-----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, C9h7CqgWetMOGqLOulp+UgeSHMmC7pbm/DjcEaCWxp58llr8CfbbhRCvD6ZgzMA3 NdTJ/BPbNKctTWHLa5Iogg== 0001000096-98-000386.txt : 19980521 0001000096-98-000386.hdr.sgml : 19980521 ACCESSION NUMBER: 0001000096-98-000386 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980520 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: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-07261 FILM NUMBER: 98628393 BUSINESS ADDRESS: STREET 1: 2211 NORFOLK STREET 2: SUITE 1150 CITY: HOUSTON STATE: TX ZIP: 77098 BUSINESS PHONE: 7138077100 MAIL ADDRESS: STREET 1: 621 17TH STREET SUITE 1301 CITY: DENVER STATE: CO ZIP: 80293 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________. Commission file number: 0-7261 CHAPARRAL RESOURCES, INC. ------------------------- (Exact name of registrant as specified in its charter) Colorado 84-0630863 - ------------------------------ ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2211 Norfolk, Suite 1150 Houston, Texas 77098 -------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (713) 807-7100 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and, (2) has been subject to such filing requirements for the past 90 days. YES [ x ] NO [ ] As of May 15, 1998, Registrant had 51,215,456 shares of its $0.10 par value common stock issued and outstanding. Part I - Summarized Financial Information Item 1 - Financial Statements Chaparral Resources, Inc. Consolidated Balance Sheets (Unaudited) March 31, December 31, 1998 1997 ------------ -------------- Assets Current assets: Cash and cash equivalents $ 593,000 $ 3,423,000 Accounts receivable: Other 34,000 102,000 Prepaid expenses 63,000 62,000 ------------ ------------ Total current assets 690,000 3,587,000 Oil and gas properties and investments - full cost method Republic of Kazakhstan (Karakuduk Field) not subject to depletion: 22,544,000 19,922,000 Furniture, fixtures and equipment 59,000 13,000 Less accumulated depreciation (5,000) (3,000) ------------ ------------ 54,000 10,000 ------------ ------------ Total assets $ 23,288,000 $ 23,519,000 ============ ============ See accompanying notes to financial statements -2-
Chaparral Resources, Inc. Consolidated Balance Sheets (continued) (Unaudited) March 31, December 31, 1998 1997 ------------ ------------ Liabilities and stockholders' equity Current liabilities: Accounts payable: Trade $ 247,000 $ 177,000 Accrued liabilities 152,000 54,000 ------------ ------------ Total current liabilities 399,000 231,000 Long-term obligations: Accrued compensation 210,000 210,000 Redeemable preferred stock - cumulative, convertible: Series A, 50,000 shares issued and outstanding, at stated value, includes $5.00 cumulative annual dividend, less $500,000 cost of issuance, $5,000,000 redemption value 4,525,000 4,500,000 Stockholders' equity: Common stock authorized, 100,000,000 shares at March 31, 1998 and December 31, 1997, of $.10 par value; issued and outstanding, 49,965,456 and 49,720,456 shares a March 31, 1998 and December 31, 1997, respectively 4,996,000 4,971,000 Capital in excess of par value 30,988,000 30,340,000 Unearned portion of restricted stock awards (169,000) (109,000 Stock subscription receivable (1,770,000) (1,770,000) Accumulated Deficit (15,891,000) (14,854,000) ------------ ------------ Total stockholders' equity 18,154,000 18,578,000 ------------ ------------ Total liabilities and stockholders'equity $23,288,000 $ 23,519,000 ============ ============ See accompanying notes to financial statements -3-
Chaparral Resources, Inc. Consolidated Statements of Operations (Unaudited) For the Three Months Ended March 31, March 31, 1998 1997 ----------- ----------- Revenue: Oil and gas sales $ -- $ -- Costs and expenses: Depreciation and depletion 2,000 -- General and administrative 880,000 220,000 ----------- ----------- 882,000 220,000 ----------- ----------- Loss from operations (882,000) (220,000) Other income (expense): Interest income 202,000 73,000 Interest expense -- (70,000) Equity in loss from investment (332,000) (174,000) ----------- ----------- (130,000) (171,000) ----------- ----------- Loss before extraordinary item (1,012,000) (391,000) Extraordinary loss on sale of domestic oil & gas properties -- (36,000) ----------- ----------- Net loss $(1,012,000) $ (427,000) =========== =========== Basic and Diluted Earnings per Share: Net loss per share before extraordinary item $ (.020) $ (.010) Extraordinary loss per share $ -- $ (.001) Net loss per share~ $ (.020) $ (.011) Weighted average number of shares outstanding 49,900,845 37,709,449 See accompanying notes to financial statements -4-
Chaparral Resources, Inc. Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, March 31, 1998 1997 ----------- ---------- Cash flows from operating activities Net loss $(1,012,000) $ (427,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and depletion 2,000 -- Stock issued for services and bonuses 614,000 -- Changes in assets and liabilities: Accounts receivable (22,000) (272,000) Prepaid expenses (1,000) (123,000) Other -- 306,000 Accounts payable & Accrued Liabilities 167,000 123,000 ----------- ----------- Net cash used in operating activities (252,000) (393,000) Cash flows from investing activities Additions to property and equipment (45,000) -- Investment in and advances to foreign oil and gas properties (2,533,000) (131,000) ----------- ----------- Net cash used in investing activities (2,578,000) (131,000) Cash flows from financing activities Proceeds from sale of stock -- 90,000 ----------- ----------- Net cash provided by financing activities -- 90,000 ----------- ----------- Net decrease in cash and cash equivalents (2,830,000) (434,000) Cash and cash equivalents at beginning of period 3,423,000 651,000 ----------- ----------- Cash and cash equivalents at end of period $ 593,000 $ 217,000 =========== =========== See accompanying notes to financial statements -5-
Chaparral Resources, Inc. Notes to Consolidated Financial Statements (Unaudited) 1. General Management has elected to omit substantially all notes to the Company's financial statements. Reference should be made to the notes to the financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. 2. Unaudited Information The information furnished herein was taken from the books and records of the Company without audit. However, such information reflects all adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. The results of operations for the interim period are not necessarily indicative of the results to be expected for the year. 3. Going Concern The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of March 31, 1998, substantially all of the Company's assets are invested in the development of the Karakuduk Field, a shut-in oil field in the central Asian Republic of Kazakhstan, which will require significant additional funding. The Company has incurred recurring operating losses and has no operating assets presently generating cash to fund its operating and capital requirements. The Company's current cash reserves and cash flow from operations will not be sufficient to meet the capital spending requirements to develop the Karakuduk Field through fiscal 1998. Should the Company not meet its capital requirements, the Company's rights to the Karakuduk Field can be terminated. The Company believes that additional financing will be available; however, there is no assurance that additional financing will be available, or if available, that it will be timely or on terms favorable to the Company. The Company's continued existence as a going concern is dependent upon the success of future operations, which are, in the near term, dependent on the successful financing and development of the Karakuduk Field, of which there is no assurance. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. 4. Equity Based Compensation On January 23, 1998, the Company ratified the grants of options to purchase 257,000 shares of the Company's Common Stock to various employees of, and consultants to, the Company, granted options to purchase 82,500 shares of the Company's Common Stock to various employees of, and consultants to, the Company, granted 90,000 shares of the Company's Common Stock to the directors of the Company and granted 185,000 shares of the Company's Common Stock to various employees of, and consultants to, the Company, of which 30,000 shares will vest with respect to 10,000 shares on each of January 30, 1999, 2000, and 2001. On February 26, 1998, the Company granted an option to purchase 10,000 shares of the Company's Common Stock to a consultant to the Company. -6- Chaparral Resources, Inc. Notes to Consolidated Financial Statements (continued) (Unaudited) 5. Redeemable Preferred Stock and Related Common Stock Warrants On November 24, 1997, the Company executed a Subscription Agreement ("Agreement") with an unaffiliated investor for 225,000 shares of three classes of Redeemable $5.00 Cumulative Convertible Preferred Stock ("Preferred Stock"). The investor agreed to purchase 75,000 shares of each of the Company's Series A, B and C Preferred Stock. Pursuant to the Agreement, the Company initially sold to the investor 50,000 shares of the Company's Series A Preferred Stock, no par value, for a purchase price of $100.00 per share, equal to the redemption value, or an aggregate purchase price of $5,000,000. The number of shares of Common Stock issuable upon conversion of each share of Series A Preferred Stock is determined by dividing $100 by the conversion price of $2.25 per share. The Company is not required to establish a sinking fund, however, the Preferred Stock dividends in arrears must be paid before dividends can be paid on Common Stock. The basis difference representing issuance costs is being amortized directly to additional paid-in-capital for the period through the redemption date. The Series A Preferred Stock has scheduled redemptions beginning November 30, 2002. The five-year aggregate redemption amounts are as follows: 1998 -- 1999 -- 2000 -- 2001 -- 2002 $5,000,000 ---------- Total $5,000,000 ========== Allen & Company Incorporated (Allen & Company), a significant shareholder of the Company, acted as placement agent in connection with the subscription for the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock pursuant to the Agreement. Allen & Company elected to receive its fees in the form of warrants to purchase 900,000 shares of the Company's Common Stock that were all originally exercisable through November 25, 2002, at an exercise price of $.01 per share. In March 1998, prior to the receipt of the funds for any additional purchases the investor was to make under the Agreement, the Company and the investor mutually released each other from any further obligations under the Agreement. The investor retained the initial 50,000 shares of Series A Preferred Stock. The Company is not required to issue any additional Preferred Stock under the Agreement and the investor has no other obligation to provide funds to the Company in exchange for such stock. In an agreement dated March 31, 1998, the Company has agreed to allow Allen & Company to retain, subject to certain performance criteria, the warrants to purchase 700,000 shares (presented as a $1,770,000 stock subscription receivable in equity) of the Company's Common Stock related to the $17,500,000 subscription not received under the original terms of the Agreement. The unearned warrants to purchase 700,000 shares of the Company's Common Stock held by Allen & Company are fully restricted from exercise unless Allen & Company assists the Company in raising additional capital for the Company that is acceptable to the Company's Board of Directors. For each $25 of additional capital raised, a warrant to purchase one share of Common Stock will be deemed to be earned. If, before November 25, 1999, Allen & Company fails to assist the Company in raising the additional capital for the Company under terms acceptable to the Company, the unearned portion of the warrants will expire. -7- Chaparral Resources, Inc. Notes to Consolidated Financial Statements (continued) (Unaudited) 6. Subsequent Events Effective on April 3, 1998, the Company sold 1,250,000 shares of the Company's Common Stock for $2.00 per share for at total of $2,500,000 to a private investor. Allen & Company, Incorporated acted as placement agent in connection with the sale of the 1,250,000 shares. As a result, Allen & Company, Incorporated's warrants to purchase 900,000 shares of the Company's Common Stock, originally issued as commission in connection with the Preferred Stock sale on November 24, 1997, became exercisable for an additional 100,000 shares of the Company's Common Stock. The warrants to purchase the additional 100,000 shares of the Company's Common Stock are exercisable through November 25, 2002, at an exercise price of $0.01 per share. Of the total warrants to purchase 900,000 shares of Common Stock issued to Allen & Company, Incorporated on November 24, 1997, warrants to purchase 300,000 shares of the Company's Common Stock are currently exercisable. On April 15, 1998, the Company granted options to purchase 45,000 shares of the Company's Common Stock to an employee of, and a consultant to, the Company. -8- Karakuduk-Munay Inc Statement of Expenses and Accumulated Deficit For the Three Month Periods Ended March 31, 1998 and 1997 (Amounts in US Dollars) (Unaudited) March 31, March 31, 1998 1997 ---------- ---------- Management Service Fee $ 120,000 $ 90,000 General and Administrative Expenses 363,000 189,000 Interest Expense 181,000 70,000 ---------- ---------- Net Loss 664,000 349,000 Accumulated deficit, beginning of period 4,016,000 2,351,000 ---------- ---------- Accumulated deficit, end of period $4,680,000 $2,700,000 ========== ========== -9- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 1. Liquidity and Capital Resources Prior to 1997, the Company's primary source of capital was from oil and gas sales from domestic properties. All domestic properties have been sold or otherwise disposed. The only oil and gas interest of the Company at this time is as a result of the Company's investment in Karakuduk-Munay, Inc. (KKM) through Central Asian Petroleum (Guernsey) (CAP-G). KKM is a closed joint stock company in Kazakhstan. The Company has previously raised capital to finance a portion of its obligations in connection with the acquisition of its interest in CAP-G and the development of the Karakuduk Field and to satisfy working capital needs in the short term. Since January 1, 1998, the Company raised $2,500,000 through the sale of Common Stock, The Company may seek to obtain additional capital through debt or equity offerings, encumbering properties, entering into arrangements whereby certain costs of development will be paid by others to earn an interest in the properties, or sale of a portion of the Company's interest in the Karakuduk Field. The present environment for financing the acquisition of oil and gas properties or the ongoing obligations of the oil and gas business is uncertain due, in part, to instability in oil and gas pricing in recent years. The Company's small size and the early stage of development of the Karakuduk Field may also increase the difficulty in raising any financing that may be needed in the future. There can be no assurance that the debt or equity financing that might be required to fund the Company's operations and obligations in the future will be available to the Company on economically acceptable terms if at all. The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred recurring operating losses and has no operating assets presently generating sufficient cash to fund its operating and capital requirements. The Company does not anticipate that its current cash reserves and cash flow from operations will be sufficient to meet its capital requirements through fiscal 1998. As of March 31, 1998, substantially all of the Company's assets are invested in the development of the Karakuduk Field. Since the Karakuduk Field is in the early stage of development, the Karakuduk Field does not currently produce revenues sufficient to meet its cash outflow needs. The development of the Karakuduk Field, through KKM, will require substantial amounts of additional capital. The terms of the KKM revised license require a work plan from the commencement of operations through December 31, 1997, of at least $10,000,000, which has been satisfied. Additional requirements of $34.5 million and $12 million exist for the years ending December 31, 1998 and 1999, respectively. Without additional funding and significant revenues from oil sales, of which there are no assurances, the Company will not be able to provide sufficient funds to satisfy these requirements and the Company's interest in the Karakuduk Field may be lost. The Company received an extension to June 30, 1998, from the Overseas Private Investment Corp. ("OPIC") for political risk insurance. OPIC granted the Company a binding executed letter of commitment on September 25, 1996. The Company has a standby facility for which it has made seven payments of $31,250. The Company expects to execute the contract on or before June 30, 1998. The Company has no other material commitments for cash outlay and capital expenditures other than for normal operations. -10- 2. Results of Operations The Company changed to a December 31 year end from the previous November 30 year end, effective in the second quarter of 1997. As a result of this change, quarterly data is as of March 31 for 1998 and as of March 31 for 1997. In 1996, the Company accounted for its investment in KKM using pro rata consolidation. In 1997, the Company changed to the equity method in order to reflect the legal ownership right of the other shareholders in KKM. The consolidated financial statements for the quarter ended March 31, 1997 reported herein have been reclassified to reflect the equity method. There was no impact on previously reported earnings. Three Months Ended March 31, 1998 Compared with the Three Months Ended March 31, 1997 The Company's operations during the three months ended March 31, 1998, resulted in a net loss of $1,012,000 compared to a net loss of $427,000 for the three months ended March 31, 1997. The increase in net loss is primarily due to $614,000 in stock based compensation paid to officers, directors, employees, and consultants to the Company and KKM. Interest income increased by $129,000 from the three months ended March 31, 1997, due to increased financing of 100% of KKM's operations in Kazakhstan. As of December 31, 1997, the Company held a 50% equity interest in KKM. General and administrative costs increased by $660,000 from the three months ended March 31, 1997, primarily due to $614,000 in stock based compensation awarded to officers, directors, employees, and consultants to the Company and KKM. Without consideration of the stock based compensation, a non-cash item, general and administrative costs increased by $46,000 due to the Company's management of expanding workover and exploration operations in Kazakhstan. Accordingly, the Company's equity loss in KKM increased by $158,000 from the three months ended March 31, 1997, due to increased operational costs directly related to development of oil and gas properties held by KKM. Interest expense decreased by $70,000 from the three months ended March 31, 1997, due to the retirement of all interest-bearing obligations of the Company during 1997. The Company did not have any other debt obligations outstanding as of March 31, 1998. The Company recognized a $36,000 extraordinary loss in the three months ended March 31, 1997 from the disposition of the Company's domestic properties. No extraordinary items were recognized by the Company during the three months ended March 31, 1998. 3. Quantitative and Qualitative Disclosures About Market Risks Not Applicable. -11- Part II - Other Information Item 1 - Changes in Securities On January 23, 1998, the Company ratified the grants of options to purchase 257,000 shares of the Company's Common Stock to various employees of, and consultants to, the Company, granted options to purchase 82,500 shares of the Company's Common Stock to various employees of, and consultants to, the Company, granted 90,000 shares of the Company's Common Stock to the directors of the Company and granted 185,000 shares of the Company's Common Stock to various employees of, and consultants to, the Company, of which 30,000 shares will vest with respect to 10,000 shares on each of January 30, 1999, 2000, and 2001. The Company made the grants in reliance upon the exemption from registration under Section 4(2) of the Securities Act. Such persons had available to them all material information concerning the Company. The options have and the certificates evidencing the shares underlying the options and representing the shares granted bear an appropriate restrictive legend under the Securities Act. No underwriter was involved in the transaction. On February 26, 1998, the Company granted options to purchase 10,000 shares of the Company's Common Stock to a consultant to the Company. The Company made the grants in reliance upon the exemption from registration under Section 4(2) of the Securities Act. Such person had available to him all material information concerning the Company. The option has and the certificates evidencing the shares underlying the option and representing the shares granted bear an appropriate restrictive legend under the Securities Act. No underwriter was involved in the transaction. Item 2 - Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K On March 18, 1998, the Company filed a current report on Form 8-K reporting under Item 5 thereof the termination of the Subscription Agreement for shares of the Company's Series A, B, and C Preferred Stock and filing under Item 7 a copy of the Termination Agreement. -12- Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 19, 1997 Chaparral Resources, Inc., a Colorado corporation By: /s/ Howard Karren ----------------------------------------- Howard Karren President and Chief Executive Officer By: /s/ Arlo G. Sorensen ----------------------------------------- Arlo G. Sorensen, Chief Financial Officer And Principal Accounting Officer -13- Exhibit Index 27 Financial Data Schedule -14- EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS 3-MOS DEC-31-1998 DEC-31-1997 MAR-31-1998 MAR-31-1997 593,000 3,423,000 0 0 34,000 102,000 0 0 0 0 690,000 3,587,000 22,603,000 19,935,000 5,000 3,000 23,288,000 23,519,000 399,000 231,000 0 0 4,525,000 4,500,000 0 0 4,996,000 4,971,000 13,158,000 13,607,000 23,288,000 23,519,000 0 0 202,000 73,000 0 0 882,000 220,000 332,000 174,000 0 0 0 70,000 (1,012,000) (427,000) 0 0 (1,012,000) (391,000) 0 0 0 (36,000) 0 0 (1,012,000) (427,000) (.02) (.011) (.02) (.011)
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