.00) (0.04) (0.02) (0.01) (0.01) (0.01) Present value of proved reserves ..................... Not available Not available 427,000 1,084,000 1,360,000 1,429,000 1,643,000 Proved oil reserves (bbls) ..... Not available Not available 66,185 111,690 141,748 105,973 209,136 Proved gas reserrves (mcf) ..... Not available Not available 3,062,417 3,294,730 2,305,142 1,485,556 1,321,377 - -----------------------
*Certain reclassifications have been made to conform prior years' information with the current year presentation.
February 29, November 30, 1996 1995 Balance Sheet Data: ------------ ----------- Working capital .................................. $ 127,000 $ 366,000 Total assets ..................................... 6,531,007 5,595,000 Long-term obligations and deferred items ......... 793,000 461,000 Shareholders' equity ............................. 5,628,000 4,920,000
5 RISK FACTORS An inestment in the Company's Common Stock is speculative and involves a high degree of risk. The Common Stock should be purchased only by persons who are sophisticated in financial matters and business investments. The following factors, in addition to those discussed elsewhere in this Prospectus, should be considered carefully before purchasing Common Stock of the Company. 1. Financial Condition and Need for Additional Financing. The Company has incurred operating losses for each of its last five fiscal years, including a loss in excess of $700,000 for the most recent fiscal year, and a loss of $82,000 for the first quarter ending February 29 1996. The Company presently lacks financial resources to meet its expected cash requirements for the balance of the fiscal year. The Company does not have significant income-producing properties and one of its principal assets, an interest in the Karakuduk Field, is substantially undeveloped, and development will require substantial amounts of additional capital. The license to KKM specifies that a minimum work plan of approximately $10 million in 1996, $34 million in 1997 and $12 million in 1998 be established, which must be expended unless waivers or deferrals are obtained from the licensing authority. The Company's subsidiary must provide funds required by KKM to satisfy the work plan in order to maintain the Company's interest in the Karakuduk Project. The Company will be required to raise additional capital to finance the obligations under the license for the Karakuduk Project, and to satisfy working capital needs. The Company may seek to raise additional capital through debt or equity offerings, encumbering properties or entering into arrangements whereby certain costs of exploration or development will be paid by others to earn an interest in the properties. The present environment for financing of small oil and gas companies, or the ongoing obligations of an oil and gas business, or the acquisition of oil and gas properties, is uncertain due, in part, to the substantial instability in oil and gas prices in recent years. There can be no assurance that the additional debt or equity financing expected to be necessary to fund the Company's operations and obligations will be available to the Company on economically acceptable terms. If sufficient funds cannot be raised to meet the Company's obligations with respect to the Karakuduk Project, its interest in such property might be adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company" and "Properties." 2. Risks Inherent in Oil and Gas Exploration. There can be no assurance that the Company, through KKM, will be able to discover, develop and produce sufficient reserves in the Karakuduk Field, or elsewhere, to recover the expenses incurred in connection with the exploration thereof and achieve profitability. The odds against discovering commercially exploitable oil or gas reserves are always substantial and, in the case of the Company, will be increased as a result of the concentration of its activities in areas that have not yet been significantly explored and where political or other unknown developments could adversely affect commercialization. The Company, through KKM, will be required to perform expensive geological and/or seismic surveys with respect to its properties and, depending on the results of such surveys, only subsequent drilling at substantial cost and high risk can determine whether commercial development of the properties is feasible. Oil and gas drilling is frequently marked by unprofitable efforts, not only from unproductive wells, but also from productive wells which do not produce sufficient amounts to return a profit on the amount expended, and from developed oil or natural gas reserves which cannot be marketed. The Company will be subject to all of the risks normally incident to drilling for and producing oil and gas, including such events as blowouts, cratering, fires or accidents, any of which could result in damage to or loss of life and property. In accordance with industry practice, the Company is not fully insured against these risks, nor are all such risks insurable. 3. Risks Inherent in Foreign Operations. Because of the Company's interest in KKM and the Karakuduk Project, the Company will be subject to certain risks inherent in the ownership and development of foreign properties, including without limitation, cancellation or renegotiation of contracts, royalty increases, tax increases, retroactive tax claims, expropriation, adverse changes in currency values, foreign exchange controls, import and export regulations, environmental controls, and other laws and regulations which may adversely affect the Company's interest in the Karakuduk Project. The Company's operations and agreements will also be governed by laws of the Republic of Kazakstan and other foreign and international law. In the event of a dispute, the Company may 6 be subject to the exclusive jurisdiction of foreign courts or arbitration tribunals, or may not be successful in subjecting foreign persons to the jurisdiction of courts in the United States. In addition, the Company might be hindered or prevented from enforcing its rights with respect to a government agency, instrumentality or other entity because of various foreign laws or practices. The Company has no prior experience operating in any foreign country, including the Republic of Kazakstan, and may encounter unexpected difficulties in conducting foreign operations. Although the Company believes that the recent and continuing political, social and economic developments in Kazakstan have created opportunities for foreign investment, uncertainty continues to exist about the economic stability of the Commonwealth of Independent States, including the Republic of Kazakstan. The Company has endeavored to protect itself from certain risks by seeking reasonable political risk insurance against certain political and commercial risks, but there is no certainty that the steps taken will provide adequate protection to the Company's endeavors in Kazakstan. See "Business--Risks of Foreign Operation." 4. Risks of Joint Ventures; Risks Associated With Indirect Investments. The exploration and development of the Company's Kazakstan property is governed by the terms of an agreement (the "1995 Agreement") between KKM and the Ministry of Oil and Gas Industry for Kazakstan, a license issued June 28, 1995 to KKM (the "Kazakstan License") from the Republic of Kazakstan, and the terms of a joint venture agreement between Central Asian Petroleum Guernsey Limited ("CAP-G") and KKM. CAP-G is presently owned 90% by the Company and the Company has an option to acquire the balance of CAP-G by December 1997. The 1995 Agreement requires KKM to advance 100% of the costs required for development of the Karakuduk Field and the joint venture agreement requires CAP-G to loan to KKM all such costs. There can be no assurance that the minority stockholder of CAP-G, or any successor, will contribute or will be in a position to contribute his proportionate share of costs and expenses for either entity. The Company expects to assume all financing obligations or risk the forfeiture of the property. The 1995 Agreement and the Kazakstan License include numerous requirements which must be met to maintain the interest in the Karakuduk Field. In addition, the Company's ability to utilize any revenue generated by the successful development of the Karakuduk Field and marketing of any petroleum produced, held indirectly and beneficially by the Company through CAP-G and KKM, may be limited. Limitations may result from governmental or other restrictions which may prevent or inhibit shipment or sale of petroleum products produced, or the distribution of funds from KKM to CAP-G or from CAP-G to the Company. See "Business--Karakuduk Project." 5. Competition. Oil and gas exploration is extremely competitive. The Company must compete with many long-established oil companies and with independent operators in acquiring properties both in and out of the United States suitable for exploration, in contracting for drilling, equipment, such as drilling rigs, and in securing trained personnel, particularly in Kazakstan. There can be no assurance that the Company will be able successfully to compete for the services and supplies necessary to develop its properties. 6. Markets. There is substantial uncertainty as to the prices at which reserves of oil and gas produced by the Company, if any, may be sold. It is possible that, under the market conditions prevailing in the future, the production and sale of oil or natural gas from the Karakuduk Field may not be commercially feasible. The availability of a ready market and the price obtained for oil and gas produced depends upon numerous factors beyond the control of the Company. The current market for oil and gas is characterized by instability which has caused fluctuations in both oil and gas prices in recent years and there can be no assurance of any price stability in the near future. 7. Limitations on Accuracy of Reserve Estimates. This Prospectus and the Consolidated Financial Statements include unaudited information concerning the Company's estimated oil and gas reserves. Estimates of reserves may vary substantially depending, in part, on the assumptions made and may be subject to adjustment either up or down in the future. The actual amounts of production, revenue, taxes, development expenditures, operating expenses, and quantities of recoverable oil and gas reserves to be encountered may vary substantially from the estimates. Oil and gas reserve estimates are necessarily inexact and involve matters of subjective engineering judgment. In addition, the Company's reserves may be subject to downward or upward revision, based upon production history, results of future exploration and development, prevailing oil and gas prices and 7 other factors. If these estimates of quantities, prices and costs prove inaccurate, the Company is unsuccessful in expanding its oil and gas reserves base with its capital expenditure program, and/or declines in and instability of oil and natural gas prices occur, then writedowns in the capitalized costs associated with the Company's oil and gas assets may be required. Investors should also note the different categories of reserves and that the category of "proved undeveloped" reserves carries substantially more risk than the category of "proved developed" reserves. In the case of the Karakuduk Field, the Company does not consider any reserves of oil and gas to be proven and does not include in its other estimates of proven reserves any amount attributable to the Karakuduk Field. 8. Development Risks and Production. A portion of the Company's oil and gas reserves are proved undeveloped reserves. Successful development and production of such reserves, although they are categorized as "proved," cannot be assured. Additional drilling will be necessary in future years both to maintain production levels and to define the extent and recoverability of existing reserves. There is no assurance that the proposed oil and gas wells of the Company will produce at anticipated rates of production, that development drilling will be successful, that production of oil and gas will commence when expected, that there will be favorable markets for oil and gas which may be produced in the future or that production rates achieved in early periods can be maintained. 9. Price Volatility. The revenues generated by the Company and estimated future net revenue are highly dependent upon the prices of oil and natural gas. The energy market makes it difficult to estimate future prices of oil and natural gas. For instance, the price of oil dropped from approximately $18.00 per barrel as of November 30, 1992, to less than $12.00 per barrel as of November 30, 1993. The Company's average collected price for oil in 1994 was $12.75 per barrel and for natural gas was $1.44 per thousand cubic feet ("mcf") and for 1995 was $14.27 and $1.02, respectively. On June 1, 1996, the posted price for oil near the Company's one domestic producing property was $20 per barrel and for natural gas was approximately $1.05 per mcf. The reserve valuations shown in the Prospectus are based on the November 30, 1995 prices of $15.50 per barrel of oil and $1.00 per mcf of natural gas. Various factors beyond the control of the Company affect prices of oil and natural gas, including worldwide and domestic supplies, and demand for, of oil and natural gas, the ability of the members of the Organization of Petroleum Exporting Countries ("OPEC") to agree to and maintain oil price and production controls, political instability or armed conflict in oil-producing regions, the price of foreign imports, the level of consumer demand, the price and availability of alternative fuels, the availability of pipeline capacity and changes in existing federal regulation and price controls. As in the past, it is likely that oil and gas prices will continue to fluctuate in the future which may adversely affect the Company's business. 10. Government Regulation and Environmental Risks. The production and sale of gas and oil are subject to a variety of federal, state and local government regulations, including regulations concerning the prevention of waste, the discharge of materials into the environment, the conservation of natural gas and oil, pollution, permits for drilling operations, drilling bonds, reports concerning operations, the spacing of wells, the unitization and pooling of properties, and various other matters, including taxes. Many jurisdictions have at various times imposed limitations on the production of gas and oil by restricting the rate of flow for gas and oil wells below their actual capacity to produce. In addition, many states have raised state taxes on energy sources and additional increases may occur, although increases in state energy taxes would have no predictable effect on natural gas and oil prices. In Kazakstan, the Company expects to encounter a myriad of government and political regulation. The Company believes it is in substantial compliance with applicable environmental and other government laws and regulations, however, there can be no assurance that significant costs for compliance will not be incurred in the future. The production and sale of oil and natural gas are subject to various federal, state and local governmental regulations, which may be changed from time to time in response to economic or political conditions. Matters subject to regulation include discharge permits for drilling operations, drilling bonds, reports concerning operations, the spacing of wells, unitization and pooling of properties, taxation and environmental protection. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve supplies of oil and gas. State statutes, rules and regulations affecting oil and gas companies may, if changed as proposed by certain interest groups, render drilling in certain locations more expensive or 8 uneconomical due to increased surface owner compensation and bonding requirements or environmental regulatory constraints. At present, it cannot be determined to what degree stricter regulations would adversely impact the Company's operations. Various federal, state and local lows and regulations covering the discharge of materials into the environment, or otherwise relating to the protection of the public health and the environment, may affect the Company's operations, expenses and costs. Moreover, the recent trend toward stricter standards in environmental legislation and regulations is likely to continue. Legislation and regulations concerning the disposal of oil and gas waste and to implement the federal Clean Air Act have been adopted by various states, and may impose further regulatory restrictions and reporting requirements which could adversely impact the Company's operating costs. 11. Dependence On Management. The Company is dependent upon the expertise and abilities of its current officers. If the Company loses the services of any one of its officers as a result of disability, death, or otherwise, its business could be adversely affected until a replacement could be found. 12. No Dividends. The Company has paid no cash dividends on its Common Stock since incorporation. At the present time, the Company does not anticipate paying any dividends on its Common Stock in the foreseeable future. Any future dividends will depend upon the earnings, if any, of the Company, its financial requirements and other factors. 13. Outstanding Warrants. As of June 1, 1996, the Company had outstanding warrants entitling the holders to purchase a total of 2,802,000, shares of the Company's Common Stock. The exercise prices of the outstanding warrants range from $0.00001 per share to $0.40 per share. The holders of the outstanding warrants might have the opportunity to profit from a rise in the market price (of which there is no assurance) of the shares of the Company's Common Stock underlying the warrants, and their exercise may dilute the ownership interest in the Company held by other shareholders. Shares of Common Stock underlying all outstanding warrants have been registered for resale. Resales of Common Stock issued upon exercise of warrants could adversely effect the market price for Common Stock. USE OF PROCEEDS The Company has allocated the net proceeds, if any, from exercise of the Warrants for general corporate purposes. Pending use of the proceeds, the Company may invest the funds in short-term money market, government and federal agency obligations, bank certificates of deposit and savings deposits. It is uncertain when, if ever, the Company will receive proceeds from exercise of the Warrants. See "Selling Securityholders," "Description of Securities" and "Plan of Distribution." MARKET PRICES OF COMMON EQUITY, DIVIDEND POLICY AND RELATED STOCKHOLDER MATTERS The Company's $0.10 par value common stock trades on the Nasdaq Small-Cap Market under the symbol CHAR. At June 1, 1996, the Company had approximately 2,100 shareholders of record of its $0.10 par value common stock. No dividend has been paid on the Company's common stock, and there are no plans to pay dividends in the foreseeable future. The following table shows the range of high and low "real-time" trade prices for each quarter during the Company's last two fiscal years ended November 30, 1995, as reported by the National Association of Securities Dealers, Inc.
Price Range Trading Range ------------- Fiscal Quarter Ended High Low -------------------- ----- ---- February 28, 1994 .............. 11/32 1/4 May 31, 1994 ................... 9/32 1/4 August 31, 1994 ................ 15/32 9/32 November 30, 1994 .............. 29/32 11/32 9 Price Range Trading Range --------------- Fiscal Quarter Ended High Low -------------------- ----- ---- February 28, 1995.............. 23/32 5/8 May 31, 1995 .................. 7/8 21/32 August 31, 1995................ 11/16 15/32 November 30, 1995.............. 1 1/2 February 28, 1996.............. 1 11/32 11/16 May 31, 1996................... 1 11/32 1 1/32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY Liquidity and Capital Resources The Company's primary source of capital historically has been from oil and gas sales. The Company had working capital of approximately $127,000 at February 29, 1996, for a working capital ratio of 2.2 to 1, a decrease from $366,000 at November 30, 1995 (working capital ratio of 1.7 to 1). Net cash and cash equivalents decreased $282,000 from November 30, 1995 to February 29, 1996, primarily due to costs of acquiring additional ownership of Central Asian Petroleum Guernsey Limited ("CAP-G") which owns a 50% interest in KKM, the holder of oil and gas properties in Kazakstan. In January and February 1996, the Company entered into agreements to acquire an additional 55% interest in CAP-G for a total of $5,850,000 cash and 1,785,000 shares of the Company's common stock. The acquisitions will ultimately increase the Company's ownership of CAP-G to 100%, thus increasing to 50% the Company's beneficial ownership interest in KKM and the Karakuduk Field. The other 50% interest in KKM and the Karakuduk Field is owned by Kazakstan government controlled entities. The additional 55% of CAP-G includes the purchase of all of the CAP-G shares owned by Darka Petrol Ticaret Limited Sirketi, a private Turkish company("Darka") in one transaction, and by Guntekin Koksal, an individual CAP-G shareholder ("Koksal") in two separate transactions. Darka and Koksal each owned 25% of the CAP-G shares outstanding. The Company paid $2,000,000 in cash and issued 685,000 shares of the Company's common stock to Darka for all of Darka's CAP-G shares. The Company will pay a total of $1,975,000 in cash and has issued 900,000 shares of the Company's common stock to Mr. Koksal for 60% of his CAP-G shares (15% of CAP-G). The Company also has an option, after completion of the initial purchase, to acquire the remaining 10% of CAP-G shares owned by Mr. Koksal for an additional $1,625,000 cash and 200,000 shares of the Company's common stock at any time following completion of the initial purchase and prior to December 11, 1997. The Company has a remaining cash balance of $919,000 for the initial purchase, which will be paid in three equal quarterly payments of $306,250 between September 11, 1996 and March 11, 1997. In April 1996 the Company also acquired 5% of CAP-G shares from a private corporation in the United States for $250,000. With the completion of the foregoing transactions the Company's beneficial ownership interest in CAP-G increased to 90% and its beneficial ownership interest in KKM and the Karakuduk Field to 45%. 10 The Company does not have significant income producing properties and the Karakuduk Field is substantially undeveloped. The development of the Karakuduk Field, through KKM, will require substantial amounts of additional capital. The terms of the license held by KKM require annual work plans of approximately $10 million in 1996, $34 million in 1997 and $12 million in 1998 which requirements may be waived or modified only by the licensing authority. The Company's subsidiary, CAP-G, must advance all of the amounts necessary to complete the work plan for the Karakuduk Field development. Approximately $1.77 million has been paid through June 1996, and the balance of amounts necessary to complete the 1996 development work is to be paid by CAP-G during 1996. The Company is the sole source of funds for CAP-G. The Company also expects substantial additional annual expenditures of approximately $1.0 million per year or more for political risk insurance. See "Business--Risks of Foreign Operations." KKM will notify the Company of CAP-G's additional capital requirements on an as needed basis. In January 1996, the Company received $300,000 in proceeds from two private unsecured loans from two private investors which were applied towards CAP-G acquisition costs. In April 1996, the two note holders converted their promissory notes into 600,000 shares of the Company's common stock. On April 8, 1996, the Company completed a private placement of 14,000,000 shares of the Company's common stock for gross proceeds of $7,000,000. In connection with the private placement, the Company issued a warrant to purchase 1,022,000 shares of the Company's common stock for a nominal amount to the placement agent and paid $21,849 of the placement agent's expenses. To date, the Company has used the $6,978,151 of net proceeds from the private placement to complete the acquisitions of CAP-G described above, to repay borrowings and to pay a portion of CAP-G's share of the second quarter budget for the Karakuduk Field. The Company estimates that the balance of the net proceeds will be used to make the 1996 payments due Mr. Koksal to complete the initial purchase of stock of CAP-G, to pay the Company's remaining portion of the second quarter budget for the Karakuduk Field and for working capital and other corporate purpose. The Company's present cash and other capital resources will not be sufficient to fund the obligations of CAP-G to pay the Karakuduk Field development expenses expected to be incurred by KKM. 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 Field and to satisfy working capital needs in the short term. The Company plans to meet its additional capital needs through debt or equity offerings, encumbering properties or 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 Project. The present environment for financing the acquisition of oil and gas properties or the ongoing obligations of an oil and gas business is uncertain due, in part, to the substantial instability in oil and gas prices in recent years. The Company's small size and the early stage of development of the Karakuduk Project may also increase the difficulty in raising needed financing. There can be no assurance that the debt or equity financing expected to be necessary to continue to fund the Company's operations and obligations will be available to the Company on economically acceptable terms. If sufficient funds cannot be raised to meet the continuing obligations with respect to the Karakuduk Project, the Company's interest in such property might be adversely affected. The Company has no other material commitments for cash outlay and capital expenditures other than for normal operations. Results of Operations for the Three Months Ended February 29, 1996 and 1995 The Company's operations resulted in a net loss of $82,000 for the three months ended February 29, 1996 compared to a net loss of $9,000 during the same period in 1995. 11 Revenues from oil and gas sales decreased $50,000 or 59.5% due to lower natural gas prices, certain producing properties being shut-in due to pricing and sale or abandonment of certain producing properties during 1995. Costs and expenses increased $9,000 or 9.9%. Production costs for the period were offset by reimbursement of production taxes from certain natural gas producing properties. Depreciation and depletion decreased by 46.7% to $16,000 as a result of the write-down of oil and gas properties in fiscal year-end 1995, sale of certain producing properties and shut-in of certain producing properties due to lower natural gas prices. General and administrative expenses increased $62,000 or 281.8% due primarily to costs related to the operation of the Company's interest in the Karakuduk Field. Interest expense increased to $19,000 due to interest paid by the Company on certain promissory notes. Results of Operations Fiscal 1995 Compared with Fiscal 1994 The Company's operations during fiscal 1995 resulted in a loss of $719,000 primarily due to a noncash write-down of oil and gas properties of $619,000 for fiscal 1995. Due to the noncash write-down, the net loss for fiscal 1995 was $704,000 compared to a net loss of $474,000 during fiscal 1994. The noncash write-down was primarily the result of the decreased value of estimated future net values of proved reserves due to lower gas prices during the fourth quarter of fiscal 1995 (see Note M, Notes to Consolidated Financial Statements), and the sale of proved reserves during 1995. Revenue from oil and gas sales decreased $119,000 or 31.8% from $374,000 in fiscal 1994 due to lower production, lower crude oil and natural gas prices and sale or abandonment of certain producing properties. Costs and expenses increased $91,000, or 20.4% during fiscal 1995, excluding the noncash write-down of oil and gas properties. Production costs decreased by 50.4% to $115,000 in fiscal 1995 due to the sale of certain properties and shut-in of certain properties due to lower natural gas prices. Depreciation and depletion also decreased by 38.3% to $74,000 for the same reasons that production decreased. General and administrative expenses increased $72,000, or 76.6% in fiscal 1995 due to the costs related to the acquisition and operation of the Company's interest in the Karakuduk Field. Results of Operations Fiscal 1994 Compared with Fiscal 1993 The Company's operations resulted in a loss of $488,000 in fiscal 1994 due to a noncash write-down of oil and gas properties of $416,000 for fiscal 1994. Due to the noncash write-down, the net loss for fiscal 1994 was $474,000 compared to a net loss of $123,000 for fiscal 1993. The noncash write-down was primarily the result of the decreased value of estimated future net values of proved reserves due to lower gas prices during the fourth quarter of fiscal 1994. The charge will reduce future depletion expenses. Revenues from oil and gas sales in fiscal 1994 decreased by $40,000 or 9.7% from $414,000 in fiscal 1993 due to lower crude oil and natural gas prices. In fiscal 1994 costs and expenses increased by $42,000, or 10.4% excluding the $416,000 noncash write-down of oil and gas properties. Production costs increased by 25.4% to $232,000 in fiscal 1994 due to additional production taxes as a result of a federal audit and new wells placed on production. Depreciation and depletion decreased by 4.0% to $120,000 in fiscal 1994 due to the abandonment of certain producing oil and gas properties, sale of certain producing oil and gas properties and the noncash write-down of oil and gas properties. General and administrative expenses remained the same. Inflation. The Company cannot control prices in its oil and gas sales and to the extent the Company is unable to pass on increases in operating costs, it may be affected by inflation. 12 Quarterly Results The following table presents selected unaudited quarterly operating results for the first quarter of fiscal 1994 through the first quarter of fiscal 1996. The Company believes that all necessary adjustments have been included in the amounts stated below to present fairly the quarterly results when read in conjunction with the Company consolidated financial statements and related notes included elsewhere in this Prospectus. Results of operations in any particular quarter are not necessarily indicative of results of operations for a full year or predictive of future results.
Fiscal 1996 Fiscal 1995 Fiscal 1994 ----------- ----------------------------- ---------------------------- 1st($) 1st($) 2nd($) 3rd($) 4th($) 1st($) 2nd($) 3rd($) 4th($) ----- ----- ----- ----- ----- ----- ----- ----- ----- (in thousands, except per share information) Revenue ............ 34 84 52 64 55 103 94 95 82 Income/(loss) from operations ....... (66) (7) (45) 23 (71) (13) (107) 6 42 Income (loss) before write- down of oil and gas properties ....... (82) (9) (1) 27 (102) (12) (66) 33 (13) Write-down of oil and gas properties ....... 0 0 0 0 (619) 0 0 0 (416) Net income/ (loss) ........... (82) (9) (1) 27 (721) (12) (66) 33 (420) Income/(loss) per share ........ (.004) (.001) (.00) .001 (.04) (.001) (.004) .002 (.03)
13 BUSINESS OF THE COMPANY Business Chaparral Resources, Inc. ("Company"), which was incorporated under the laws of the state of Colorado in 1972, is an independent oil and gas exploration and production company based in Denver, Colorado. Historicall , the Company has produced and sold crude oil and natural gas to oil and gas purchasers in the immediate area where the oil and gas is produced. The Company owns, acquires and sells oil and gas leases and other mineral interests and drills and participates with others in drilling and operating oil and gas fields and wells. The Company attempts to obtain outside development capital on a joint venture basis and to share the risk of its drilling with others engaged in the oil and gas business by arranging farmouts to and from others. Most of the wells from which the Company currently is receiving production are owned only partially by the Company. Until 1994, the Company's oil and gas activities were concentrated solely in the United States and the Company's remaining working interest property in the United States is in the South Douglas Creek Field in the Piceance Creek Basin of western Colorado, an area of multi-pay natural gas production. During early 1994, the management of the Company made a strategic decision to pursue international oil and gas projects, with initial emphasis on the Commonwealth of Independent States (the former Soviet Union). Due to its involvement in the Karakuduk Oil Field Project in Kazakstan ("Karakuduk Field" or "Karakuduk Project") described below, the Company divested its domestic working interest oil and gas properties other than one property located in western Colorado. The Company also holds overriding royalty interests ranging from 0.03% to 10% in 85 producing wells located in Colorado, North Dakota and Wyoming, from which revenue will be anticipated. See "Business--Markets." The Company will continue to operate the South Douglas Creek Field, incurring revenue and operating expenses, and will continue to receive revenue from producing wells. The South Douglas Creek Field contains 26 producing wells. During 1995 the combined flow rate of these wells has averaged 2,232 MCF of natural gas per day. The Company operates the 11,000 acre South Douglas Creek Field and has an average of fifteen percent (15%) working interest in the field area. The Company expects the South Douglas Creek Field to continue to be a major area for development for the Company with more than 60 additional locations in 10 sections (approximately 6,400 acres) identified for possible drilling on 160-acre spacing. Drilling and gas gathering line construction are limited to summer and fall months due to the rugged topography and high ground elevations. Major natural gas pipeline systems are in place in the field and multiple gas marketing opportunities exist to sell new production. Karakuduk Project In early September 1994, the Company signed a letter of intent with Central Asian Petroleum, Inc., a Delaware corporation ("CAP-D"), and Overseas Consulting Services Company, Inc. ("OCSCO"), both private companies based in Houston, Texas, to jointly pursue the registration and development of the Karakuduk Field, a shut-in oil field in the Republic of Kazakstan in central Asia, discovered in the early 1970s but never placed in production. In mid-September 1994, the Company acquired a 25% interest in Central Asian Petroleum Guernsey Limited ("CAP-G"), with headquarters in Ankara, Turkey. CAP-G has a 50% interest in Karakuduk Munay, Inc., a Kazakstan joint stock company ("KKM"), which holds the right to develop the Karakuduk Field. In April 1995, the Company acquired all of the stock of CAP-D, which also owned an interest in CAP-G, in exchange for 4,250,000 shares of the Company's Common Stock, 3,250,000 of which are held in an escrow account to be released from time to time through June 30, 2000, upon the occurrence of certain events related to development of the Karakuduk Field. See "Certain Relationships and Related Transactions." In April 1996, the Company completed transactions in which it acquired an additional 45% interest in CAP- G, with the option to increase its ownership in CAP-G to 100%, thus increasing to 50% the Company's beneficial ownership in KKM and the Karakuduk Field. The other 50% ownership in the Karakuduk Field is held 14 by three Kazakstan government controlled entities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company." An agreement in 1993 with an agency of the Kazakstan government originally gave KKM its rights to develop the Karakuduk Field. The 1993 agreement was replaced with an agreement dated August 30, 1995 between KKM and the Kazakstan Ministry of Oil and Gas Industry ("1995 Agreement"). In the meantime KKM had on June 28, 1995 received a license from the Republic of Kazakstan to develop the Karakuduk Field ("Kazakstan License"). CAP-G became a 50% owner of KKM in 1995 by agreeing to loan to KKM the funding required to develop the Karakuduk Field and place it into production, which undertakings, among others, were set forth in the KKM Articles of Association and a Founders Agreement in early 1995 (hereafter together referred to as the "KKM Articles"). A portion of CAP-G's obligation is being satisfied by furnishing certain consulting services to KKM for credit to the funding obligation. The Company expects that it shall be in a position to advance to CAP-G all amounts required for KKM to complete the amount of work necessary to maintain the Kazakstan License described below through 1996. The Kazakstan License grants to KKM the right to use the subsurface for exploration and production of hydrocarbons at the Karakuduk Field to a depth of 3,320 meters, the depth of the known petroleum reservoirs and requires evaluation and exploration through 1998 under work plans to expend $10 million in 1996, $34 million in 1997 and $12 million in 1998. All amounts budgeted through the second quarter of 1996 by KKM for such work plans have been provided. It is not now known whether KKM will be in a position to meet the minimum work plans requirements during 1996 or 1997 due in substantial part to delays in obtaining all of the remaining governmental permits, approvals, certificates and confirmations (hereafter "Government Permits"), a majority of which have been obtained. The 1995 Agreement authorizes KKM to defer the minimum work plan if KKM is unable to export production from the Karakuduk Field, a provision which is not included in the Kazakstan License. The Kazakstan 1995 Petroleum Law, adopted July 1, 1995, provides that provisions of such contracts which contradict a license are invalid and the government of Kazakstan may not permit a deferral based on that provision of the 1995 Agreement. However, assuming that KKM is continuing to take reasonable steps to obtain the remaining necessary Government Permits to enable KKM to commence work in the Karakuduk Field, the lack thereof should constitute force majeure and allow deferral of at least a portion of the minimum work plan. The 1995 Agreement provides that all production from the Karakuduk Field shall go to KKM subject to an 8% royalty to the Republic of Kazakstan, an export duty on exported petroleum products, applicable land taxes, usage payments to surface right holders and similar obligations. The 1995 Agreement also clarifies the right of CAP-G, a named third party beneficiary, to be repaid all amounts loaned to KKM to fund the minimum work plan, together with interest, on a quarterly basis, out of 65% of KKM's gross revenue after payment of government royalties. The 1995 Agreement also establishes certain rights for KKM to operate the Karakuduk Field, to use domestic and export transportation and pipeline systems, obtain export quotas and licenses and credit against other value added taxes ("VAT") from a portion of export sales prices received, the right to receive world market prices for all Kazakstan domestic sales of production from the Karakuduk Field, and other provisions common to such agreements. The term of the 1995 Agreement is 30 years, while the Kazakstan License has a 25 year term. The KKM Articles set forth a number of provisions which establish that CAP-G holds 50% of the shares of KKM, obligate CAP-G to loan to KKM all amounts necessary to develop the Karakuduk Field which cannot be met by self-generated income of KKM, and obligate KKM to repay CAP-G consistent with the provisions of the 1995 Agreement. CAP-G is entitled to four (of a total of eight) members of the KKM board and to control the work program and budget of KKM until amounts loaned by CAP-G, together with interest, have been repaid, subject to KKM's obligations to discharge its minimum work plan obligations under the Kazakstan License. CAP-G has an effective veto on all other KKM business as the KKM Articles required the vote of five board members or a majority of KKM shares to approve matters presented to the board or KKM shareholders. 15 Presently, the KKM Articles delegates to the board the right to determine the payment of dividends to shareholders. The KKM Articles must be registered with the Minister of Justice of Kazakstan prior to January 1, 1997, which may require the KKM Articles to be revised to comply with certain Kazakstan legislation, including delegation of determinations regarding dividends to shareholders. The Company and CAP-G might, therefore, ultimately be unable to require KKM to distribute profits, if any, earned by KKM from production from the Karakuduk Field. Other changes to the KKM Articles could also be required to properly register the Articles under the legislation, some or all of which could have an adverse affect on the rights of CAP-G. Under present law dividends would be subject to a 15% dividend tax by the Republic of Kazakstan. The 1995 Agreement, Kazakstan License and KKM Articles all contain provisions requiring disputes to be resolved by arbitration in various international arbitration forums. The Kazakstan government has granted a license and entered into a contract with another entity which might give the entity the exclusive rights to develop a portion of the Karakuduk Field at depths below 3,320 meters, a depth which is presently unexplored. The existence of such rights would limit any right of KKM to explore for or develop any reserves below the depth set forth in its Kazakstan License. The exploration and development of the Karakuduk Field is also governed by the 1995 Petroleum law and other legislation recently adopted or under consideration in Kazakstan, and the terms of agreements with the other shareholder of CAP-G and the joint venture agreement between CAP-G and KKM. There can be no assurance that the CAP-G minority shareholder will contribute or will be in a position to contribute his proportionate share of costs and expenses for which he may be responsible. In addition, the Company's ability to utilize any revenue generated by the successful development of the Karakuduk Field held through CAP-G and KKM may be limited. Such limitations may result from governmental restrictions which may prevent or inhibit the distribution of funds from KKM to CAP-G or from CAP-G to the Company. See "Properties--Karakuduk Field." Uzbekistan Project The Company has been negotiating an agreement pursuant to which the Company would acquire 100% of the issued and outstanding capital stock of MD International Petroleum, Inc. ("MDI"), a private company of which the shareholders include four directors of the Company (Messrs. Karren, Dilling, Jeffs and McGee). At the time of the acquisition, the only asset of MDI would be a 2% to 5% ownership interest in a joint venture that Enron Oil & Gas Uzbekistan Inc. is attempting to negotiate for the development of natural gas fields in Uzbekistan. It is currently contemplated that, if the agreement is consummated, the Company would issue MDI's shareholders approximately 6,000,000 shares of the Company's restricted common stock in exchange for their MDI shares. Of these shares, the Company anticipates that approximately 1,000,000 shares would be issued at closing and the balance over a four to five year period, depending upon the occurrence of certain events. There are no assurances that the Company will be able to consummate the agreement to acquire the shares of MDI or that Enron Oil & Gas Uzbekistan Inc. will be able to consummate a joint venture or other arrangement for the natural gas fields in Uzbekistan. See "Certain Relationships and Related Transactions." Risks of Foreign Operations Because of the Company's interest in KKM and the Karakuduk Field, the Company will be subject to certain risks inherent in the ownership and development of foreign properties, including without limitation, cancellation or renegotiation of contracts, royalty increases, tax increases, retroactive tax claims, expropriation, adverse changes in currency values, foreign exchange controls, import and export regulations, environmental controls, and other laws and regulations which may adversely affect the Company's interest in the Karakuduk Field. The Company's operations and agreements will also be governed by foreign laws. In the event of a dispute, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting 16 foreign persons to the jurisdiction of courts in the United States. In addition, the Company might be hindered or prevented from enforcing its rights with respect to a government instrumentality because of the doctrine of sovereign immunity. The Company has no prior experience operating in any foreign country, including the Republic of Kazakstan, and may encounter unexpected difficulties in conducting foreign operations. Although the recent and continuing political, social and economic upheavals in Kazakstan have created opportunities for foreign investment, substantial uncertainty exists about the stability of the central Kazakstan government, the status of Kazakstan law and the autonomy of the parties involved with the Company in Kazakstan. The Company has endeavored to protect itself against the political and commercial risks, but there is no certainty that the steps taken will provide adequate protection. In this regard, the Company has applied with Overseas Private Investment Corporation ("OPIC") for political risk insurance. OPIC insurance has coverages for the following political risks, for the life of the project: o Currency Inconvertibility--deterioration of the investor's ability to convert profits, debt service and other remittances from local currency unto U.S. dollars; o Expropriation--loss of an investment due to expropriation, nationalization or confiscation by a foreign government; o Political Violence--loss of assets or income due to war, revolution, insurrection or politically motivated civil strife, terrorism and sabotage; and o Interference With Operations--loss of assets or income due to cessation of operations lasting six months or more caused by political violence. The Company has applied with OPIC for all four political risk coverages on the Company's investment in the Karakuduk Project in western Kazakstan. The yearly premiums for each coverage will be determined once the actual contract of insurance is issued to the Company, and would probably exceed $1 million per year once the project is underway. Under the terms of OPIC's Expropriation and Interference With Operations insurance coverage, the Company must be able to transfer to OPIC the shares of beneficial interests related to the insured investment, free and clear of all encumbrances. There are certain restrictions on the transfer of shares and assignment of the Company's beneficial interests in KKM. The Company is seeking a waiver of the transfer restrictions from the shareholders of KKM and does not anticipate problems in obtaining the waiver. The Investment Committee of OPIC approved the Company's Karakuduk operations for political risk insurance coverage by OPIC in December 1995. The Company expects to receive the actual Contract of Insurance proposed by OPIC to the Company during the summer of 1996. Properties The Karakuduk Field The Karakuduk Field is located in the Mangistau Region of the Republic of Kazakstan. KKM's 25 year license to develop the Karakuduk Field covers an area of approximately 16,922.5 acres. The Karakuduk Field is geographically located approximately 227 miles northeast of the regional capital city of Aqtau, on the Ust-Yurt Plateau. The closest settlement is the Say-Utes Railway Station approximately 38 miles southeast of the field. The ground elevation varies between 590 and 656 feet 17 above sea level. The region has a dry, continental climate, with fewer than 10 inches of rainfall per year. Mean temperatures range from -25 degrees Fahrenheit in January to 100 degrees Fahrenheit in July. The operating environment is similar to that found in northern Arizona and New Mexico in the United States. The Karakuduk structure is an asymmetrical anticline located on the Aristan Uplift in the North Ustyurt Basin. Oil was discovered on the structure in 1972, when Kazakstan was a republic of the former Soviet Union, from Jurassic age sediments between 8,500 and 10,000 feet. Twenty-two exploratory and development wells were drilled to delineate the field, however, none of the wells was ever placed on production. The productive area of the Karakuduk Field is 11,300 acres, with a minimum of seven separate productive horizons present in the Jurassic formation. Oil has been recovered in tests from all seven horizons within the Jurassic formation with flow rates ranging from 3 to 966 barrels per day. The Company estimates that the drilling of approximately 90 additional oil wells and 26 water injection wells will be required to fully develop the field. Peak oil production from the field is expected to occur within seven years after start-up, although time or amount of development or production cannot presently be assured. The Karakuduk Field is approximately 19 miles north of the Mukat-Mangishlak railroad, the Mangishlak- Astraghan water pipeline, the Beyneu-Uzen high voltage utility lines, and the Uzen-Atrau-Samara oil and gas pipelines. KKM has the right of priority to use the existing oil and gas pipeline facilities to transport produced oil from the Karakuduk Field to the Baltic Sea ports of Kainingrad and Vendsplis and/or the Black Sea port of Novorsiysk, thus offering a potential world market for the produced crude oil. This priority use of existing facilities is granted within the guarantee issued by the Ministry of Oil and Gas Industry of the Republic of Kazakstan. The planned development program for the Karakuduk Field will include a secondary recovery operation that the Company believes could result in additional recoverable reserves. Ryder Scott Company Petroleum Engineers ("Ryder Scott"), an internationally recognized petroleum engineering group retained by the Company, has reported to the Company that a reserve report commissioned by the Company which estimated that the Karakuduk Field has estimated original oil in place of 74 million barrels which could be considered proved undeveloped, is reasonable. However, neither the Ryder Scott opinion or the reserve report considered the potential adverse impact of marketability on price of any oil which might be produced due to the remote location of the field or potential political instability and, therefore, none of the reserves can presently be considered proven. The production and marketing of the oil reserves will be subject to a number of political, economic and other risks. See "--Karakuduk Project, --Risks of Foreign Operations, --Markets and --Competition." Because of uncertainties surrounding the prospect, no proved reserves have been attributed to the field by the Company. The Karakuduk Project will require significant development costs for which the financing is not complete. There can be no assurance that the project will be adequately financed or that the field will be successfully developed. The minimum work required by the Kazakstan License, described above, if completed, is expected to be sufficient to establish production and enable KKM to fund additional expenditures and to repay advances from CAP-G. The initial operating budget for KKM for 1995 required the Company, then a minority owner of CAP-G, to pay $320,000 as its share of the budget for the remainder of 1995. Through June 1996, the Company has advanced $1.77 million toward 1996 budgeted expenditures. The Karakuduk Field will be developed in phases. Work is to begin during 1996. Because of the uncertainty of the conditions of the existing wells, Phase I expenditures are to include the recompletion of up to seven existing wells or if, after work begins, it is determined that well conditions are unfavorable for recompletions, new development wells will be drilled in the Karakuduk Field. 18 The Company will be responsible for providing all of the funding necessary for the completion of Phase I of the development, subject to the right for CAP-G, which appoints one-half of the KKM governing board, to approve the budget. The Company anticipates that produced crude oil will be transported by tanker trucks over existing roads to the pumping station at the main pipeline approximately 18 miles south of the Karakuduk Field. The oil would probably either be sold to private international companies at this station or transported via the Uzen-Atrau-Samara pipeline to world markets. Management of the Company believes the risk-to-reward considerations involved with the development of the Karakuduk Field are very positive and may lead to substantial growth of the Company over the next several years. However, the Company can provide no assurances that the Karakuduk Field will produce oil in any amounts or that the Company will ever realize a profit as a result of the Company's interest in the field. All of the permits and licenses required to develop the field are not yet in place and there is no assurance they will be obtained. No proved reserves have been attributed to the field. The project will require significant development costs for which the financing is not in place. There can be no assurance that the project will be completed or that development will be successful. Further, the Company will face all of the risks inherent in attempting to develop an oil and gas property in a foreign country. See also--"Management's Discussion and Analysis of Financial Condition and Results of Operations." Reserves. As detailed in "Disclosures About Oil and Gas Producing Activities" following the Notes to Consolidated Financial Statements, estimated quantities of the Company's proved oil reserves decreased 40.7% for the fiscal year ended November 30, 1995, as compared to the previous fiscal year and natural gas reserves decreased 7.1%. Reserves decreased due to production during the year, the sale of certain producing properties and the abandonment of certain properties which produced at uneconomic rates. The present value of the Company's proved reserves decreased 60.9% at the fiscal year end November 30, 1995, as compared to the end of the previous fiscal year, due to lower natural gas prices, production, the sale of proved reserves and abandonment of proved reserves. Production. The Company's production for the fiscal year ended November 30, 1995 was 8,224 barrels of oil and 132,924 MCF of natural gas. Oil production decreased 27.1% from that during the fiscal year ended November 30, 1994. Natural gas production decreased 16.4% from the previous fiscal year. Productive Wells and Acreage. As of November 30, 1995, the Company had interests in 65 gross productive oil wells (1.73 net oil wells) and 62 gross productive gas wells (4.61 net gas wells). There are no multiple completion wells. Production was from 45,775 gross (2,793 net) developed acres. Undeveloped Acreage. The Company on November 30, 1995, held interests in 2,500 gross (690 net) undeveloped oil and gas leases, all located within the State of Wyoming. Drilling Activity. All of the Company's drilling activity has been in the United States. During the three fiscal years ended November 30, 1995, the Company participated in the drilling of the following productive exploratory and development wells. This table does not include any wells in which the Company had a carried or overriding royalty interest, nor any wells that were recompleted. 19
Fiscal Year Exploratory Wells Development Wells Ended ---------------------------------------- -------------------------------------------- November 30, Productive Dry Productive Dry - ------------ --------------- ---------------- ----------------- ------------------ Gross Net Gross Net Gross Net Gross Net ----- ---- ----- ---- ----- ---- ----- ---- 1995..................... 0 0 0 0 0 0 0 0 1994..................... 0 0 0 0 5 .81 1 .15 1993..................... 1 .11 0 0 3 .34 0 0
As of the date of this Prospectus, the Company was not participating in the drilling of any oil or natural gas wells. Title to Properties As is customary in the oil and gas industry, only a perfunctory title examination is conducted at the time oil and gas leases are acquired by the Company. Prior to the commencement of drilling operations, a thorough title examination is conducted. The Company believes that title to its properties is good and indefeasible in accordance with standards generally accepted in the oil and gas industry, subject to such exceptions, which Management believes are not so material as to detract substantially from the property economics. In addition, some prospects may be burdened by customary royalty interests, liens incident to oil and gas operations and liens for taxes and other governmental charges as well as encumbrances, easements and restrictions. The Company does not believe that any of these burdens will materially interfere with the use of the property. Estimated Proved Reserves The oil and gas reserve and reserve value information set forth below and in the consolidated financial statements included elsewhere is this Prospectus, was prepared pursuant to Statement of Financial Accounting Standards No. 69, which includes the estimated net quantities of the Company's "proved" oil and gas reserves and the standardized measure of discounted future net cash flows. See Supplemental Oil and Gas Disclosures, in the Notes to the Consolidated Financial Statements included elsewhere in this Prospectus. The Company has not filed any reports containing oil and gas reserve estimates with any federal authority or agency other than the Securities and Exchange Commission and the Department of Energy. There were no differences in the reserve estimates reported to these two agencies. The table below sets forth the Company's estimated quantities of proved reserves all of which are located in the Continental United States, and the present value of estimated future net revenues from these reserves on a non-escalated basis using year-end prices ($15.50 per barrel and $1.00 per MCF as of November 30, 1995) discounted by 10 percent per year as of the end of each of the last three fiscal years:
November 30, ------------------------------------ 1995 1994 1993 ---- ---- ---- Estimated Proved Oil Reserves (Bbls) .......... 66,185 111,690 141,748 Estimated Proved Gas Reserves (Mcf) ........... 3,062,417 3,294,730 2,305,142 Estimated Total Future Cash Inflows ........... $3,449,000 $5,041,000 $4,980,000 Present Value of Estimated Future Net Revenues (Before future income tax expenses) ..................... $ 427,000 $1,084,000 $1,360,000
There has been no major discovery or other favorable or adverse event that is believed to have caused a significant change in the estimated proved reserves subsequent to November 30, 1995. 20 Net Quantities of Oil and Gas Produced The Company's net oil and gas production for each of the last three years (all of which was from properties located in the United States) was as follows:
Year Ended November 30, -------------------------------------- 1995 1994 1993 ---- ---- ---- Oil (Bbls).................... 8,224 11,286 12,448 Gas (Mcf)..................... 132,924 159,041 155,786
The average sales price per barrel of oil and Mcf of gas, and average production costs per barrel of oil equivalent ("BOE") excluding depreciation, depletion and amortization were as follows:
Average Average Average Year Ended Sales Price Sales Price Production November 30, Oil (Bbls) Gas (Mcf) Cost Per BOE ------------ ----------- ----------- ------------ 1995 ........... 14.27 1.02 3.78 1994 ........... 12.75 1.44 6.06 1993 ........... 13.09 1.52 4.81
The above table represents activities related only to oil and gas production. Markets Overview - The principal products currently produced and marketed by the Company are crude oil and natural gas. The Company does not currently use commodity futures contracts and price swaps in the marketing of its natural gas and crude oil. Total revenues from the sales of crude oil and natural gas which are produced and/or marketed by the Company constituted 46%, and 54%, respectively, of the Company's total revenues for the year ended November 30, 1995. Domestic Production - The availability of ready markets for oil and gas and the prices obtained for production depend upon a number of factors beyond the Company's control. Such factors include the extent of domestic production and imports of oil and natural gas, weather conditions, the availability of pipelines and other means of transportation and federal and state regulations of the production, transport and sale of oil and gas. The Company and other producers are experiencing pipeline curtailment of gas production due to natural gas prices and demand for natural gas. In fiscal 1995, the only customer having purchases which accounted for 10% or more of the Company's revenues was Conoco Inc. which accounted for 16.5% of the Company's revenue. The Company's business is not seasonal, except that severe weather conditions could limit the Company's exploration and drilling activities. However, severe cold weather increases the demand for oil and natural gas which are used for heating purposes. Crude Oil - Oil produced from the Company's properties is generally sold by truck to unaffiliated third-party purchasers at the prevailing field price ("the posted price"). The contracts are month-to-month and subject to change. The Company does not believe that the loss of its primary purchaser would have a material adverse effect on the Company's business because other arrangements could be made to market the Company's crude oil products. The Company does not anticipate problems in selling future oil production since purchases are made 21 based on then current market conditions and pricing. However, oil prices are subject to volatility due to several factors beyond the Company's control including: political turmoil; domestic and foreign production levels; OPEC's ability to adhere to production quotas; and possible governmental control or regulation. Natural Gas - The Company sells natural gas production at the wellhead to various pipeline purchasers or natural gas marketing companies. The wellhead contracts have various terms and conditions, including contract duration. Under each wellhead contract the purchaser is generally responsible for gathering, transporting, processing and selling the natural gas and natural gas liquids and the Company receives a net price at the wellhead. Foreign Production - There is substantial uncertainty as to the prices at which any oil reserves produced by the Company from the Karakuduk Field could be sold. It is possible that, under the market conditions prevailing in the future, the production and sale of oil from the Karakuduk Field may not be commercially feasible. The availability of ready markets and the price obtained for oil produced depends upon numerous factors beyond the control of the Company. The current market for oil is characterized by instability which has caused dramatic declines in world oil prices in recent years and there can be no assurance of any price stability. See also "Properties--The Karakuduk Field" below. Competition Both foreign and domestic oil and gas exploration and the acquisition of producing and undeveloped properties is a highly competitive and speculative business. In seeking suitable opportunities, the Company competes in all areas of the oil and gas industry with a number of other companies, including large multi-national oil and gas companies and other independent operators with greater financial resources and, in some cases, with more experience than the Company. The Company does not hold a significant competitive position in either the foreign or domestic oil and gas industry. Regulation General - All aspects of the oil and gas industry are extensively regulated by federal, state, and local governments in all areas in which the Company has operations. Regulations govern such things as drilling permits, production rates, environmental protection and pollution control, royalty rates, and taxation rates. These regulations may substantially increase the cost of doing business and sometimes prevent or delay the start or continuation of any given exploration or development project. Regulations are subject to future changes by legislative and administrative action and by judicial decisions, which may adversely affect the petroleum industry. At the present time, it is impossible to predict what effect current and future proposals or changes in existing laws or regulations will have on the Company's operations, estimates of oil and natural gas reserves, or future revenues. The Company believes that its operations comply with all applicable legislation and regulations in all material respects, and that the existence of such regulations has had no more restrictive effect on the Company's method of operations than other similar companies in the industry. Although the Company does not believe its business operations presently impair environmental quality, compliance with federal, state and local regulations which have been enacted or adopted regulating the discharge of materials into the environment could have an adverse effect upon the capital expenditures, earnings and competitive position of the Company, the extent of which the Company now is unable to assess. Since inception, the Company has not made any material capital expenditures for environmental control facilities and is not currently aware of any need to make any such expenditures in the future. Regulation of Production - In most areas which the Company may conduct activities in the United States, there may be statutory provisions regulating the production of oil and natural gas, and under which state administrative agencies may promulgate rules in connection with the operation of both oil and 22 gas, and/or establish allowable rates of production. For wells in which the Company owns an interest, such rules may restrict the oil and gas production rate to below the rate such wells could be produced in the absence of such regulations. Environmental Regulations - Operations of the Company are subject to numerous laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may require the acquisition of a permit before drilling commences, prohibit drilling activities on certain lands lying within wilderness areas or where pollution arises, and/or impose substantial liabilities for pollution resulting from drilling operations, particularly operations where underground fresh water may be polluted or in offshore waters or submerged lands. Future regulations may impose additional restrictions on the Company's activities. It is impossible to predict if, or in what form, the regulations will be adopted and hence their potential impact upon the Company's operations. State Regulation - State regulatory authorities have established rules and regulations requiring permits for drilling operations, drilling bonds and/or reports concerning operations. All states in which the Company operates also have statutes and regulations concerning spacing of wells, environmental matters and conservation. In addition, state authorities have established regulations that affect the unitization and pooling of properties and permit the state to regulate the number of oil and gas wells in order to conserve oil and gas and prevent waste. Administration Offices. The Company's offices comprise 3,906 square feet and are rented for $2,767 per month, under a lease which expires in March of 1997. Employees The Company employs four persons on a full-time basis, none of whom are covered by a collective bargaining or other agreement. 23 DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth the names and ages of the current directors and executive officers of the Company, the principal offices and positions with the Company held by each person and the date such person became a director or executive officer of the Company. The executive officers of the Company are elected annually by the Board of Directors. Executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. The directors and executive officers of the Company are as follows:
Name of Director and Executive Director Principal Occupation Officer and Position, in the Company Since Age During the last Five Years - ------------------------------------ -------- --- --------------------------- Paul V. Hoovler.............................. 1972 68 President, Chief Executive Officer and director (President and Chief Executive of the Company since 1972. Officer since 1972) Matthew R. Hoovler........................... 1987 43 Vice President of the Company since 1980; Trea- (Vice President since 1980 and surer since 1982. Treasurer since 1982) Frank H. Gower, Jr........................... 1972 72 Director of the Company since 1972. Mr. Gower and his wife are the sole owners of Gower Oil Company, Denver, Colorado. Barry W. Spector............................. 1995 44 Secretary of the Company since 1995. Attorney (Secretary since 1995) engaged in the practice of law as a sole practi- tioner emphasizing oil and gas and business law since 1979. Peter G. Dilling............................. 1995 46 President and a director of M-D International Petroleum, Inc., an oil and gas company, since September 1994. A partner of M-D International, from March 1993 to the present. James A. Jeffs............................... 1995 45 Chief Investment Officer for the Whittier Trust Company since 1994. A director of M-D International Petroleum, Inc., an oil and gas company, since 1994. Senior Vice President of Union Bank of Los Angeles from 1993 to 1994. Chief Investment Officer for Northern Trust of California, N.A., from 1991 to 1992. President and chief executive officer of TSA Capital Management, and Senior Vice President of Trust Services of America, Capital Management Com- panies, from 1988 to 1991. Howard Karren................................ 1995 65 A consultant to Enron Oil & Gas International Co., an oil and gas company, since 1994. Presi- dent and Vice Chairman of Enron Oil & Gas International Co. from 1984 until 1994. 24 Name of Director and Executive Director Principal Occupation Officer and Position, in the Company Since Age During the last Five Years - ------------------------------------ -------- --- --------------------------- Jay W. McGee................................. 1995 48 Director of M-D International Petroleum, Inc., an oil and gas company, since September 1994. Manager of M-D International, an unincorpor- ated oil and gas entity, from March 1993 to the present. Vice President of Anglo Suisse L.P., an oil and gas company, from September 1990 to February 1993. Prior thereto, Director of Exploration of Anglo Suisse, Inc., an oil and gas company.
The present term of office of each director will expire at the next annual meeting of shareholders. Each executive officer will hold office until his successor duly is elected and qualified, until his resignation or until he is removed in the manner provided by the Company's Bylaws. In connection with the Company's acquisition of all of the stock of CAP-D, the former shareholders of CAP-D have certain rights to nominate directors of their choosing for election to the Company's Board of Directors. Pursuant to these rights, the former CAP-D shareholders caused the nomination of Jay W. McGee, who was elected a director at the 1995 annual meeting of shareholders. The Company has also agreed in principle that such former CAP-D shareholders will have the right to nominate another director at the Company's 1996 annual meeting of shareholders. If by June 30, 2000, the Karakuduk Field obtains 5,000 barrels of oil production per day averaged over any sixty (60) day period, or the Company's beneficial interest in the field is sold or the Company and the former shareholders jointly participate in a new exploratory development project, the former shareholders have the right to cause the Company to nominate one additional director at the Company's 2000 annual meeting of shareholders. In connection with a loan to the Company from the Brae Group, Inc. ("Brae"), in November 1995, the Company was required to appoint Messrs. Karren, Dilling and Jeffs as directors of the Company and to appoint Mr. Karren as Chairman of the Board of Directors of the Company. The Company borrowed $750,000 represented by an unsecured promissory note with interest at 8% per annum and which was repaid on April 30, 1995. Once the note was repaid, the Company is no longer required to continue to nominate such persons as directors. There are no other arrangements or understandings between any executive officer and any director or other person pursuant to which any person was selected as a director or an executive officer. Matthew R. Hoovler is the son of Paul V. Hoovler. With this exception, there are no family relationships among the officers or directors. No director of the Company is a director of an entity that has its securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. Paul V. Hoovler is the President and a shareholder of The Minnelusa Company ("Minnelusa"), a privately held Florida corporation, the sole business of which is the operation of Deep Lagoon Marina located in Fort Myers, Florida. Minnelusa filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code on January 18, 1994. The primary reason for the bankruptcy petition was the filing of a lawsuit by three of the individual Minnelusa shareholders who demanded payment on promissory notes made by Minnelusa to purchase their Minnelusa stock. Prior to the filing of the bankruptcy, it was determined that the acquisition of their stock, which placed Minnelusa in insolvency, was an illegal transaction under the laws of Florida. Frank H. Gower, Jr., a director of the Company 25 and a director and officer of Minnelusa, also filed personal bankruptcy in August 1994, as Mr. Gower had personally guaranteed these same Minnelusa notes. A Plan of Reorganization for Minnelusa was filed with the court in Florida and this plan was approved at a confirmation hearing in February 1995, in the District Court in Fort Myers, Florida. In March 1995 Minnelusa emerged from bankruptcy. As a part of the Plan of Reorganization for Minnelusa, Minnelusa agreed to pay the claims of the three individual Minnelusa shareholders who originally filed a lawsuit ("claimants") against Minnelusa, on or before March 13, 1998. Mr. Gower also settled with the claimants and agreed to pay any amount due to the claimants that is not timely paid by Minnelusa. 26 EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth for each of the Company's last three fiscal years ended November 30, 1995, the compensation paid by the Company for services rendered in all capacities to the Company to Paul V. Hoovler, who was the chief executive officer of the Company during the Company's fiscal year ended November 30, 1995. No person who served as an executive officer of the Company during the Company's fiscal year ended November 30, 1995, received total annual salary and bonus in excess of $100,000 from the Company during the Company's fiscal year ended November 30, 1995:
Summary Compensation Table Long Term Compensation Awards Year ------------------------------------- ------------ Ended Other Securities All Name and November Compensa- Underlying Other Principal Position 30, Salary($) Bonus($) tion($) Options(#) Compensation($) - ------------------ -------- -------- ------- ---------- ------------ -------------- Paul V. Hoovler..................... 1995 $60,000 -- $4,413(1) -- $40,000(3) President and 1994 $60,000 -- $3,518(1) -- (2) $40,000(3) Chief Executive Officer 1993 $60,000 -- $5,620(1) 37,500(2) $40,000(3) - ----------------------
(1) The Company has a Royalty Participation Plan which is intended to provide incentive for the Company's employees and to enable the Company to attract, motivate and retain in its e ploy key employees. Each employee of the Company becomes a participant in the plan upon expiration of a 90-day probationary period after the date of employment. The Company contributes to the plan certain oil, gas and other nonproducing hydrocarbon royalty interests and the proceeds from production received by the Company which are attributable to the royalty interests. On the last day of the plan year, the Committee, which currently consists of all of the directors of the Company, allocated the net income of the plan for the plan year among those participants employed by the Company on the last day of the plan year, together with those participants whose interests are vested. The net income of the plan is allocated by assigning each participant to a group and by assigning a "multiplier" factor to each group. Each participant is then assigned a percentage of division within the group. The determination of the Committee as to placing participants in a particular group and the multiplier to be assigned to each group is solely within the discretion of the Committee. The amount allocated to non-management employees vests during the fiscal year after 60 months of employment and the amount allocated to management employees vests during the fiscal year after 37 months of employment. The plan has been extended by the Board of Directors to December 31, 1997, and thereafter will be evaluated for continuance on an annual basis. Paul V. Hoovler was distributed $4,413 from the plan for the plan year ended December 31, 1995. (2) Represents warrants to purchase 37,500 shares of the Company's common stock that were acquired by Mr. Hoovler from the Company in March, 1993. The warrants are exercisable at a price of $.40 per share and were acquired in a private offering by the Company on the same terms as persons who were not affiliated with the Company acquired warrants. On October 11, 1994, Mr. Hoovler exercised the warrants (37,500 shares) at $.40 per share for a total sum of $15,000. (3) The Company has a Deferred Compensation and Death Benefit Plan for Paul V. Hoovler. The plan allows for Mr. Hoovler to continue in active employment of the Company until age 70.5. The Company pays Mr. Hoovler $40,000 annually ($40,000) from this plan. If Mr. Hoovler voluntarily terminates his employment prior to his retirement, disability, or death, he or his estate will receive the remaining residual funds to be disbursed from the plan. If Mr. Hoovler dies prior to retirement or other termination of employment, Mr. Hoovler's estate will receive the remaining residual funds to be disbursed from the plan. The plan is funded by a life insurance policy on the life of Mr. Hoovler which provides for the major portion of any costs to the Company. The plan was fully funded when the Company paid the final payment of a premium of $18,000 on a life insurance policy insuring the life of Paul V. Hoovler. Option Grants in Fiscal Year Ended November 30, 1995 No options were granted by the Company to Paul V. Hoovler during the Company's fiscal year ended November 30, 1995. 27 Fiscal Year-End Option Values The following table sets forth information concerning the unexercised options (warrants) held by Paul V. Hoovler at November 30, 1995:
Number of Securities Underlying Unexercised Value of Unexercised Options as of In-the-Money Options as of November 30, 1995(#) November 30, 1995($) ---------------------------- ----------------------------- Name Exerciseable Unexercisable Exercisable Unexercisable - ---- ------------ ------------- ----------- ------------- Paul V. Hoovler......... 500,000 - 0 - $274,062.50 - 0 - - ----------------------
(1) The value was determined by multiplying the number of shares underlying the options (warrants) by the difference between the exercise price and the average of the closing bid and asked price of the Company's common stock on November 30, 1995. No options (warrants) were exercised by Paul V. Hoovler during the Company's fiscal year ended November 30, 1995. Compensation of Directors There were no standard or other arrangements for the compensation of the Company's directors in effect for the Company's fiscal year ended November 30, 1995. 28 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock, its only class of outstanding voting securities as of June 1, 1996, by (i) each person who is known to the Company to own beneficially more than 5% of the 37,376,517 outstanding shares of Common Stock with the address of each such person, (ii) each of the Company's directors and officers, and (iii) all officers and directors as a group:
Name and Address of Beneficial Owner or Amount and Nature of Percent Name of Officer or Director Beneficial Ownership(1) of Class - --------------------------- ---------------------- -------- Drake and Company.................................. 3,000,000 8.2% CitibankPerformance Portfolio S.A. c/o Citibank, N.A. 153 E. 53rd Street, 21st Floor New York, New York 10043 Allen & Company Incorporated....................... 2,962,000 (2) 7.8% 711 Fifth Avenue New York, New York 10022 Crescent Investment................................ 2,000,000 5.4% 865 Figueroa Street, Suite 1500 Los Angeles, California 90017 Whittier Ventures, LLC............................. 2,000,000 5.4% 1600 Huntington Drive So. Pasadena, California 91030 Paul V. Hoovler ................................... 1,590,952 (3) 4.3% Matthew R. Hoovler ................................ 536,049 (4) 1.5% Barry W. Spector ................................. 56,250 (5) 0.2% Peter G. Dilling .................................. - 0 - -- Frank H. Gower, Jr. ............................... 593,080 (6) 1.6% James A. Jeffs .................................... 913,447 (7) 2.5% Howard Karren ..................................... 350,000 (8) 0.9% Jay W. McGee ...................................... 918,626 (9) 2.5% All Directors and Officers as a Group (eight persons) ........................ 4,958,403 13.1% - -----------------
(1) To the knowledge of the Company's management, the beneficial owners listed have sole voting and investment power with respect to the shares shown unless otherwise indicated. (2) Includes 1,022,000 shares underlying unexercised warrants. (3) Includes 725,485 shares and 500,000 shares underlying unexercised warrants owned by Paul V. Hoovler and 365,466 shares held in trust in the Company's 401(k) Plan & Trust. Paul V. Hoovler, trustee of the 401(k) Plan & Trust, has sole voting and investment power over the total 365,466 shares which are owned by the employees of the Company, including Paul V. Hoovler, who beneficially owns 95,582 of the shares. 29 (4) The 536,049 shares include 52,000 shares and 250,000 shares underlying unexercised warrants owned by Matthew R. Hoovler, 131,049 shares owned jointly by Mr. Hoovler and his wife, 97,000 shares owned by Mr. Hoovler's wife and 6,000 shares owned by his daughter over all of which shares Mr. Hoovler may be deemed to have shared voting and investment power. Not included are 105,607 shares beneficially owned by Matthew R. Hoovler but held in trust in the Company's 401(k) Plan & Trust. Paul V. Hoovler, trustee of the 401(k) Plan & Trust, has sole voting and investment power over these shares. (5) Includes 37,500 shares owned by Barry W. Spector and 18,750 shares owned by his minor children over all of which shares Mr. Spector may be deemed to have sole voting and investment power. (6) Includes 224,608 shares and 100,000 shares underlying unexercised warrants owned by Mr. Gower, 250,000 shares owned by Gower Oil Company and 18,472 shares owned by Mr. Gower's wife, over all of which shares Mr. Gower may be deemed to have shared voting and investment power. (&) Includes 913,447 of a total of 4,250,000 shares being held in escrow in connection with the acquisition of Central Asian Petroleum, Inc. as described under "Certain Transactions." (8) The 350,000 shares are reserved to be issued to Mr. Karren in connection with the possible acquisition by the Company of MD International Petroleum, Inc.("MDI"). See "Certain Relationships and Related Transactions." (9) Includes 913,448 of a total of 4,250,000 shares being held in escrow in connection with the acquisition of Central Asian Petroleum, Inc. as described under "Certain Transactions", and 5,178 shares owned jointly with his wife. Except to the extent the agreement relating to the acquisition of the outstanding shares of Central Asian Petroleum, Inc. as described under "Certain Transactions" could in the future result in a change in control, there are presently no arrangements of any kind which may at a subsequent date result in a change in control of the Company. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In early September 1994, the Company signed a letter of intent with Central Asian Petroleum, Inc., a Delaware corporation ("CAP-D"), and Overseas Consulting Services Company, Inc. ("OCSCO"), both private companies based in Houston, Texas, to jointly pursue the registration and development of the Karakuduk Field, a shut-in oil field in the central Asian Republic of Kazakstan, that was discovered in the early 1970s but never placed in production. In mid-September 1994, the Company acquired a 25% interest in Central Asian Petroleum Guernsey Limited ("CAP-G"), with headquarters in Ankara, Turkey, which holds a 50% interest in KKM. In April 1995, the Company acquired all of the stock of CAP-D, which also owned an interest in CAP-G. Following the acquisition of CAP-D, the Company's beneficial interest in CAP-G increased to 45%, giving the Company a 22.5% beneficial interest in KKM and the Karakuduk Field. Under terms of the acquisition, the former shareholders of CAP-D have certain rights to cause the Company to nominate persons selected by the former shareholders to the Company's Board of Directors. Jay W. McGee, a former shareholder of CAP-D, was elected at the 1995 Company's Annual Meeting of Shareholders under the arrangement. Additionally, in connection with the acquisition, the Company may be required to pay a brokerage fee to Mr. McGee in the amount of up to $175,000. The Company paid Mr. McGee $50,000 in 1995 and the balance is payable upon the occurrence of certain milestones in development of the Karakuduk Field. The Company issued 4,500,000 shares of restricted common stock for CAP-D which will be held in escrow and released to the former shareholders of CAP-D, including Messrs. Jeffs, McGee and Dilling, or affiliates of them, from time to time in connection with development of the Karakuduk Field. Of the shares held in escrow, 1,000,000 shares have qualified for release and delivery to the former shareholders of CAP-D. 30 The Company has agreed to issue a minimum of 350,000 shares of the Company's restricted common stock to Howard Karren, a director of the Company. Mr. Karren is or will be a shareholder and principal of MD International, Inc. ("MDI"), a private corporation which holds certain rights in a joint venture that is attempting to negotiate for the development of natural gas fields in Uzbekistan. The Company is negotiating to acquire MDI. If a satisfactory acquisition of MDI is consummated by the Company as presently proposed, the Company would issue up to 6,000,000 shares of its restricted common stock to the shareholders of MDI, including the shares to Mr. Karren. If the transaction is not consummated, the Company will issue the shares to Mr. Karren or persons he designates. Mr. Karren was appointed a director and chairman of the board of the Company's Board of Directors, along with James A. Jeffs and Peter G. Dilling, in connection with the loan of $750,000 to the Company from an unaffiliated party in November 1995. The Company was required to keep Messrs. Karren, Jeffs, and Dilling as directors until the loan was paid in full on April 19, 1996. On April 5, 1996, the Company completed a private placement of 14,000,000 shares of the Company's common stock at $0.50 a share for gross proceeds of $7,000,000. In connection with the private placement, the Company issued a five year warrant to purchase 1,022,000 shares of the Company's common stock for a nominal amount, to Allen & Company Incorporated ("Allen") and paid Allen's expenses. Allen and certain affiliates of Allen purchased shares in the private placement. The Company also issued Allen a three year warrant to purchase 200,000 shares of the Company's common stock at $0.25 per share, in connection with the $750,000 loan referred to above. 31 SELLING SECURITYHOLDERS The following table sets forth certain information regarding the shares of Common Stock beneficially owned as of July 8, 1996, by each Selling Securityholder herein as adjusted to reflect the sale by all Selling Securityholders of the shares offered hereby by each Selling Securityholder. This list indicates any position, office or other material relationship with the Company that the Selling Securityholder had within the past three (3) years, the number of Common Shares owned by such Selling Securityholder prior to the offering, the maximum number of shares to be offered for such Selling Securityholder's account and the amount of the class owned by the Selling Securityholder after completion of the offering (assuming the Selling Securityholder sold the maximum number of shares of Common Stock). The Selling Securityholders are not required, and may choose not, to sell any of their shares of Common Stock.
Shares Owned Shares Prior to Being Shares Owned Name Offering Offered After Offering - ---- ------------ ------- -------------- Acikbas, Dursun .......................... 195,000 195,000 0 Allen & Company(1) ....................... 2,962,000 2,962,000 0 Allen, Bruce ............................. 200,000 200,000 0 Allen, Susan ............................. 400,000 400,000 0 Altrogge, R.C ............................ 37,500 37,500 0 Ambit & Company Heritage Small Cap Fund .................. 400,000 400,000 0 Ard, Charles L ........................... 225,000 75,000 150,000 Awad & Associates L.P. ................... 200,000 200,000 0 Bailey, Jeffrey W ........................ 112,500 37,500 75,000 Bellus, Thomas H ......................... 18,750 9,375 9,375 Berkmen, Cetin ........................... 195,008 195,000 0 Berrard, Steven R ........................ 200,000 200,000 0 Boyd, Richard G .......................... 28,125 9,375 18,750 Braden, F.C .............................. 379,000 150,000 229,000 Brae Group, Inc.(2) ...................... 500,000 500,000 500,000 Church, P.E. & B.J ....................... 19,750 18,750 1,000 Cohig & Associates ....................... 56,700 56,700 0 Cooper, H. Howard ........................ 120,000 28,235 91,765 Crandall, E.C. & M.B ..................... 47,500 37,500 10,000 Crescent Investment Co. .................. 2,000,000 2,000,000 0 Cullen, Mary ............................. 50,000 50,000 0 Cullen, Richard P ........................ 28,125 9,375 18,750 Piper Jaffray Cust Cummings, Kenneth F., IRA ................ 37,500 37,500 0 32 Shares Owned Shares Prior to Being Shares Owned Name Offering Offered After Offering - ---- ------------ ------- -------------- Drake and Company CitiPerformance Portfolio S.A............. 3,000,000 3,000,000 0 Gabelli Funds, Inc. ...................... 250,000 250,000 0 Gabelli Securities, Inc. ................. 150,000 150,000 0 Gilfillan, Michael T ..................... 20,000 20,000 0 Gould, Paul .............................. 300,000 300,000 0 Heglin, C.M. & J.A ....................... 37,500 37,500 0 Heritage Lincoln ......................... 226,700 90,000 136,700 Hoovler, D.W ............................. 133,250 54,450 78,800 Hoovler, M.M.(3) ......................... 97,000 15,000 82,000 Hoovler, M.R. & M.M.(3) .................. 189,049 37,500 151,549 Hoovler, P.V.(4) ......................... 725,486 37,500 687,986 Huizenga, H. Wayne ....................... 1,000,000 1,000,000 0 Jeffs, James A.(5) ....................... 915,593 208,858 707,913 Johnson, George .......................... 400,000 400,000 0 Keller, William(6) ....................... 802,750 448,882 353,868 Keough, Clark ............................ 100,000 100,000 0 Keough, Donald R ......................... 100,000 100,000 0 Khosrowshahi, Dara ....................... 20,000 20,000 0 Khosrowshahi, Kaveh ...................... 20,000 20,000 0 Koksal, Ayee Pinar ....................... 450,000 450,000 0 Koksal, Guntekin Huseyin ................. 450,000 450,000 0 Kramer, Terry Allen Trust ................ 200,000 200,000 0 Kuijper, Jacob P ......................... 24,300 24,300 0 Lockard, L.D ............................. 28,125 9,375 18,750 Longhi, Bert ............................. 154,000 37,500 116,500 Lorch, Frank ............................. 112,500 37,500 75,000 Smith Barney Cust MacDougal, William D., IRA ............... 225,000 75,000 150,000 Mackie, Robert A ......................... 40,000 40,000 0 Marshall, Jerry .......................... 40,000 37,500 2,500 McGee, Jay W.(7) ......................... 921,772 208,859 712,913 McMillian, John .......................... 200,000 200,000 0 33 Shares Owned Shares Prior to Being Shares Owned Name Offering Offered After Offering - ---- ------------ ------- -------------- Millison, Dan ............................ 28,900 9,375 19,525 Molitor, Elmer F ......................... 409,800 90,000 319,800 Morris, Paul ............................. 28,125 9,375 18,750 Murat Yazici ............................. 150,000 111,765 38,235 Murphy, Tom G ............................ 762,750 408,882 353,868 Murphy, Tom G., Pension Plan(8) .......... 40,000 40,000 0 Ogle, Morris E ........................... 28,125 9,375 18,750 Overseas Consulting Services Company, Inc............................. 150,000 150,000 0 Ozdemir, Okan ............................ 195,000 195,000 0 Palmer, Arnold M ......................... 120,000 45,000 75,000 Pedigo, Gerald ........................... 112,500 37,500 75,000 Perry, Patrick S ......................... 10,000 10,000 0 Pierce, Ashley R ......................... 40,000 40,000 0 Pierce, John C ........................... 40,000 40,000 0 Popp, Thomas F ........................... 28,425 9,375 19,050 Prescher, Dennis ......................... 112,500 37,500 75,000 Prinz, Barbara C ......................... 24,375 24,375 0 Prinz, Christine B ....................... 9,375 9,375 0 Prinz, Patricia .......................... 3,750 3,750 0 PRP Profit Sharing ....................... 9,750 9,750 0 Rochon, Richard C ........................ 200,000 200,000 0 Schmacker, Jack .......................... 10,275 9,375 900 Schneider, John A ........................ 200,000 200,000 0 Shuman, Stanely S ........................ 200,000 200,000 0 Spector, Barry W.(9) ..................... 56,250 18,750 37,500 Spectrum Development, Inc................. 1,016,593 232,387 784,206 Stermole, F.J. & H.D ..................... 285,000 75,000 210,000 Stoddart, John A ......................... 304,720 92,132 212,588 Stone, Gerald W .......................... 180,000 60,000 120,000 Strauss, Robert S ........................ 200,000 200,000 0 vandenHeuvel, William J .................. 20,000 20,000 0 Whittier Ventures LLC .................... 2,000,000 2,000,000 0 34 Shares Owned Shares Prior to Being Shares Owned Name Offering Offered After Offering - ---- ------------ ------- -------------- Wicklund, Rod ............................ 56,250 18,750 37,500 Wit, Harold M ............................ 100,000 100,000 0 - ----------------------
(1) Includes 1,222,000 shares underlying Warrants which shares are also registered for resale upon exercise. (2) Includes 500,000 shares underlying exercisable Warrants, which shares are also registered for resale upon exercise. (3) Matthew M. Hoovler is an officer and a director of the Company. (4) Paul V. Hoovler is the President and a director of the Company. (5) Mr. Jeffs is a director of the Company. Shares being registered are eligible for release from escrow. See "Certain Relationships and Related Transactions." (6) Includes 40,000 shares underlying exercisable Warrants, which shares are also registered for resale. (7) Mr. McGee is a director of the Company. Shares being registered are eligible for release from escrow. See "Certain Relationships and Related Transactions." (8) Includes 40,000 shares underlying exercisable Warrants, which shares are also registered for resale. (9) Mr. Spector is an officer and a director of the Company. DESCRIPTION OF SECURITIES The Company is authorized to issue 50,000,000 shares of $0.10 par value Common Stock and 1,000,000 shares of Preferred Stock, without par value. As of July 1, 1996, there were 37,376,517 shares of Common Stock and no Preferred Stock outstanding. An additional 3,448,000 shares of Common Stock are reserved for issuance upon exercise of outstanding warrants and other commitments. At the Annual Shareholders' meeting to be held in July 1996, it is anticipated that shareholders of the Company will approve amendment of the Articles of Incorporation to authorize issuance of up to 100,000,000 shares of Common Stock. Common Stock Holders of shares of Common Stock are entitled to one vote per share on all matters submitted to a vote of the shareholders of the Company. Except as may be required by applicable law, holders of shares of Common Stock will not vote separately as a class, but will vote together with the holders of outstanding shares of other classes of capital stock. There is no right to cumulate votes in the election of directors. A majority of the issued and outstanding Common Stock constitutes a quorum at any meeting of shareholders and the vote by the holders of a majority of the outstanding shares is required to effect certain fundamental corporate changes such as liquidation, merger or amendment of the Articles of Incorporation. Holders of shares of Common Stock are entitled to receive dividends, if, as, and when declared by the Board of Directors out of funds available therefor, after payment of dividends required to be paid on outstanding shares of preferred stock. Upon liquidation of the Company, holders of shares of Common Stock are entitled to share ratably in all assets of the Company remaining after payment of liabilities, subject to the liquidation preference rights of any outstanding shares of preferred stock. Holders of shares of Common Stock have no 35 conversion, redemption or preemptive rights. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any outstanding preferred stock. The outstanding shares of Common Stock are, and all shares of Common Stock issued upon exercise of warrants described in this Prospectus and payment therefor will be, validly issued, fully paid and nonassessable. Preferred Stock Under the Company's Articles of Incorporation, as amended, the Board of Directors has the power, without further action by the holders of the Common Stock, to designate the relative rights and preferences of the one or more classes of Preferred Stock of the Company, when and if issued. Such rights and preferences could include preferences as to liquidation, redemption and conversion rights, voting rights, dividends or other preferences, any of which may be dilutive of the interest of the holders of the Common Stock. The Board of Directors' ability to issue shares of Preferred Stock and to determine the rights, preferences, privileges, designations and limitations of such stock, including the dividend rights, dividend rate, conversion rights, voting rights, terms of redemption and other terms of conditions of such stock, could make it more difficult for a person to engage in, or discourage a person from engaging in, a change in control transaction without the cooperation of management. No class of Preferred Stock has been designated by the Company and there is no present intention by the Company to do so or to issue Preferred Stock. Certain Provisions of Articles of Incorporation. The Company's Articles of Incorporation contain a provision, authorized under Colorado law, which limits the liability of directors of the Company for monetary damages for breach of fiduciary duty as an officer or director other than for intentional misconduct, fraud or a knowing violation of law or for payment of a dividend in violation of Colorado law. Such provision limits recourse for money damages which might otherwise be available to the Company or shareholders for negligence by individuals while acting as officers of the Company. Although this provision would not prohibit injunctive or similar actions against directors, the practical effect of such relief would be limited. This limitation of liability under state law does not apply to any liabilities which may exist under federal securities laws. Transfer Agent American Securities Transfer & Trust, Inc., Denver, Colorado, is the transfer agent for the Common Stock. PLAN OF DISTRIBUTION The Selling Securityholders intend to sell their shares directly, through agents, dealers, or underwriters, in the over-the-counter market, or otherwise, on terms and conditions determined at the time of sale by the Selling Securityholders or as a result of private negotiations between buyer and seller. Sales of the shares of Common Stock may be made pursuant to this Prospectus, pursuant to Rule 144 or Regulation S adopted under the Securities Act of 1933, as amended. No underwriting arrangements exist as of the date of this Prospectus for the Selling Securityholders to sell their shares. Upon being advised of any underwriting arrangements that may be entered into by a Selling Securityholder after the date of this Prospectus, the Company will prepare a supplement to this Prospectus to disclose such arrangements. It is anticipated that the per share selling price for the shares will be at/or between the "bid" and "asked" prices of the Company's Common Stock as quoted in the over-the-counter market immediately preceding the sale. Expenses of any such sale will be borne by the parties as they may agree. The shares of Common Stock issuable upon exercise of the Warrants will be issued directly by the Company to the Warrant holders upon surrender of the particular Warrants together with the exercise price. The exercises are subject to the terms of the Warrants and such Warrants may be exercisable during different periods of time. 36 LEGAL MATTERS The validity of the issuance of the Common Stock to be issued upon exercise of Warrants described herein has been passed upon for the Company by Hopper and Kanouff, P.C., Denver, Colorado. EXPERTS The consolidated financial statements of the Company included in this Prospectus and elsewhere in the registration statement, to the extent and for the periods indicated in their report, have been audited by Grant Thornton LLP, independent certified public accountants, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing. 37 GLOSSARY The italicized terms in this section (which are used in this Prospectus) have the meanings given them in this section. Bbl. or barrel. Forty-two U.S. gallons liquid volume, usually used herein in reference to crude oil or other liquid hydrocarbons. BOE or barrels of oil equivalent. Converts gas to oil in a ratio of 6 million cubic feet of gas equals 1 barrel of oil, usually. Then oil and gas are added together for total BOE. BTU (British Thermal Unit). The amount of heat necessary to raise the temperature of one pound of water one degree Fahrenheit. This is the standard measure of gas in terms of heating potential. Decline. The decrease in yield of oil and gas from a well, lease, pool or field. The first yield is the "flush production" and for awhile decline is rapid, then slows down to a steady rate. Decline curves are plotted against time to show graphically the rate of production. Depletion. The act of emptying, reducing, or exhausting, such as depletion of a natural resource like oil and gas. Also means a reduction in income reflecting the exhaustion of mineral deposits. Developed Acreage. The number of acres of oil and gas leases held by, or if owned, which are allocated or assignable to, producing wells or wells capable of production. Development Well. A well which is drilled to and completed in a known producing formation adjacent to a producing well in a previously discovered field and in a stratigraphic horizon known to be productive. Dry hole. Generally refers to any well that does not produce oil or gas in commercial quantities. Exploration. The search for economic deposits of minerals, petroleum and other natural earth resources by any geological, geophysical, or geochemical technique. Field. A geographical area in which a number of oil or gas wells produce from a continuous reservoir. Gross Acres and Gross Wells. The total acres or wells, as the case may be, in which an entity has an interest, either directly or through an affiliate. Infill well. A well drilled within an existing oil or gas field. Injection well (water injector). A well that is used to pump water (or gas) into a formation to maintain formation pressure which enables the operator to pump more of the hydrocarbons out of the formation and up to the surface. Location. The actual geographic spot on which a well is to be drilled. Mcf. One thousand cubic feet of natural gas. Net Acres or Net Wells. A "net acre" or "net well" is deemed to exist when the sum of fractional ownership working interests in gross acres or gross wells equals one. 38 Oil Wells or Gas Wells. Oil wells are those wells which generate revenue from oil production; gas wells are those wells which generate nearly all revenue from gas production. Proved Reserves. The estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known oil and gas reservoirs under existing economic and operating conditions, that it, on the basis of prices and costs as of the date the estimate is made and any price changes provided for by existing contracts. Proved Developed Reserves Behind Pipe. Producing reserves which are developed (drilled) but not producing because the zone is behind pipe and has not been opened up for actual volume testing or for production. Proved Developed Reserves. Proved Reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. Proved Undeveloped Reserves. Proved Reserves which can be expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Structure. Folding and dislocation of rock layers which can form traps for hydrocarbons. Unitization. An agreement under which two or more persons owning operating mineral properties agree to have the properties operated on a unified basis and further agree to share in production from all of the properties on a stipulated percentage or fractional basis regardless of which property the oil or gas is produced from. All owners of the economic interests in the property should be involved in the agreement. Undeveloped Acreage or Properties. Oil and gas acreage (including, in applicable instances, rights in one or more horizons thereunder, which may be penetrated by existing well bores, but which have not been tested) or properties to which Proved Reserves have not been assigned by independent petroleum engineers. 39 FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS CHAPARRAL RESOURCES, INC. AND SUBSIDIARY November 30, 1995, 1994 and 1993 C O N T E N T S Page REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F- 2 FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS F- 3 CONSOLIDATED STATEMENTS OF OPERATIONS F- 5 CONSOLIDATED STATEMENTS OF CASH FLOWS F- 6 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY F- 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F- 9 SUPPLEMENTARY INFORMATION DISCLOSURE ABOUT OIL AND GAS PRODUCING ACTIVITIES - UNAUDITED F-24 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Chaparral Resources, Inc. and Subsidiary We have audited the accompanying consolidated balance sheets of Chaparral Resources, Inc. and Subsidiary as of November 30, 1995 and 1994, and the related consolidated statements of operations, cash flows and changes in stockholders' equity for each of the three years in the period ended November 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chaparral Resources, Inc. and Subsidiary as of November 30, 1995 and 1994, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended November 30, 1995 in conformity with generally accepted accounting principles. F-2 The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net loss of $704,000 during the year ended November 30, 1995. As discussed in note B to the financial statements, the Company requires significant additional financing to meet its financial requirements through fiscal 1996. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Grant Thornton LLP GRANT THORNTON LLP Denver, Colorado January 19, 1996 (except for note N, as to which the date is March 8, 1996) F-3
Chaparral Resources, Inc. and Subsidiary CONSOLIDATED BALANCE SHEETS February 29, November 30, 1996 -------------------------- ----------- 1995 1994 (Unaudited) ----------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents .......... $ 219,000 $ 501,000 $ 318,000 Certificates of deposit ............ -- -- 20,000 Investments in U.S. Treasury securities (at cost) ............. -- -- ,000 Accounts receivable Joint interest participants ...... 17,000 31,000 ,000 Oil and gas purchasers ........... -- 46,000 ,000 Prepaid expenses ................... 1,000 2,000 ,000 ------------ ------------ ------------ Total current assets 237,000 580,000 834,000 PROPERTY AND EQUIPMENT - AT COST Oil and gas properties - full cost United States Subject to depletion ........... 16,089,000 16,149,000 16,115,000 Not subject to depletion ....... 47,000 40,000 40,000 Less accumulated depletion and depreciation and impairment ...... (15,738,000) (15,722,000) (15,032,000) ------------ ------------ ------------ 398,000 467,000 1,123,000 Furniture, fixtures and equipment .. 202,000 197,000 ,000 Less accumulated depreciation ...... (178,000) (177,000) (324,000) ------------ ------------ ------------ 24,000 20,000 ,000 ------------ ------------ ------------ 422,000 487,000 1,136,000 OTHER ASSETS Investment in and advances to affiliate ........................ 5,851,000 4,507,000 256,000 Long-term investments in U.S. ...... Treasury securities (at cost) .... -- -- ,000 Cash value of insurance and annuities ........................ 8,000 8,000 ,000 Equipment inventory ................ 13,000 13,000 ,000 ------------ ------------ ------------ 5,872,000 4,528,000 418,000 ------------ ------------ ------------ $ 6,531,000 $ 5,595,000 $ 2,388,000 ============ ============ ============ The accompanying notes are an integral part of these statements. F-4 Chaparral Resources, Inc. and Subsidiary CONSOLIDATED BALANCE SHEETS (CONTINUED) February 29, November 30, 1996 -------------------------- ----------- 1995 1994 (Unaudited) ----------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable Trade ................................. $ 71,000 $ 102,000 $ ,000 Joint interest participants - revenue ............................. 1,000 26,000 ,000 Accrued liabilities ..................... 38,000 86,000 ,000 ------------ ------------ ------------ Total current liabilities 110,000 214,000 ,000 LONG-TERM OBLIGATIONS Note payable ............................ 793,000 461,000 MINORITY INTEREST IN JOINT VENTURE ........ -- -- ,000 STOCKHOLDERS' EQUITY Common stock - authorized, 50,000,000 shares and 25,000,000 shares at November 30, 1995 and 1994, respectively, of $.10 par value; issued and outstanding, 20,484,192 and 15,782,317 and shares at November 30, 1995 and 1994, respectively ................ 2,111,000 2,048,000 1,572,000 Capital in excess of par value .......... 13,305,000 12,577,000 9,464,000 Preferred stock - authorized, 1,000,000 shares, no shares issued or outstanding ........................... -- -- -- Retained earnings (deficit) ............. (9,788,000) (9,705,000) (9,001,000) ------------ ------------ ------------ 5,628,000 4,920,000 2,035,000 ------------ ------------ ------------ $ 6,531,000 $ 5,595,000 $ 2,388,000 ============ ============ ============
The accompanying notes are an integral part of these statements. F-5
Chaparral Resources, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended ---------------------------- November 30, February 29, February 28, ---------------------------------------- 1996 1995 1995 1994 1993 ------------ ------------ --------- --------- --------- (Unaudited) (Unaudited) Revenue Oil and gas sales .......$ 34,000 $ 84,000 $ 255,000 $ 374,000 $ 414,000 Costs and expenses Production costs ........ -- 39,000 115,000 232,000 185,000 Write down of oil and gas properties ........ -- -- 619,000 416,000 230,000 Depreciation and depletion ............. 16,000 30,000 74,000 120,000 125,000 General and administrative ........ 84,000 22,000 166,000 94,000 94,000 ---------- ------------ ------------ ------------ ------------ 100,000 91,000 974,000 862,000 634,000 ---------- ------------ ------------ ------------ ------------ (Loss) from operations.... (66,000) (7,000) (719,000) (488,000) (220,000) Other income (expense) Interest income ......... 2,000 1,000 25,000 13,000 20,000 Interest expense ........ (19,000) -- (17,000) (4,000) (8,000) Other - net ............. 1,000 (3,000 7,000 5,000) 85,000 ---------- ------------ ------------ ------------ ------------ (16,000) (2,000 15,000 14,000) 97,000 ---------- ------------ ------------ ------------ ------------ NET (LOSS) .....$ (82,000) $ (9,000) $ (704,000) $ (474,000) (123,000) ========== ============ ============ ============ ============ Net (loss) per share ......$ (0.00) $ (0.00) $ (.04) $ (.02) $ (.01) Weighted average number of shares outstanding.... 20,692,525 15,828,150 18,865,454 15,064,856 13,319,893
The accompanying notes are an integral part of these statements. F-6
Chaparral Resources, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended November 30, Three months ended ---------------------------- November 30, February 29, February 28, ---------------------------------------- 1996 1995 1995 1994 1993 ----------- ----------- ---------- --------- --------- (Unaudited) (Unaudited) Increase (decrease) in cash and cash equivalents Cash flows from operating activities Net (loss) ........................ $ (82,000) $ (9,000) $ (704,000) $ (474,000) $ (123,000) Adjustments to reconcile net (loss) to net cash provided by operating activities Depreciation and depletion ...... 16,000 30,000 74,000 120,000 125,000 (Decrease) in deferred compensation .................. -- -- -- (40,000) (20,000) Write down of oil and gas property .................. -- -- 619,000 416,000 230,000 Stock issued for services and bonuses ................... -- -- 27,000 8,000 -- Amortization of note discount ... 32,000 -- 17,000 -- -- Changes in assets and liabilities (Increase) decrease in Accounts receivable ......... 60,000 153,000 218,000 22,000 (165,000) Prepaid expenses ............ (1,000) -- -- 1,000 Increase (decrease) in Accounts payable ............ (56,000) (55,000) (64,000) 47,000 62,000 Accrued liabilities ......... (48,000) (41,000) (59,000) (9,000) (27,000) ----------- ----------- ----------- ----------- ----------- Net cash provided by operating activities . (77,000) 79,000 128,000 90,000 81,000 Cash flows from investing activities Additions to property and equipment 60,000 (50,000) (86,000) (255,000) (310,000) Investment in foreign oil and gas properties ...................... (616,000) (107,000) (1,088,000) (256,000) -- Proceeds from sale of interest in oil and gas properties ....... 19,000 -- 41,000 71,000 2,000 Decrease in cash value of insurance and annuities ......... -- -- 40,000 40,000 39,000 Increase (decrease) in minority interest ........................ -- -- (16,000) (1,000) 1,000 Decrease in equipment inventory ... -- 1,000 -- 1,000 -- Sale (purchase) of bonds .......... -- -- 299,000 (299,000) -- Redemption of certificates of deposit ......................... -- -- 20,000 146,000 -- Purchase of certificates of deposit -- -- -- -- (2,000) ----------- ----------- ----------- ----------- ----------- Net cash provided by (used in) investing activities ........... (537,000) (156,000) (789,000) (554,000) (270,000) The accompanying notes are an integral part of these statements. F-7 Chaparral Resources, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended November 30, Three months ended ---------------------------- November 30, February 29, February 28, --------------------------------- 1996 1995 1995 1994 1993 ----------- ----------- --------- --------- --------- (Unaudited) (Unaudited) Cash flows from financing activities Proceeds from note payable ................ $ 332,000 $ -- $ 750,000 $ -- $ -- Proceeds from issuance of capital stock ........................... -- 51,000 94,000 260,000 410,000 ---------- -------- ---------- ---------- --------- Net cash provided by (used in) financing activities .................... 332,000 51,000 844,000 260,000 410,000 ---------- -------- ---------- ---------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ................... (282,000) (26,000) 183,000 (204,000) 221,000 ---------- -------- ---------- ---------- --------- Cash and cash equivalents at beginning of year ........................... 501,000 318,000 318,000 522,000 301,000 ---------- -------- ---------- ---------- --------- Cash and cash equivalents at end of year ................................. $ 219,000 $ 292,000 $ 501,000 $ 318,000 $ 522,000 ========== ========== ========= ========== ========= Supplemental cash flow disclosures Cash paid during the year Interest .................................. $ 19,000 $ -- $ 5,000 $ 4,000 $ 8,000 Income taxes .............................. -- -- -- -- -- Supplemental schedules of noncash investing and financing activities Common stock issued for investment in affiliate ................. $ -- $ -- $3,162,000 $ -- $ -- Discount recognized for note issued with detachable stock warrants .............................. -- -- 306,000 -- -- Common stock issued upon conversion of debentures .............. -- -- -- 75,000 --
The accompanying notes are an integral part of these statements. F-8
Chaparral Resources, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years ended November 30, 1995, 1994 and 1993 and the three months ended February 29, 1996 (Unaudited) Capital Common stock in excess Retained --------------------------------- of par earnings Shares Amount value (deficit) ---------- ---------- ---------- --------- Balance at November 30, 1992 .................................. $12,237,875 $ 1,223,000 $ 9,061,000 $(8,404,000) Issuance of capital stock ................................... 2,685,750 269,000 141,000 -- Net loss .................................. -- -- -- (123,000) ----------- ----------- ----------- ----------- Balance at November 30, 1993 ................................... 14,923,625 1,492,000 9,202,000 (8,527,000) Warrants exercised for capital stock ........................... 650,625 65,000 195,000 -- Conversion of debentures for capital stock ....................... 200,067 20,000 55,000 -- Capital stock issued for services ................................ 8,000 1,000 6,000 -- Net loss .................................. -- -- -- (474,000) ----------- ----------- ----------- ----------- Balance at November 30, 1994 ................................... 15,782,317 1,578,000 9,458,000 (9,001,000) Warrants exercised for capital stock ........................... 265,375 27,000 67,000 -- Capital stock issued for investment in affiliate ............................... 4,400,000 440,000 2,722,000 -- Capital stock issued for services ................................ 12,500 1,000 9,000 -- Capital stock issued for employee and director bonuses ................................. 24,000 2,000 15,000 -- Debt issuance costs - stock warrants issued ................... -- -- 306,000 -- Net loss .................................. -- -- -- (704,000) ----------- ----------- ----------- ----------- Balance at November 30, 1995 ................................... 20,484,192 $ 2,048,000 $12,577,000 $(9,705,000) Capital stock issued (unaudited) ............................. 625,000 63,000 728,000 -- Net loss (unaudited) ...................... -- -- -- (83,000) ----------- ----------- ----------- ----------- Balance at February 29, 1996 (unaudited) ........................ 21,109,192 $ 2,111,000 $13,305,000 $(9,788,000) =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. F-9 Chaparral Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The summary of significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows: 1. History and Business Activity Chaparral Resources, Inc. was incorporated in the State of Colorado on January 13, 1972, principally to engage in the exploration, development and production of oil and gas properties. 2. Principles of Consolidation The November 30, 1994 consolidated financial statements include the accounts of the Company and its 87% owned joint venture, Reservoir Creek Gathering System. All significant intercompany transactions have been eliminated. On April 15, 1995, the Company sold its 87% ownership interest in this joint venture. 3. Cash Equivalents For purposes of the statement of cash flows, cash equivalents are defined as highly liquid investments purchased with an original maturity of three months or less. 4. Investments in Debt and Equity Securities The Company accounts for investments in debt and equity securities under the provision of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This statement requires that, at acquisition, the Company classify debt and equity securities into one of three categories: held-to-maturity, available-for-sale, or trading. At each reporting date, the appropriateness of the classification shall be reassessed. F-10 Chaparral Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 5. Oil and Gas Property and Equipment The Company uses the full cost method of accounting for its oil and gas properties. All costs incurred in the acquisition, exploration and development of properties (including costs of surrendered and abandoned leaseholds, delay lease rentals, dry hole costs, geological and geophysical costs and overhead related to exploration and development activities) are capitalized on a country by country basis. The limitation on such capitalized costs is determined in accordance with rules specified by the Securities and Exchange Commission. Capitalized costs are depleted using the units of production method. All of the Company's proved reserves are in the United States. 6. Sales of Proved Oil and Gas Property Sales of oil and gas properties, whether or not being amortized currently, are accounted for as adjustments of capitalized costs, with no gain or loss recognized, unless such adjustments significantly alter the relationship between capitalized costs and proved reserves of oil and gas. A significant alteration would not ordinarily be expected to occur for sales involving less than 25% of the reserve quantities of a given cost center. If gain or loss is recognized on such a sale, total capitalized costs within the cost center are allocated between the reserves sold and reserves retained on the same basis used to compute amortization, unless there are substantial economic differences between the properties sold and those retained, in which case capitalized costs are allocated on the basis of the relative fair values of the properties. 7. Costs Not Subject to Depletion Costs associated with acquisition and evaluation of unproved properties are excluded from the amortization computation until it is determined if proved reserves can be attributed to the properties. These unevaluated properties are assessed annually for possible impairment and the amount impaired, if any, is added to the amortization base. Costs of exploratory dry holes and geological and geophysical costs not directly associated with specific unevaluated properties are added to the amortization base as incurred. F-11 Chaparral Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 8. Sales of Unproved Properties Proceeds received from drilling arrangements are credited to the appropriate cost center and recognized as a lower amortization provision as reserves are produced. 9. Other Property and Equipment Furniture, fixtures and equipment are depreciated using straight-line and accelerated methods over estimated useful lives which range from three to ten years. Gains or losses on sales of property and equipment, other than oil and gas exploration and development costs, are recognized as part of operations. Expenditures for renewals and betterments are capitalized, while expenditures for maintenance and repairs are charged to operations as incurred. 10. Administrative Overhead Reimbursement The Company, as operator of drilling and/or producing properties, is reimbursed by the nonoperators for administration, supervision, office services and warehousing costs on an annually adjusted fixed rate basis per well per month. These charges are applied as a reduction of general and administrative expenses for purposes of the statement of operations. 11. Income Taxes The Company accounts for income taxes on the liability method based upon the tax rate at which items of income and expense are expected to be settled in the Company's tax return. 12. (Loss) Per Common Share Earnings (loss) per common and common equivalent share is based on the weighted average number of shares outstanding. The potential dilution from the exercise of stock warrants is not material. F-12 Chaparral Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 13. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 14. Reclassifications Certain reclassifications have been made to conform prior years' information with the current year presentation. 15. Interim Financial Statements Information in the accompanying consolidated financial statements and notes to the consolidated financial statements for the interim periods is unaudited. The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year. NOTE B - 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 (note D). F-13 Chaparral Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE B - GOING CONCERN (CONTINUED) The Company has commenced a private placement of common stock (note N). However, the Company does not anticipate that the net proceeds from the sale of the shares offered, together with the Company's current cash reserves and cash flow from operations, will be sufficient to meet the Company's capital requirements through fiscal 1996. 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. NOTE C - INVESTMENTS IN DEBT AND EQUITY SECURITIES The Company classifies its investments in U.S. Treasury securities as held-to-maturity securities. Held-to-maturity securities are carried at amortized cost. As of November 30, 1995, the Company did not own any investments in debt and equity securities. The amortized cost, unrealized gains and losses, and fair values of the Company's held-to-maturity securities held at November 30, 1994 are summarized as follows:
Gross Gross Amortized unrealized unrealized Fair cost gains losses value --------- ---------- ---------- --------- U.S. government securities ......... $299,000 $ 4,000 $-- $303,000 ======== ======== ==== ========
The following table lists the maturities of debt securities held at November 30, 1994 classified as held-to-maturity.
Within One to five More than one yes years five years Total ------- ----------- ---------- ------- Held-to-maturity securities .......... $ 199,000 $ 100,000 $-- $ 299,000 ======= ======= === =======
F-14 Chaparral Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE D - INVESTMENT IN AND ADVANCES TO AFFILIATE In September, 1994, the Company acquired a 25% interest in Central Asian Petroleum Guernsey Limited ("CAP-G"), with headquarters in Ankara, Turkey. CAP-G has a 50% interest in Karakuduk Munay, Inc. ("KKM"), which owns 100% of the right to develop the Karakuduk Field, a shut-in oil field in the central Asian Republic of Kazakstan. As a result of the acquisition of the 25% interest in CAP-G, the Company had a 12.5% beneficial interest in KKM and the Karakuduk Field. In April, 1995, the Company acquired all of the stock of Central Asian Petroleum, Inc. ("CAP-D"), in exchange for shares of the Company's common stock (note F - shares in escrow). As a result of the acquisition, the Company's beneficial interest in CAP-G increased to 45%, giving the Company a 22.5% beneficial interest in KKM and the Karakuduk Field (see note N). Since the Company and its affiliates are in the acquisition and evaluation phase related to the Karakuduk Field, all costs incurred by the Company related to the Field have been capitalized and are not subject to depletion. All of the permits and licenses required to develop the field are not yet in place and there is no assurance that they will be obtained. Because of uncertainties surrounding the prospect, no proved reserves have been attributed to the field. The project will require significant development costs for which the financing is not complete. There can be no assurance that the project will be adequately financed or that the field will be successfully developed. The license requires a minimum work plan of approximately $10,000,000 in 1996, $34,000,000 in 1997 and $12,000,000 in 1998. The agreement provides KKM with the right to defer the minimum work program under certain conditions. As part of the minimum workplan, Chaparral is committed to loan CAP-G sufficient funds up to a total amount of $4,000,000 to enable CAP-G to loan KKM sufficient funds to place existing wells in the Karakuduk Field on production. In addition to the normal risks associated with domestic oil and gas exploration and development, this project is subject to other risks such as political instability, war, expropriation, language barriers, government bureaucracy, uncertain markets, fluctuation in currency exchange rates, limitations on currency repatriation, foreign taxes, duties and tariffs, renegotiation or modification of contracts and the availability of oil gathering systems and pipelines. F-15 Chaparral Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE E - LONG-TERM DEBT Long-term obligations at November 30, 1995 consisted of a note payable to a private corporation in the amount of $750,000. The note is due on the earlier of April 30, 1997 or the third business day following the receipt by Chaparral of any proceeds from one of the following sources: 1) the sale or issuance of its securities, or 2) any debt financing provided or guaranteed by the Overseas Private Investment Corporation or other governmental entity. Interest is payable monthly at a rate of 8%. As additional consideration for this note, Chaparral issued to the holder warrants to purchase 500,000 shares of Chaparral's common stock, and to a private corporation, as a finders fee, warrants to purchase 200,000 shares, at $0.25 per share, exercisable at any time, but no later than October 30, 1998. The note has been discounted by the difference between the market value of the Company's common stock on the date of issuance and the exercise price of the warrants. The discount will be amortized over the life of the note (18 months). The following is a summary of the note payable at November 30, 1995: Note payable ...........................$ 750,000 Less unamortized discount based on imputed interest rate of 24% ........................... (289,000) ------- $ 461,000 ======= Under the terms of the note, Chaparral was required to elect three people affiliated with the holder to its Board of Directors, with one of these people being named the Chairman of the Board. The note is subject to a provision whereby, if the note is not repaid by specific dates (before April 30, 1997), Chaparral will issue additional warrants to the holder. Aggregate maturities of long-term debt as of November 30, 1995 are as follows: 1996 .................... $ -- 1997 .................... 750,000 F-16 Chaparral Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE F - COMMON STOCK AND STOCK WARRANTS Stock Warrant Plan During 1989, the Board of Directors approved a stock warrant plan for key employees and directors. The Company has reserved 1,175,000 shares of its common stock for issuance under the plan. Warrants must be granted and exercised within a 10 year period ending April 30, 1999. The exercise price must equal the fair market value of the Company's common stock on the date of grant. Immediately following approval of the plan by the Board of Directors, warrants for 1,175,000 shares were granted with an exercise price of $.28 per share. The plan was approved in 1990 by the Company's shareholders. During 1995, 100,000 of the warrants were exercised for the purchase of common stock. The exercise price was $.28 per share for a total of $28,000. Stock Offering During 1993, the Company sold a total of 1,790.5 units in a private placement consisting of 2,685,750 shares of common stock and 1,342,875 warrants to purchase stock with an exercise price of $.40. An additional 105,540 warrants were issued as commission. During 1994, 650,625 of the warrants issued in the private placement were exercised for the purchase of shares of common stock. The exercise price was $.40 per share for a total of $260,000. During 1995, 165,375 of the warrants issued in the private placement were exercised for the purchase of shares of common stock. The exercise price was $.40 per share for a total of $66,000. Stock Warrants Related to Debt Issuance (note E) As consideration for the issuance of a $750,000 note, the Company issued warrants for a total of 700,000 shares of the Company's common stock, at $.25 per share, exercisable at any time, but no later than October 30, 1998. F-17 Chaparral Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE F - COMMON STOCK AND STOCK WARRANTS (CONTINUED) Shares in Escrow The Company issued 4,400,000 shares of common stock to acquire an interest in CAP-G (see note D). 150,000 of these shares were issued during the year ended November 30, 1995 for the first 25% interest. For the remaining 20% interest, 4,250,000 shares were held in escrow at the date of this transaction with delivery authorized upon the occurrence of several events. The first 1,000,000 shares were delivered in September, 1995 upon registration of the Karakuduk Munay Agreement by the government of the Republic of Kazakstan. Additional shares will be delivered based upon future events including completion of financing for the Karakuduk field, minimum production quantities and project financing. NOTE G - INCOME TAXES The following is a summary of the provision for income taxes:
November 30, ------------------------------------- 1995 1994 1993 --------- --------- --------- Income taxes (benefit) computed at Federal statutory rate ............... $(241,000) $(161,000) $ (42,000) Change in asset valuation allowance .................... 298,000 256,000 65,000 Other .......................... (57,000) (95,000) (23,000) --------- --------- --------- Income taxes ................... $ -- $ -- $ -- ========= ========= =========
F-18 Chaparral Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE G - INCOME TAXES (CONTINUED) The components of the Company's deferred tax assets and liabilities under SFAS No. 109 are as follows:
Year ended November 30, ----------------------------------------- 1995 1994 1993 ----------- ----------- ----------- Deferred tax assets Net operating loss carryforwards ........ $ 4,131,000 $ 3,934,000 $ 3,777,000 Full cost pool capitalization ....... 246,000 145,000 46,000 Valuation allowance ...... (4,377,000) (4,079,000) (3,823,000) ----------- ----------- ----------- Deferred tax assets ...... $ -- $ -- $ -- =========== =========== ===========
There were no deferred tax assets or income tax benefits recorded in the financial statements for net deductible temporary differences or net operating loss carryforwards due to the fact that the realization of the related tax benefits is not considered likely. At November 30, 1995, the Company has tax loss carryforwards of approximately $12,149,000 available to offset future taxable income. These carryforwards will expire at various times between 1996 and 2011. The Company has issued a significant number of shares of common stock during the year ended November 30, 1995 and has also issued warrants. The Company is also currently negotiating for the infusion of additional capital which, if successful, will require additional shares of stock to be issued. The changes in ownership may significantly restrict the use of net operating loss carryforwards. At November 30, 1995, unused statutory depletion carryforwards, which have unlimited duration, are approximately $567,000. The unused investment tax credit carryover was approximately $86,000 at November 30, 1995 and expires through 2000. The loss carryforward at November 30, 1995 for financial reporting purposes is approximately $11,264,000. The difference between the loss carryforward for financial reporting and income tax purposes results principally from the difference in book and tax basis of oil and gas properties. F-19 Chaparral Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE H - RELATED PARTY TRANSACTIONS The Company paid a director $24,000 during 1995 and 1994 and $20,000 during 1993, for public relations consulting services. NOTE I - MAJOR CUSTOMERS The Company is presently engaged in exploration for and development of oil and gas. The Company sells its production under contracts with various purchasers, with certain domestic purchasers accounting for sales of 10% or more per year as follows: 1995 .......................... 16% 1994 .......................... 15%, 13% and 11% 1993 .......................... 13%, 11% and 11% NOTE J - LEASE The Company leases office space under a noncancellable operating lease, expiring in March, 1997. The following is a schedule of future minimum rental payments: Year ending November 30, ------------------------ 1996 .......................... $ 33,000 1997 .......................... 11,000 ------- $ 44,000 Net rent expense was $36,000 for 1995, $37,000 for 1994, and $34,000 for 1993. Related party sublease income included in rent expense was $6,000 for 1994 and 1993, there was no sublease income in 1995. NOTE K - DEFERRED COMPENSATION PLANS Royalty Participation Plan During 1982, the Company adopted a Royalty Participation Plan for the employees of the Company. Under the plan, the Company may contribute to a trust fund, royalty interests acquired by the Company together with any proceeds of production received by the Company which are attributable to such royalty interests. The net income of the trust fund will be distributed yearly to the participants based on years of service and position in the Company. Distributions were $12,000 for 1995, $10,000 for 1994 and $10,000 for 1993. F-20 Chaparral Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE K - DEFERRED COMPENSATION PLANS (CONTINUED) Deferred Compensation Agreement In 1991, the Company amended its deferred compensation plan for its president to provide for payments of $20,000 annually for 5 years, a total of $100,000, beginning in 1991. Prior to the amendment, the plan called for payments of $18,000 annually, a total of $180,000, for 10 years beginning upon termination. At November 30, 1994, the Company has no remaining obligation under the Plan. NOTE L - DEFINED CONTRIBUTION PLANS Effective December 31, 1990, the Company adopted a new defined contribution plan which covers all full-time eligible employees. Contributions are determined as a percent of each covered employee's salary and are funded as accrued. Plan contributions for the Company were $27,000 in 1995, $26,000 in 1994, and $29,000 in 1993, of which $20,000 in 1995, $20,000 in 1994, and $23,000 in 1993 was attributable to the president of the Company. The Company also adopted a 401(k) plan covering all full time employees, effective January 1, 1991. Employee contributions are in the form of salary reductions up to the maximum percentage allowable under IRS codes. There are no employer matching contributions. NOTE M - FOURTH QUARTER ADJUSTMENTS During the fourth quarter of the year ended November 30, 1995, the Company recognized a write down of its oil and gas properties of $619,000, as a result of a full cost ceiling limitation. F-21 Chaparral Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE N - EVENTS SUBSEQUENT TO NOVEMBER 30, 1995 In January and February, 1996, the Company entered into agreements to acquire, for a total of $5,850,000 cash and 1,785,000 shares of the Company's common stock, an additional 55% interest in CAP-G. If consummated, the acquisitions would increase the Company's ownership in CAP-G to 100%, thus increasing to 50% the Company's beneficial ownership of KKM and the Karakuduk Field. The additional 55% of CAP-G is to be acquired in three separate transactions, the first two of which include the purchase of all of the CAP-G shares owned by a private Turkish company ("Darka") and by an individual CAP-G shareholder ("KIIksal"), each of which owns 25% of the CAP-G shares outstanding. The Company would pay $2,000,000 in cash plus issue 685,000 shares of the Company's common stock to Darka for all of its CAP-G shares. The cash payment includes an initial $300,000 paid by the Company on March 4, 1996, following the Company's review of Darka. An additional $300,000 and 625,000 shares of Company stock were delivered March 8, 1996, with the balance of cash and stock due at closing on April 1, 1996. The Company would pay $1,975,000 in cash and issue 900,000 shares of the Company's common stock to KIIksal for 60% of KIIksal's CAP-G shares, with an option, after completion of the initial purchase, to purchase the remaining 40% of his CAP-G shares for an additional $1,625,000 and 200,000 shares of the Company's common stock. The cash payment on the initial purchase from KIIksal includes $150,000 paid by the Company into an escrow account during the Company's 60-day due diligence review. If the initial purchase is consummated from KIIksal, the escrowed funds would be released and an additional $600,000 cash and 900,000 shares of the Company's common stock delivered to KIIksal on or before March 11, 1996. The remaining cash balance of $1,225,000 for the initial purchase will be paid in four equal quarterly payments of $306,250 between June 11, 1996 and March 11, 1997. The Company has the option to acquire the remaining 40% of KIIksal's CAP-G shares at any time following completion of the initial purchase and prior to December 11, 1997. Under a third agreement, the Company would acquire the remaining 5% of the outstanding CAP-G shares from a private corporation ("OCSCO") for $250,000 to be paid at the earlier of April 14, 1996 or 15 days after completion of a private placement of common stock described below. F-22 Chaparral Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE N - EVENTS SUBSEQUENT TO NOVEMBER 30, 1995 (CONTINUED) In March, 1996, the Company commenced a private offering of common stock, whereby the Company is offering 12,000,000 shares at $.50 per share. The Company reserved the right to increase the offering to 14,000,000 shares. There is no minimum amount in the offering, and proceeds from the sale of the shares will be used by the Company as subscriptions are accepted without any escrow. If all shares offered are sold, the net proceeds from the offering are estimated to be approximately $5,500,000 after deducting Placement Agent fees and estimated offering expenses of $500,000. During the quarter ended February 29, 1996 and subsequent thereto, several of the above transactions were completed or partially completed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company--Liquidity and Capital Resources" (Unaudited). F-23 SUPPLEMENTAL INFORMATION - DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES - UNAUDITED The following estimates of proved and unproved developed reserve quantities and related standardized measure of discounted net cash flow are estimates only, and do not purport to reflect realizable values or fair market values of the Company's reserves. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Additionally, the price of oil has been very volatile and downward changes in prices can significantly effect quantities that are economically recoverable. Accordingly, these estimates are expected to change as future information becomes available and the changes may be significant. All of the Company's reserves are located in the United States. Proved reserves are estimated reserves of crude oil and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment and operating methods. The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves, less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses. The estimated future net cash flows are then discounted using a rate of 10% a year to reflect the estimated timing of the future cash flows. F-24
SUPPLEMENTAL INFORMATION - DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES - UNAUDITED (CONTINUED) PROVED OIL AND GAS RESERVE QUANTITIES (All within the United States) Oil Gas reserves reserves (bbls.) (Mcf.) -------- --------- Balance December 1, 1992 ..................... 105,973 1,485,556 Revisions of previous estimates .......... (10,970) (200,049) Extensions, discoveries and other additions ........................ 59,193 1,175,421 Production ............................... (12,448) (155,786) ------- --------- Balance November 30, 1993 .................... 141,748 2,305,142 Revisions of previous estimates .......... (125) (455,946) Sales of reserves ........................ (20,392) (95,714) Extensions, discoveries and other additions ........................ 1,745 1,700,289 Production ............................... (11,286) (159,041) ------- --------- Balance November 30, 1994 .................... 111,690 3,294,730 Revisions of previous estimates .......... (1,438) (98,536) Sales of reserves ........................ (36,425) (10,228) Extensions, discoveries and other additions ........................ 582 9,375 Production ............................... (8,224) (132,924) ------- --------- Balance November 30, 1995 .................... 66,185 3,062,417 ======= ========= Proved developed reserves November 30, 1993 ........................ 82,798 1,155,946 November 30, 1994 ........................ 52,740 1,103,203 November 30, 1995 ........................ 7,235 870,890
F-25
SUPPLEMENTAL INFORMATION - DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES - UNAUDITED (CONTINUED) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES Year ended November 30, ------------------------------------------ 1995 1994 1993 ---------- ---------- ----------- Future cash inflows $ 3,449,000 $ 5,041,000 $ 4,980,000 Future production and development costs (2,478,000) (3,051,000) (2,661,000) Future income tax expenses -- -- -- --------- --------- ---------- Future net cash flows 971,000 1,990,000 2,319,000 10% annual discount for estimated timing of cash flows (544,000) (907,000) (959,000) --------- --------- --------- Standardized measure of discounted future net cash flows $ 427,000 $ 1,083,000 $ 1,360,000 ========= ========= ========= The following are the principal sources of changes in the standardized measure of discounted future net cash flows: Year ended November 30, ---------------------------------------- 1995 1994 1993 ---------- ---------- ---------- Beginning balance ................. $ 1,084,000 $ 1,360,000 $ 1,429,000 Expenditures which reduced future development costs ........ (3,000) (146,000) (67,000) Acquisition of proved reserves .... -- -- -- Sale of proved reserves ........... (81,000) (102,000) -- Sales and transfers of oil and gas produced, net of production costs ................ (140,000) (143,000) (229,000) Net increase (decrease) in price ........................... (593,000) (568,000) (485,000) Net (increase) decrease in costs ........................... 247,000 3,000 94,000 Extensions and discoveries ........ 165,000 526,000 631,000 Revisions of previous quantity estimates .............. (38,000) (214,000) (140,000) Accretion of discount ............. 108,000 136,000 143,000 Effect of change in timing and other ....................... (322,000) 231,000 (16,000) ----------- ----------- ----------- Ending balance .................... $ 427,000 $ 1,083,000 $ 1,360,000 =========== =========== =========== F-26 SUPPLEMENTAL INFORMATION - DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES - UNAUDITED (CONTINUED) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES (CONTINUED) Costs Incurred Year ended November 30, ------------------------------------- 1995 1994 1993 --------- --------- --------- Property acquisition costs - unproved leases .................... $ -- $ 7,000 $ 12,000 Property acquisition costs - proved properties .................. 30,000 37,000 228,000 Exploration costs .................... -- -- 2,000 Development costs .................... 30,000 146,000 67,000 (1) Net of lease sale proceeds of $169,000 Production Costs Year ended November 30, ------------------------------------- 1995 1994 1993 --------- --------- --------- Lease operating expense .............. $ 95,000 $ 176,000 $ 155,000 Production tax ....................... 20,000 56,000 30,000 ----------- ----------- ----------- $ 115,000 $ 232,000 $ 185,000 =========== =========== =========== Other Information Year ended November 30, ------------------------------------- 1995 1994 1993 --------- --------- --------- Net revenue (revenue less production costs, ad valorem and severance taxes) ............................. $ 140,000 $ 142,000 $ 299,000 Amortization per equivalent barrel of production* ..................... 2.33 3.18 3.14 Price per bbl. (oil) ................. 14.27 12.75 14.09 Production cost per bbl. (oil) ....... 6.34 8.21 7.91 Price per Mcf. (gas) ................. 1.02 1.44 1.52 Production cost per Mcf. (gas) ....... .47 .86 .55 Price per net equivalent bbl.* ....... 8.33 9.86 10.74 Production cost per net equivalent bbl.* .......... 3.78 6.06 4.81 * Natural gas converted to equivalent barrels using conversion ratio of 6:1. F-27 SUPPLEMENTAL INFORMATION - DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES - UNAUDITED (CONTINUED) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES (CONTINUED) Year ended November 30, ------------------------------------- 1995 1994 1993 --------- --------- --------- Present value of proved reserves Proved developed .............. $ 266,000 $ 650,000 $ 785,000 Proved undeveloped ............ 161,000 433,000 575,000 ---------- ---------- ---------- Total ........................... $ 427,000 $1,083,000 $1,360,000 ========== ========== ========== Future net revenues of proved reserves Proved developed .............. $ 383,000 $ 950,000 $1,129,000 Proved undeveloped ............ 588,000 1,040,000 1,190,000 ---------- ---------- ---------- Total ........................... $ 971,000 $1,990,000 $2,319,000 ========== ========== ==========
F-28 - ------------------------------------------------------------------------------- CHAPARRAL RESOURCES, INC. No person has been authorized to give any information or to make any representation in connection with the Offering being made hereby not contained in this Prospectus, and, if given or made, such information or representation must not be relied upon as having been authorized. This Prospectus does not constitute an offer to sell or solicitation of an offer to buy any of the securities offered hereby in any jurisdiction 20,585,325 Shares in which it is unlawful to make such offer or of Common Stock solicitation in such jurisdiction. Neither the delivery of this Prospectus nor any sale made hereunder shall under any circumstances create an implication that information contained herein is correct as of any time subsequent to the date hereof. ------------------------- Page No. AVAILABLE INFORMATION................... 2 PROSPECTUS SUMMARY...................... 3 RISK FACTORS............................ 6 USE OF PROCEEDS......................... 9 MARKET PRICES OF COMMON EQUITY, DIVIDEND POLICY AND RELATED STOCKHOLDER MATTERS........... 9 ---------- MANAGEMENT'S DISCUSSION AND PROSPECTUS ANALYSIS OF FINANCIAL CONDITION ---------- AND RESULTS OF OPERATIONS OF THE COMPANY........................... 10 BUSINESS OF THE COMPANY................. 14 DIRECTORS AND EXECUTIVE OFFICERS........ 24 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...... 29 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 30 SELLING SECURITYHOLDERS................. 32 DESCRIPTION OF SECURITIES............... 35 PLAN OF DISTRIBUTION.................... 36 LEGAL MATTERS........................... 37 EXPERTS................................. 37 GLOSSARY................................ 38 FINANCIAL STATEMENTS....................F-1 , 1996 --------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. Expenses payable by Registrant in connection with the issuance and distribution of the securities being registered hereby are as follows: SEC Registration Fee................. $ NASD Fee............................. Accounting Fees and Expenses......... 10,000* Legal Fees and Expenses.............. 25,000* Blue Sky Fees and Expenses........... 5,000* Printing, Freight and Engraving...... 2,000* Miscellaneous........................ ------* Total.................... $ ====== - ------------------- *Estimated. Item 14. Indemnification of Directors and Officers. Section 7-3-101.5 of the Colorado Corporation Code permits a Colorado corporation to indemnify any director, officer, employee or agent for actions taken in his or her official capacity if such person acted in good faith and in a manner not opposed to the best interests of the corporation or, with regard to criminal proceedings, if they had no reasonable cause to believe their conduct was unlawful. Article Twelfth of the Company's Articles of Incorporation filed as Exhibits 3.1 and 3.2 provides that the Company shall indemnify each director and each officer, his heirs, executors and administrators, against expenses reasonably incurred or liability incurred by him in connection with any action, suit or proceeding to which he may be made a party be reason of his being or having been a director or officer of the Company, except in relation to matters as to which he or she shall be finally adjudged in such action, suit or proceeding to be liable for fraud or misconduct, which right of indemnification shall not exclude other rights to which such person may be entitled. Article V of the Bylaws of the Company, filed as Exhibit 3.3 hereto, includes provisions requiring the Company to indemnify any person who was or is a party or is threatening to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, and whether formal or informal, by reason of the fact that he is or was a director, officer, employee, fiduciary or agent of the Company, or is or was serving at the request of the Company as a director, officer, partner, trustee, employee, fiduciary or agent of any foreign or domestic profit or nonprofit corporation or of any partnership, joint venture, trust, profit or nonprofit unincorporated association, limited liability company or other enterprise or an employee benefit plan against reasonably incurred expenses (including attorneys' fees), judgement, penalties, fines (including any excise tax assessed with respect to an employee benefit plan) and amounts paid in settlement reasonably incurred by him in connection with such action, suit or proceeding if it is determined by disinterested directors that such person conducted himself in good faith and that he reasonably believed (i) in the case of conduct in his official capacity with the Company, that his conduct was in the Company's best interest, or (ii) in all other cases (except criminal cases) that his conduct was at least not opposed to the Company's best interest, or (iii) in the case of any criminal proceeding, that he had no reasonable cause to believe his conduct was unlawful. No indemnification shall be made with respect to any claim, issue or matter in connection with a proceeding by or in the right of a corporation in which the person being indemnified is adjudged liable to the corporation or in connection with any proceeding charging that the person being indemnified derived an improper personal benefit, whether or not involving acting in an official capacity, in which he was adjudged liable on the basis that he derived an improper personal benefit. Further, indemnification in connection with a proceeding brought by or in the right of the Company shall be II-1 limited to reasonable expenses, including attorneys' fees, incurred in connection with the proceeding. Reasonable expenses (including attorneys' fees) incurred in defending an action, suit or proceeding) may be paid by the Company to any person being indemnified in advance of the final disposition of the action, suit or proceeding upon receipt of (i) a written affirmation by the person being indemnified as to his good faith and belief that he met the standards of conduct described by the Bylaws, (ii) a written undertaking, executed personally or on behalf of the person being indemnified, to repay such advances if it is ultimately determined that he did not meet the prescribed standards of conduct, and (iii) a determination is made by a disinterested director of the Company (as described in the Bylaws) that the facts then known to a disinterested director would not preclude indemnification. The Bylaws require that the Company report in writing to shareholders with or before notice of the next meeting of shareholders of any indemnification of or advance of expenses to any director under the indemnification provisions of the Bylaws. Item 15. Recent Sales of Unregistered Securities The following is information as to all securities of the Registrant sold by the Registrant within the past three years which were not registered under the Securities Act of 1933, as amended ("Securities Act"). (a) Between September 13, 1994 and June 1, 1996, the Registrant issued 1,448,325 shares of its Common Stock to 37 persons which exercised Stock Purchase Warrants issued by the Registrant in a private offering completed on May 31, 1993. The exercise price of the Warrants was $0.40 per share, paid at the time of exercise. The certificates evidencing the shares issued bear appropriate restrictive legends under the Securities Act and stop transfer instructions have been placed with the Registrant's stock transfer agent. No underwriter was involved in the transaction. The Registrant issued the shares in reliance upon exemptions from registration under Section 4(2) of the Securities Act and Regulation D thereunder. All of such persons had available to them material information concerning the Registrant. A Form D was filed in connection with the issuances. (b) Between March 8, 1996 and April 5, 1996, Registrant issued 14,000,000 shares of its Common Stock to 32 persons in a private placement. The purchase price for the shares was $0.50 per share. Allen & Company Incorporated served as placement agent in the private offering and received the compensation described in (m) and (n) below. The Registrant issued the shares in reliance upon exemptions from registration provided by Regulation D and Section 4(2) of the Securities Act. All of such persons had available to them material information concerning the Registrant. A Form D was filed in connection with the issuances. All purchasers represented that they were accredited investors as defined in Regulation D, and that the shares were being acquired for the investors' own account and not with a view to distribution. The certificates evidencing the shares issued bear appropriate restrictive legends under the Securities Act and stop transfer instructions have been placed with the Registrant's stock transfer agent. (c) On April 5, 1996, Registrant issued 600,000 shares of its Common Stock to two persons upon conversion of two outstanding unsecured promissory notes of the Registrant in the total principal amount of $300,000. Allen & Company Incorporated assisted the Registrant in connection with the conversion and received the compensation described in (l) below. The Registrant relied upon exemptions from registration under Section 4(2) of the Securities Act. All of such persons had available to them material information concerning the Registrant. Each of the persons represented that such person acquired the shares for the person's account and not with a view to distribution and that the investor is an accredited investor. The certificates evidencing the shares issued bear appropriate restrictive legends under the Securities Act and stop transfer instructions have been placed with the Registrant's stock transfer agent. (d) On November 15, 1994, the Registrant issued 8,000 shares of its Common Stock to P&M Petroleum Management for services rendered to the Registrant. The Registrant issued the shares in reliance upon the exemption from registration under Section 4(2) of the Securities Act. P&M Petroleum Management represented to the Registrant that it acquired the shares for its own account and not with a view to distribution. P&M Petroleum Management had available to it all material information concerning the Registrant. The certificates evidencing the shares issued bear appropriate restrictive legends under the Securities Act and stop transfer instructions have been placed with the Registrant's stock transfer agent. No underwriter was involved in the transaction. II-2 (e) On February 27, 1995, the Registrant issued 100,000 shares of its Common Stock to Overseas Consulting Services Company, Inc. ("OCSCO") as partial consideration for the acquisition by the Registrant of an interest in Central Asian Petroleum Guernsey, Limited ("CAP-G"). The Registrant issued the shares in reliance upon the exemption from registration under Section 4(2) of the Securities Act. OCSCO represented to the Registrant that it acquired the shares for its own account and not with a view to distribution. OCSCO had available to it all material information concerning the Registrant. The certificates evidencing the shares issued bear appropriate restrictive legends under the Securities Act and stop transfer instructions have been placed with the Registrant's stock transfer agent. No underwriter was involved in the transaction. (f) On September 13, 1994, the Registrant issued 200,067 shares of its Common Stock to Siedler Amdec Securities ("SAS") upon conversion of a debenture of the Registrant in the total principal amount as of the date of conversion of $75,025. The Registrant issued the shares in reliance upon the exemption from registration under Section 4(2) of the Securities Act. SAS represented to the Registrant that it acquired the shares for its own account and not with a view to distribution. SAS had available to it all material information concerning the Registrant. The certificates evidencing the shares issued bear appropriate restrictive legends under the Securities Act and stop transfer instructions have been placed with the Registrant's stock transfer agent. No underwriter was involved in the transaction. (g) On April 12, 1995, the Registrant issued 4,250,000 shares of its Common Stock to seven persons in exchange for acquisition by the Registrant of all the outstanding stock of Central Asian Petroleum Delaware, Inc. ("CAP-D"). In consideration for the issuance of the shares the Registrant acquired 100% of the issued and outstanding stock of CAP-D. No underwriter was involved in the transaction. The Registrant issued the shares in reliance upon the exemptions from registration under Section 4(2) of the Securities Act. The persons to whom the shares were issued represented to the Registrant that they are accredited investors as defined under the Securities Act and that they acquired the shares for their own accounts and not with a view to distribution. Such persons had available to them all material information concerning the business and affairs of the Registrant. The certificates evidencing the shares issued bear appropriate restrictive legends under the Securities Act and stop transfer instructions have been placed with the Registrant's stock transfer agent. (h) On April 17, 1995, the Registrant issued 24,000 shares of its Common Stock to six individuals, three of whom were directors of the Registrant and four of whom (including one director) were employees of the Registrant as stock bonuses. The Registrant issued the shares in reliance upon the exemption from registration under Section 4(2) of the Securities Act. The individuals represented to the Registrant that they acquired the shares for their own accounts and not with a view to distribution. Such persons had available to them all material information concerning the Registrant. The certificates evidencing the shares issued bear appropriate restrictive legends under the Securities Act and stop transfer instructions have been placed with the Registrant's stock transfer agent. No underwriter was involved in the transaction. (i) On April 24, 1995, the Registrant issued 12,500 shares of its Common Stock to Frank C. Alexander, Jr. for services rendered to the Company. The Registrant issued the shares in reliance upon the exemption from registration under Section 4(2) of the Securities Act. The individual represented to the Registrant that he acquired the shares for his own account and not with a view to distribution. Mr. Alexander had available to him all material information concerning the Registrant. The certificates evidencing the shares issued bear appropriate restrictive legends under the Securities Act and stop transfer instructions have been placed with the Registrant's stock transfer agent. No underwriter was involved in the transaction. (j) On November 20, 1995, the Registrant issued 50,000 shares of its Common Stock to OCSCO as partial consideration for the acquisition by the Registrant of an interest in Central Asian Petroleum Guernsey, Limited ("CAP-G"). The Registrant issued the shares in reliance upon the exemption from registration under Section 4(2) of the Securities Act. OCSCO represented to the Registrant that it acquired the shares for its own account and not with a view to distribution. OCSCO had available to it all material information concerning the Registrant. The certificates evidencing the shares issued bear appropriate restrictive legends under the Securities Act and stop transfer instructions have been placed with the Registrant's stock transfer agent. No underwriter was involved in the transaction. II-3 (k) On March 4, 1996, the Registrant issued 625,000 shares and on March 21, 1996, the Registrant issued an additional 60,000 shares to four persons in consideration for 25% of the outstanding shares of CAP-G owned byDarka Petrol Ticaret Ltd. Sti. ("DARKA"), controlled by the persons. The Registrant issued the shares in reliance upon the exemption from registration under Section 4(2) of the Securities Act. The persons represented to the Registrant that they acquired the shares for their own accounts and not with a view to distribution. Such persons had available to them material information concerning the Registrant. The certificates evidencing the shares issued bear appropriate restrictive legends under the Securities Act and stop transfer instructions have been placed with the Registrant's stock transfer agent. No underwriter was involved in the transaction. (l) On March 6, 1996, the Registrant issued 900,000 shares to two persons in consideration for the acquisition by the Registrant of 15% of the outstanding shares of CAP-G owned by the persons. The Registrant issued the shares in reliance upon the exemption from registration under Section 4(2) of the Securities Act. The persons represented to the Registrant that they acquired the shares for their own accounts and not with a view to distribution. Such persons had available to them all material information concerning the Registrant. The certificates evidencing the shares issued bear appropriate restrictive legends under the Securities Act and stop transfer instructions have been placed with the Registrant's stock transfer agent. No underwriter was involved in the transaction. (m) Effective April 8, 1996, the Registrant issued its Stock Purchase Warrant entitling the holder to purchase 1,022,000 shares of the Registrant's Common Stock for $10.00 consideration to Allen & Company Incorporated, the placement agent in the Registrant's 1996 private placement described above and as compensation for assistance by the placement agent in the conversion of $300,000 of the Registrant's outstanding promissory note described above. The Registrant issued the shares in reliance upon the exemption from registration under Section 4(2) of the Securities Act. Allen & Company Incorporated represented to the Registrant that it acquired the warrants for its own account and not with a view to distribution. Such persons had available to it all material information concerning the Registrant. The certificate evidencing the warrants bears an appropriate restrictive legend under the Securities Act. No underwriter was involved in the transaction. (n) Between December 1995 and January 1996, the Registrant issued its Stock Purchase Warrants entitling the holders to purchase up to 780,000 shares of the Registrant's Common Stock at an exercise price of $0.25 per share to one individual, one pension plan, Brae Group, Inc., and Allen & Company, Incorporated in consideration for the making of loans to the Registrant by the two individuals and Brae and Company totaling $1,050,000 in November and December 1995. The Registrant issued the shares in reliance upon the exemption from registration under Section 4(2) of the Securities Act. The persons represented to the Registrant that they acquired the warrants for their own accounts and not with a view to distribution. Such persons had available to them all material information concerning the Registrant. The certificate evidencing the warrants should bear an appropriate restrictive legend under the Securities Act. No underwriter was involved in the transaction. Item 16. Exhibits and Financial Statement Schedules. The following is a list of all exhibits filed as part of this Registration Statement or, as noted, incorporated by reference to this Registration Statement: Exhibit No. Description and Method of Filing - ----------- --------------------------------- 2.1 Stock Acquisition Agreement and Plan of Reorganization dated April 12, 1995 between Chaparral Resources, Inc., and the Shareholders of Central Asian Petroleum, Inc., incorporated by reference to Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995. 2.2 Escrow Agreement dated April 12, 1995 between Chaparral Resources, Inc., the Shareholders of Central Asian Petroleum, Inc. and Barry W. Spector, incorporated by reference to Exhibit 2.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995. II-4 3.1 Restated Articles of Incorporation and Amendments, incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1993. 3.2 Articles of Amendment to the Restated Articles of Incorporation dated April 20, 1988, incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1993. 3.3 Bylaws, as amended through December 5, 1995, incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995. 3.4 Articles of Amendment to the Restated Articles of Incorporation and Amendments dated June 21, 1995, incorporated by reference to Exhibit B to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995. 5.1 Opinion of Hopper and Kanouff, P.C. on legality of shares to be issued upon exercise of Warrants.* 10.1 Royalty Participation Plan dated June 15, 1982, incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1993. 10.2 Chaparral Resources, Inc. 1989 Stock Warrant Plan effective May 1, 1989, incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1993. 10.3 Target Benefit Plan effective December 1, 1990 incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1991. 10.4 Deferred Compensation and Death Benefit Plan as amended November 15, 1991, incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1991. 10.5 Promissory Note dated November 1, 1995 from Chaparral Resources, Inc. to Brae Group, Inc., incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated November 1, 1995. 10.6 Purchase Agreement, dated effective January 12, 1996, between the Company and Guntekin Koksal (purchase of CAP-G shares) incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995. 10.7 Letter Agreement, dated January 3, 1996, between the Company and certain stockholders of Darka Petrol Ticaret Ltd. Sti., together with Exhibits A--E, incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995. 10.8 Amendment, effective March 4, 1996, to the Letter Agreement revising the terms pursuant to which the Company is to acquire all shares of CAP(G) stock owned by Darka Petrol Ticaret Ltd. Sti., incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995. 10.9 Warrant Certificate entitling Allen & Company to purchase up to 1,022,000 shares of Common Stock of Chaparral Resources, Inc., incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated April 1, 1996. 21 Subsidiaries of the Registrant, incorporated by reference to Exhibit 21 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995. II-5 23 Consent of Grant Thornton LLP. 23.1 Consent of Hopper and Kanouff, P.C.* 24 Power of Attorney. (Included on Signature Page, page II-7.) 27 Financial Data Schedule (not required). - ------------------- * To be filed by amendment. Item 17. Undertakings The undersigned Registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1993; (ii) to reflect in the prospectus any facts or events arising which, individually or together, represent a fundamental change in the information set forth in the registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change in such information in the registration statement. (2) That for purposes of determining liability under the Securities Act of 1933, each such post-effective amendment shall be deemed a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-6 POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Paul V. Hoovler, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her in his or her name, place and stead, in his or her capacity as President of Chaparral Resources, Inc., a Colorado corporation ("Company"), to sign the Company's Registration Statement on Form S-1 and any and all amendments thereto (including post-effective amendments) and to file the same with the United States Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact or agent, or his substitute or substitutes, may do or cause to be done by virtue hereof. SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form S-1, and authorized this Registration Statement to be signed on its behalf by the undersigned, in the City and County of Denver, State of Colorado on July 8, 1996. CHAPARRAL RESOURCES, INC. By:/s/ Paul V. Hoovler -------------------------------------------------- Paul V. Hoovler, President and Chief Executive Officer By:/s/ Matthew R. Hoovler -------------------------------------------------- Matthew R. Hoovler, Principal Financial Officer and Principal Accounting Officer In accordance with the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated: Signature Title Date - --------- ----- ---- /s/ Paul V. Hoovler Director July 8, 1996 - ----------------------- Paul V. Hoovler /s/ Matthew R. Hoovler Director July 8, 1996 - ----------------------- Matthew R. Hoovler /s/ Frank H. Gower, Jr. Director July 8, 1996 - ----------------------- Frank H. Gower, Jr. /s/ Barry W. Spector Director July 8, 1996 - ----------------------- Barry W. Spector II-7 Signature Title Date - --------- ----- ---- /s/ Peter G. Dilling Director July 8, 1996 - ----------------------- Peter G. Dilling /s/ James A. Jeffs Director July 8, 1996 - ----------------------- James A. Jeffs /s/ Howard Karren Director July 8, 1996 - ----------------------- Howard Karren /s/ Jay W. McGee Director July 8, 1996 - ----------------------- Jay W. McGee II-8 EXHIBIT INDEX Exhibit Description Page No. - ------- ----------- -------- 2.1 Stock Acquisition Agreement and Plan of Reorganization dated N/A April 12, 1995 between Chaparral Resources, Inc., and the Shareholders of Central Asian Petroleum, Inc., incorporated by reference to Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995. 2.2 Escrow Agreement dated April 12, 1995 between Chaparral N/A Resources, Inc., the Shareholders of Central Asian Petroleum, Inc. and Barry W. Spector, incorporated by reference to Exhibit 2.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995. 3.1 Restated Articles of Incorporation and Amendments, incorporated N/A by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1993. 3.2 Articles of Amendment to the Restated Articles of Incorporation N/A dated April 20, 1988, incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1993. 3.3 Bylaws, as amended through December 5, 1995, incorporated by N/A reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995. 3.4 Articles of Amendment to the Restated Articles of Incorporation N/A and Amendments dated June 21, 1995, incorporated by reference to Exhibit B to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995. 5.1 Opinion of Hopper and Kanouff, P.C. on legality of shares to be N/A issued upon exercise of Warrants.* 10.1 Royalty Participation Plan dated June 15, 1982, incorporated by N/A reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1993. 10.2 Chaparral Resources, Inc. 1989 Stock Warrant Plan effective May N/A 1, 1989, incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1993. 10.3 Target Benefit Plan effective December 1, 1990 incorporated by N/A reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1991. 10.4 Deferred Compensation and Death Benefit Plan as amended November N/A 15, 1991, incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1991. 10.5 Promissory Note dated November 1, 1995 from Chaparral Resources, N/A Inc. to Brae Group, Inc., incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated November 1, 1995. 10.6 Purchase Agreement, dated effective January 12, 1996, between the N/A Company and Guntekin Koksal (purchase of CAP-G shares) incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995. 10.7 Letter Agreement, dated January 3, 1996, between the Company and N/A certain stockholders of Darka Petrol Ticaret Ltd. Sti., together with Exhibits A--E, incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995. II-9 10.8 Amendment, effective March 4, 1996, to the Letter Agreement N/A revising the terms pursuant to which the Company is to acquire all shares of CAP(G) stock owned by Darka Petrol Ticaret Ltd. Sti., incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995. 10.9 Warrant Certificate entitling Allen & Company to purchase up to N/A 1,022,000 shares of Common Stock of Chaparral Resources, Inc., incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated April 1, 1996. 21 Subsidiaries of the Registrant, incorporated by reference to N/A Exhibit 21 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995. 23 Consent of Grant Thornton LLP. 23.1 Consent of Hopper and Kanouff, P.C.* N/A 24 Power of Attorney. (Included on Signature Page, page II-7.) N/A 27 Financial Data Schedule (not required). N/A EX-1 2 CONSENT OF GRANT THORNTON LLP We have issued our report dated January 19, 1996 (except for note N, as to which the date is March 8, 1996), accompanying the financial statements of Chaparral Resources, Inc. contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts." /s/ Grant Thornton LLP GRANT THORNTON LLP Denver, Colorado July 8, 1996 -----END PRIVACY-ENHANCED MESSAGE-----