##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the quarterly period ended June 30, 2006.
 OR
 o
    
    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.
  Delaware
    
    84-0630863(State or Other Jurisdiction of
Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 (Address of Principal Executive Offices)
  þ o
  o o þ
 o þ




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##### 



CHAPARRAL RESOURCES, INC.
FORM 10-Q
  PAGEPART I. FINANCIAL INFORMATIONItem l. Financial StatementsConsolidated Condensed Balance Sheets as of June 30, 2006 and December 31, 2005
    
    
    1Consolidated Condensed Statements of Operations for the Three Months Ended June 30, 2006 and 2005 and Consolidated Condensed Statements of Operations for the Six Months Ended June 30, 2006 and 2005
    
    
    3Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005
    
    
    4Notes to Consolidated Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    19PART II. OTHER INFORMATIONItem 1. Legal proceedings
    
    
    20Item 4. Shareholder matters
    
    
    20Item 6. Exhibits
    
    
    20Signatures
    
    
    21CertificationsCEO Certification pursuant to Section 302CFO Certification pursuant to Section 302CEO Certification pursuant to Section 906CFO Certification pursuant to Section 906




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June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)$000
    
    
    $000AssetsCurrent assets:Cash and cash equivalents
    
    
    23,959
    
    
    
    20,995Accounts receivable:Oil sales receivable
    
    
    20,455
    
    
    
    15,767VAT receivable
    
    
    7,665
    
    
    
    6,671Other receivables from affiliates
    
    
    
    
    
    
    17Prepaid expenses
    
    
    9,596
    
    
    
    4,716Income taxes recoverable
    
    
    38
    
    
    
    2,301Crude oil inventory
    
    
    309
    
    
    
    596Total current assets
    
    
    62,022
    
    
    
    51,063Materials and supplies
    
    
    11,734
    
    
    
    8,082Other
    
    
    588
    
    
    
    2,119Deferred income tax asset
    
    
    1,747
    
    
    
    Property, plant and equipment:Oil and gas properties, full cost
    
    
    199,145
    
    
    
    183,505Other property, plant and equipment
    
    
    12,253
    
    
    
    12,143211,398
    
    
    
    195,648Less  accumulated depreciation, depletion and amortization
    
    
    (101,956
    )
    
    
    (88,120
    )Property, plant and equipment, net
    
    
    109,442
    
    
    
    107,528Total assets
    
    
    185,533
    
    
    
    168,792
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June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)$000
    
    
    $000Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    
    9,029
    
    
    
    8,497Prepaid sales
    
    
    
    
    
    
    361Accrued liabilities:Accrued interest payable
    
    
    
    
    
    
    106Other accrued liabilities
    
    
    15,300
    
    
    
    6,000Current income tax liability
    
    
    2,763
    
    
    
    62Current portion of loans payable
    
    
    
    
    
    
    24,679Total current liabilities
    
    
    27,092
    
    
    
    39,705Accrued production bonus
    
    
    451
    
    
    
    395Loans payable
    
    
    
    
    
    
    7,333Deferred income tax liability
    
    
    
    
    
    
    62Minority interest
    
    
    49,754
    
    
    
    34,164Asset retirement obligation
    
    
    1,738
    
    
    
    1,624Stockholders equity:Common stock  authorized, 100,000,000
shares of $0.0001 par value; issued and outstanding,
38,209,502 shares as of June 30, 2006 and
December 31, 2005
    
    
    4
    
    
    
    4Capital in excess of par value
    
    
    107,226
    
    
    
    107,226Preferred stock - 1,000,000 shares authorized, 925,000 shares
undesignated. Issued and outstanding  none
    
    
    
    
    
    
    Accumulated deficit
    
    
    (732
    )
    
    
    (21,721
    )Total stockholders equity
    
    
    106,498
    
    
    
    85,509Total liabilities and stockholders equity
    
    
    185,533
    
    
    
    168,792
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For the Three months Ended
    
    
    For the Six months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005$000 (except share data)
    
    
    $000 (except share data)Revenue
    
    
    61,306
    
    
    
    33,160
    
    
    
    114,756
    
    
    
    57,487Costs and expenses:Transportation costs
    
    
    6,039
    
    
    
    4,056
    
    
    
    12,239
    
    
    
    7,544Operating expenses
    
    
    4,787
    
    
    
    3,568
    
    
    
    8,859
    
    
    
    7,393Excess Profits Tax
    
    
    9,565
    
    
    
    
    
    
    
    13,991
    
    
    
    Marketing fee
    
    
    179
    
    
    
    136
    
    
    
    299
    
    
    
    258Depreciation and depletion
    
    
    7,205
    
    
    
    5,829
    
    
    
    14,321
    
    
    
    10,847Management fee
    
    
    137
    
    
    
    200
    
    
    
    275
    
    
    
    393Accretion expense
    
    
    42
    
    
    
    38
    
    
    
    84
    
    
    
    74General and administrative
    
    
    2,027
    
    
    
    1,625
    
    
    
    4,980
    
    
    
    3,046Total costs and expenses
    
    
    29,981
    
    
    
    15,452
    
    
    
    55,048
    
    
    
    29,555Income from operations
    
    
    31,325
    
    
    
    17,708
    
    
    
    59,708
    
    
    
    27,932Other income/(expense):Interest income
    
    
    164
    
    
    
    57
    
    
    
    222
    
    
    
    143Interest expense
    
    
    (863
    )
    
    
    (1,056
    )
    
    
    (1,721
    )
    
    
    (2,281
    )Currency exchange gain
    
    
    183
    
    
    
    9
    
    
    
    376
    
    
    
    17Minority interest
    
    
    (7,862
    )
    
    
    (5,040
    )
    
    
    (15,590
    )
    
    
    (7,862
    )Loss on disposition of assets
    
    
    (24
    )
    
    
    (1
    )
    
    
    (13
    )
    
    
    (1
    )Income before income taxes
    
    
    22,923
    
    
    
    11,677
    
    
    
    42,982
    
    
    
    17,948Income tax expense
    
    
    11,793
    
    
    
    5,075
    
    
    
    21,993
    
    
    
    7,511Net income available to common Stockholders
    
    
    11,130
    
    
    
    6,602
    
    
    
    20,989
    
    
    
    10,437Basic earnings per share:Net income per share
    
    $
    0.29
    
    
    $
    0.17
    
    
    $
    0.55
    
    
    $
    0.27Weighted average number of shares outstanding (basic)
    
    
    38,209,502
    
    
    
    38,209,502
    
    
    
    38,209,502
    
    
    
    38,209,502Diluted earnings per share:Net income per share
    
    $
    0.27
    
    
    $
    0.17
    
    
    $
    0.52
    
    
    $
    0.27Weighted average number of shares outstanding (diluted)
    
    
    40,590,404
    
    
    
    39,500,312
    
    
    
    40,566,800
    
    
    
    39,327,414
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For the Six months EndedJune 30,
    
    
    June 30,2006
    
    
    2005$000
    
    
    $000Cash flows from operating activitiesNet income
    
    
    20,989
    
    
    
    10,437Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation, depletion and amortization
    
    
    14,321
    
    
    
    10,847Deferred income taxes
    
    
    (1,809
    )
    
    
    18Accretion expense
    
    
    84
    
    
    
    74Amortization of note discount
    
    
    
    
    
    
    222Currency exchange gain
    
    
    (376
    )
    
    
    (17
    )Minority interest
    
    
    15,590
    
    
    
    7,862Loss on disposal of assets
    
    
    13
    
    
    
    1Changes in assets and liabilities:(Increase)/decrease in:Accounts receivable
    
    
    (3,402
    )
    
    
    (8,561
    )Prepaid expenses
    
    
    (4,880
    )
    
    
    (571
    )Crude oil inventory
    
    
    159
    
    
    
    (406
    )Increase/(decrease) in:Accounts payable and accrued liabilities
    
    
    12,965
    
    
    
    2,250Accrued interest payable
    
    
    (106
    )
    
    
    (160
    )Other liabilities
    
    
    (361
    )
    
    
    (6,548
    )Net cash provided by operating activities
    
    
    53,187
    
    
    
    15,448Cash flows from investing activitiesAdditions to property, plant and equipment
    
    
    (480
    )
    
    
    (339
    )Capital expenditures on oil and gas properties
    
    
    (15,610
    )
    
    
    (12,595
    )Other long-term assets
    
    
    (2,121
    )
    
    
    (1,437
    )Net cash used in investing activities
    
    
    (18,211
    )
    
    
    (14,371
    )
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For the Six months EndedJune 30,
    
    
    June 30,2006
    
    
    2005$000
    
    
    $000Cash flows from financing activitiesProceeds from loans
    
    
    
    
    
    
    37,000Payments on loans
    
    
    (32,012
    )
    
    
    (13,000
    )Other long-term assets
    
    
    
    
    
    
    (84
    )Net cash used in financing activities
    
    
    (32,012
    )
    
    
    23,916Net increase in cash and cash equivalents
    
    
    2,964
    
    
    
    24,993Cash and cash equivalents at beginning of period
    
    
    20,995
    
    
    
    9,611Cash and cash equivalents at end of period
    
    
    23,959
    
    
    
    34,604Supplemental cash flow disclosureInterest paid
    
    
    1,827
    
    
    
    2,220Income taxes paid
    
    
    17,029
    
    
    
    5,068Supplemental schedule of non-cash investing and
financing activitiesNon-cash additions to oil and gas properties
    
    
    30
    
    
    
    121
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Merger
    Use of Estimates
  6




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June 30,
    
    
    December 31,2006
    
    
    2005$000
    
    

    $000DescriptionPrepaid transportation costs
    
    
    951
    
    
    
    1,787Advanced payments for materials,
supplies and services
    
    
    7,644
    
    
    
    1,111Prepaid insurance
    
    
    809
    
    
    
    486Deferred financing charges
    
    
    
    
    
    
    838Other prepaid expenses
    
    
    192
    
    
    
    494Total prepaid expenses
    
    
    9,596
    
    
    
    4,716
     7




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June 30,
    
    
    June 30,2006
    
    
    2005$000
    
    

    $000Asset retirement obligation at
beginning of period
    
    
    1,624
    
    
    
    1,232Accretion expense
    
    
    84
    
    
    
    74Additional provision for new wells
    
    
    30
    
    
    
    121Asset retirement obligation at end of period
    
    
    1,738
    
    
    
    1,427
    The Note
     8




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KKM Credit Facility
    BNP/KBC Credit Facility
     9




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Between one & two
    
    
    Payable upon rigWithin one year
    
    
    years
    
    
    demobilization
    
    
    Total$000
    
    

    $000
    
    

    $000
    
    

    $000Drilling contracts with Nabors Industries Ltd
    
    
    24,050
    
    
    
    9,000
    
    
    
    1,000
    
    
    
    34,050Drilling contract with Upetrom-Forserco Kazakhstan LLC
    
    
    1,874
    
    
    
    
    
    
    
    300
    
    
    
    2,174Total commitments under drilling contracts
    
    
    25,924
    
    
    
    9,000
    
    
    
    1,300
    
    
    
    36,224
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2006
    
    
    2005$000
    
    

    $000Nelson
    
    
    +
    
    
    
    717Caspian
    
    
    574
    
    
    
    
 
 +
    
    Nelson was merged into Caspian on December 5, 2005.  2006
    
    
    2005$000
    
    

    $000Nelson
    
    
    +
    
    
    
    237Caspian
    
    
    3,117
    
    
    
    3,117
    
    
    
    237
 
 +
    
    Nelson was merged into Caspian on December 5, 2005.  11




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Taxation
  Basis of Accounting
  Merger
   12




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Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
  General Liquidity Considerations
 Going Concern
  Liquidity and Capital Resources
         13




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Capital Commitments and Other Contingencies
    14




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15




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16




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17




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Item 3  Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency
    Commodity Prices for Oil
   Credit risk
  18




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Item 4  Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls over Financial Reporting
  19




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Part II- Other Information
 
 Item 1
 Legal proceedings
  
 Item 4
 Shareholder matters
  
 Item 6  Exhibits
 *
    31.1
    CEO Certification pursuant to Item 601(b)(31) of Regulation M-A, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
    31.2
    CFO Certification pursuant to Item 601(b)(31) of Regulation M-A, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
    32.1
    CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
    32.2
    CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.
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Signatures
   Chaparral Resources, Inc.By:
    
    /s/ Boris Zilbermints

Boris ZilbermintsChief Executive OfficerBy:
    
    /s/ Charles I. Talbot

Charles I. TalbotVP Finance and Chief Financial Officer(Principal Financial and Accounting
Officer)
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EXHIBIT INDEX
 *
    31.1
    CEO Certification pursuant to Item 601(b)(31) of Regulation M-A, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
    31.2
    CFO Certification pursuant to Item 601(b)(31) of Regulation M-A, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
    32.1
    CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
    32.2
    CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *

    Filed herewith.