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 September 30, 1998

                                       OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

    For the transition period from ________________ to ________________.

                         Commission file number: 0-7261


                            CHAPARRAL RESOURCES, INC.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

          Colorado                                       84-0630863
-------------------------------              ----------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


                            2211 Norfolk, Suite 1150
                              Houston, Texas 77098
                     --------------------------------------
                    (Address of principal executive offices)

Registrant's telephone number, including area code: (713) 807-7100
                                                    --------------

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months and,  (2) has been subject to such filing  requirements
for the past 90 days.

                            YES  |X|          NO  |_|

     As of November 16, 1998  Registrant had 58,298,790  shares of its $0.10 par
value common stock issued and outstanding.



<PAGE>

                    Part I - Summarized Financial Information

Item 1 - Financial Statements

                            Chaparral Resources, Inc.
                           Consolidated Balance Sheets
                                   (Unaudited)



                                                 September 30,     December 31,
                                                     1998               1997
                                                 ------------      ------------
Assets
Current assets:
   Cash and cash equivalents                     $  3,991,000      $  3,423,000
   Restricted cash                                    800,000             --
   Accounts receivable:
      Other                                           249,000           102,000
   Prepaid expenses                                    54,000            62,000
                                                 ------------      ------------
Total current assets                                5,094,000         3,587,000

Notes Receivable                                    1,009,000
Oil and gas properties and investments  - 
     full cost method
     Republic of Kazakhstan (Karakuduk Field)--
       not subject to depletion :                  29,111,000        19,922,000

Furniture, fixtures and equipment                      93,000            13,000
Less accumulated depreciation                         (13,000)           (3,000)
                                                 ------------      ------------
                                                       80,000            10,000
                                                 ------------      ------------

Total assets                                     $ 35,294,000      $ 23,519,000
                                                 ============      ============



See accompanying notes to financial statements


                                       2
<PAGE>
<TABLE>
<CAPTION>

                                 Chaparral Resources, Inc.
                          Consolidated Balance Sheets (continued)
                                        (Unaudited)


                                                              September 30,   December 31,
                                                                  1998            1997
                                                              ------------    ------------
Liabilities and stockholders' equity 
<S>                                                           <C>             <C>         
Current liabilities:
   Accounts payable:
     Trade                                                    $    345,000    $    177,000
   Accrued liabilities                                             246,000          54,000
   Notes payable (net of discount)                                 932,000           --
                                                              ------------    ------------
Total current liabilities                                        1,523,000         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                                   4,575,000       4,500,000

Stockholders' equity:
   Common stock - authorized, 100,000,000
     shares at September 30, 1998 and
     December 31, 1997, of
     $.10 par value; issued and outstanding,
     58,298,790 and 49,720,456 shares at
     September 30, 1998 and December 31, 1997, respectively      5,829,000       4,971,000
   Capital in excess of par value                               41,800,000      30,340,000
   Unearned portion of restricted stock awards                    (152,000)       (109,000)
   Stock subscription receivable                                  (506,000)     (1,770,000)
   Accumulated Deficit                                         (17,985,000)    (14,854,000)
                                                              ------------    ------------
Total stockholders' equity                                      28,986,000      18,578,000
                                                              ------------    ------------
Total liabilities and stockholders' equity                    $ 35,294,000    $ 23,519,000
                                                              ============    ============



See accompanying notes to financial statements

                                            3
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                             Chaparral Resources, Inc.
                                       Consolidated Statements of Operations
                                                    (Unaudited)



                                                 For the Three Months Ended              For the Nine Months Ended
                                             September 30,       September 30,       September 30,       September 30,
                                                 1998                 1997               1998                1997
                                             ------------        ------------        ------------        ------------
Revenue:
<S>                                          <C>                 <C>                 <C>                 <C>       
   Oil and gas sales                         $       --          $       --          $       --          $       --

Costs and expenses:
   Depreciation and depletion                       4,000               3,000              10,000               4,000
   General and administrative                     572,000             298,000           2,203,000           1,040,000
                                             ------------        ------------        ------------        ------------
                                                  576,000             301,000           2,213,000           1,044,000
                                             ------------        ------------        ------------        ------------

Loss from operations                             (576,000)           (301,000)         (2,213,000)         (1,044,000)

Other income (expense):
   Interest income                                355,000             109,000             805,000             271,000
   Interest expense                              (126,000)            (59,000)           (189,000)           (189,000)
   Equity in loss from investment                (534,000)           (231,000)         (1,223,000)           (520,000)
                                             ------------        ------------        ------------        ------------
                                                 (305,000)           (181,000)           (607,000)           (438,000)
                                             ------------        ------------        ------------        ------------

Loss before extraordinary items                  (881,000)           (482,000)         (2,820,000)         (1,482,000)

Extraordinary Gain (Loss)
   Loss on Extinguishment of Debt                (236,000)               --              (236,000)               --

Net loss                                     $ (1,117,000)       $   (482,000)       $ (3,056,000)       $ (1,482,000)
                                             ------------        ------------        ------------        ------------

Basic and diluted earnings per share:
Net loss per share                           $      (.020)       $      (.011)       $      (.058)       $      (.037)

Weighted average number of shares
   Outstanding                                 56,142,992          42,106,477          52,428,894          40,263,263



See accompanying notes to financial statements


                                                   4
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                            Chaparral Resources, Inc.
                      Consolidated Statements of Cash Flows
                                   (Unaudited)



                                                      For the Nine Months Ended
                                                     September 30,   September 30,
                                                         1998            1997
                                                     ------------    ------------
<S>                                                  <C>             <C>          
Cash flows from operating activities
Net loss                                             $ (3,056,000)   $ (1,482,000)
Adjustments to reconcile net loss to
   Net cash used in operating
    Activities:
       Equity loss from investment                      1,223,000         520,000
       Depreciation and depletion                          10,000           4,000
       Loss on the sale of oil and gas properties            --            30,000
       Write-down of oil and gas properties                  --             3,000
       Stock issued for services and bonuses              691,000            --
       Amortization of note discount                      145,000          99,000
       Extraordinary loss on estinguishment of debt       236,000            --
       Changes in assets and liabilities:
         Accounts receivable                             (147,000)        (52,000)
         Prepaid expenses                                   8,000        (121,000)
         Notes receivable                              (1,009,000)           --
         Accounts payable & Accrued  liabilities          360,000         100,000
                                                     ------------    ------------
Net cash used in operating activities                  (1,539,000)       (899,000)

Cash flows from investing activities
Additions to property and equipment                       (80,000)         (7,000)
Proceeds from sale of interest in oil & gas                  --           273,000
properties
Investment in and advances to foreign oil and gas
       Properties                                     (10,413,000)     (2,818,000)
                                                     ------------    ------------
   Net cash used in investing activities              (10,493,000)     (2,552,000)

Cash flows from financing activities
Restricted cash                                          (800,000)           --
Payment of notes payable                               (1,095,000)           --
Proceeds from notes payable (net of cash discount)      2,045,000         300,000
Proceeds from warrant exercise                               --             7,000
Proceeds from sale of stock (net)                      12,450,000       2,300,000
                                                     ------------    ------------
Net cash provided by financing
   Activities                                          12,600,000       2,607,000
                                                     ------------    ------------
Net increase/(decrease) in cash and
   Cash equivalents                                       568,000        (844,000)
Cash and cash equivalents at beginning
   of period                                            3,423,000         920,000
                                                     ------------    ------------
Cash and cash equivalents at end of period           $  3,991,000    $     76,000
                                                     ============    ============


See accompanying notes to financial statements

                                       5
</TABLE>

<PAGE>

                            Chaparral Resources, Inc.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1. General

     Management  has elected to omit  substantially  all notes to the  Company's
financial  statements.  Reference  should be made to the notes to the  financial
statements in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.

2. Unaudited Information

     The  information  furnished  herein was taken from the books and records of
the Company without audit.  However,  such information reflects all adjustments,
which are, in the opinion of  management,  necessary to a fair  statement of the
results for the interim  periods  presented.  The results of operations  for the
interim periods are not necessarily indicative of the results to be expected for
the year.

3. Going Concern

     The Company's financial statements have been presented on the basis that it
is a going  concern,  which  contemplates  the  realization  of  assets  and the
satisfaction  of liabilities  in the normal course of business.  As of September
30,  1998,  substantially  all of  the  Company's  assets  are  invested  in the
development  of the  Karakuduk  Field,  a shut-in oil field in the central Asian
Republic of Kazakhstan, which will require significant additional funding.

     The Company has incurred  recurring  operating  losses and has no operating
assets presently generating cash to fund its operating and capital requirements.
The  Company's  current  cash  reserves  and cash flow from  operations  are not
sufficient  to meet the capital  spending  requirements  required 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.
There  is no  assurance  that  additional  financing  will be  available,  or if
available,  that it will be timely or on terms  favorable  to the  Company.  The
Company's  continued  existence as a going concern is dependent upon the success
of future operations,  which are, in the near term,  dependent on the successful
financing  and  development  of  the  Karakuduk  Field,  of  which  there  is no
assurance.

     These conditions  raise  substantial  doubt about the Company's  ability to
continue  as a going  concern.  The  financial  statements  do not  include  any
adjustments  to reflect the possible  future effects on the  recoverability  and
classification  of assets or the amounts and  classification of liabilities that
may result from the outcome of this uncertainty.


                                       6
<PAGE>

                            Chaparral Resources, Inc.
             Notes to Consolidated Financial Statements (continued)
                                   (Unaudited)


4. New Accounting Standards

     In June,  1998, the Financial  Accounting  Standards  Board issued SFAS No.
133, "Accounting for Derivative  Instruments and Hedging  Activities",  which is
effective for fiscal years beginning after June 15, 1999, with earlier  adoption
encouraged.  This  Statement  requires  companies to record  derivatives  on the
balance sheet as assets and liabilities, measured at fair value. Gains or losses
resulting from the changes in the values of those derivatives would be accounted
for  depending on the use of the  derivative  and whether it qualifies for hedge
accounting.  The Company has not determined what the effect of SFAS No. 133 will
be on results of operations and financial position.  The Company will adopt this
accounting standard as required by January 1, 2000.


5. Restricted Cash

     As of  September  30,  1998,  the Company held  $800,000  cash on hand,  as
collateral for loans made by a financial  institution to KKM for the acquisition
of tangible equipment used in the Karakuduk Field.

6.  Notes Receivable

     As of September 30, 1998, the Company has an outstanding note receivable of
approximately  $1,009,000 from a third-party  drilling contractor  (Contractor).
The note  consists  of  $1,000,000  in cash  advances  from the  Company  to the
Contractor,  plus  approximately  $9,000 in accrued interest owed to the Company
from the  Contractor.  On April 20, 1998, the Company  advanced  $300,000 to the
Contractor  to  refurbish  and  winterize  the  Contractor's  drilling rig under
contract with KKM. On July 15, 1998, the Company  loaned an additional  $100,000
to the  Contractor  for the same  purpose.  Both loans were subject to an annual
rate of interest equal to the three month London Interbank Offered Rate (LIBOR),
as published by the Wall Street  Journal,  plus 1%. On September  10, 1998,  the
Company  loaned an  additional  $600,000  to the  Contractor,  as an  advance to
complete  the  refurbishment  and acquire  spare parts for the rig.  The Company
combined  the $600,000  advance with the prior notes for $100,000 and  $300,000,
plus accrued interest of $8,768, into a new note dated September 10, 1998.

     Under the terms of the $1,009,000  note, the Contractor will repay the note
in twelve monthly  payments of  approximately  $84,000,  plus accrued  interest,
beginning with the earlier of sixty days after the date the drilling rig arrives
on location at the Karakuduk Field, or the date the first payment is made by KKM
to the drilling contractor for use of the drilling rig. The principal balance of
the note accrues  interest at a variable rate equal to the three month LIBOR, as
published by the Wall Street Journal, plus 1% (approximately 6.4% as of November
18, 1998).

7. Notes Payable

     On July 1, 1998,  the Company  borrowed  $20,000  from Howard  Karren,  the
Chairman and Chief  Executive  Officer of the Company.  The note was payable 180
days after the date of issuance at an interest rate of 7%. On July 30, 1998, the
Company  repaid two  outstanding  loans to Howard Karren,  totaling  $75,000 and
$20,000, respectively.

     On July 3, 1998, the Company borrowed $975,000 from the Chase Bank of Texas
(Chase). The note  accrues  interest at an adjustable  prime rate, as determined
by Chase.  As of  November  16,  1998,  Chase's  stated  prime  rate is 8%.  The
principal of the loan,  plus  accrued  interest,  is payable in 4  installments:
$250,000  on  December  3, 1998,  March 3, 1999,  and June 3, 1999,  and a final
principal payment of $225,000 on August 31, 1999.

     The $975,000  loan was fully  guaranteed  with a stand-by  letter of credit
from an investor in the Company.  In return for issuing the loan guarantee,  the
Company  paid the  guarantor  $10,000  plus related  costs,  issued  warrants to
purchase  20,000  shares of the Company's  Common Stock at an exercise  price of
$.01 per share,  and granted the guarantor a security  interest in the Company's
Common Stock of Central Asian Petroleum (Guernsey) (CAP-G).



                                       7

<PAGE>



                            Chaparral Resources, Inc.
             Notes to Consolidated Financial Statements (continued)
                                   (Unaudited)


7.  Notes Payable (continued)

     The Company  recorded the fair market value of the warrants  (approximately
$32,000) plus the related loan costs,  as a discount of notes payable.  The fair
market value of the  warrants  was  determined  using the  Black-Scholes  option
pricing  model,  with the  following  weighted  average  assumptions:  risk free
interest rate 5.53%,  dividend yield of 0%, volatility  factors of the Company's
Common Stock of .644, and a weighted  average life expectancy of the warrants of
5 years.

     In the event of the Company's default on the $975,000 note, the guarantor's
security interest in the Company's Common Stock in CAP-G cannot be perfected for
at least 30 days after  notification  of such default.  In the event of default,
the Company may make full payment of any  outstanding  principal and interest on
the note plus any  additional  charges  incurred by the  guarantor to completely
remove any security  interest held by the guarantor in the Company's  investment
in CAP-G.

     On August 5, 1998,  the Company  retired two  outstanding  loans,  totaling
$1,000,000,  from two related parties: Allen & Company,  Incorporated ($900,000)
and John McMillian,  a director of the Company ($100,000).  The Company borrowed
the  $1,000,000  on June 3, 1998,  subject to a 7% interest  rate.  The note was
payable in full,  plus  accrued  interest,  on the  earlier of 180 days from the
funding of the loans or upon the Company's  receipt of a minimum of  $10,000,000
in equity  investments.  In  conjunction  with the  loans,  the  Company  issued
warrants to purchase  1,000,000  shares of the  Company's  Common  Stock,  at an
exercise  price of $3.50 per share.  The Company  recorded the warrants at their
fair market value of $367,000, as a discount of notes payable,  amortizable over
the life of the loans.  On July 27, 1998,  the Company  received  $10,000,000 in
equity financing and repaid the loans,  recognizing an extraordinary loss on the
extinguishment of debt of approximately $236,000.


                                       8
<PAGE>

                            Chaparral Resources, Inc.
             Notes to Consolidated Financial Statements (continued)
                                   (Unaudited)


8. Common Stock and Related Common Stock Warrants

     As  discussed  in Notes  Payable  (7) above,  on July 3, 1998,  the Company
issued  warrants to purchase  20,000 shares of the Company's  Common Stock at an
exercise  price of $.01 per share,  in exchange for a stand-by  letter of credit
securing the $975,000 loan to the Company from the Chase Bank of Texas.

     Effective on July 28 and July 29, 1998, the Company sold  6,666,667  shares
of the Company's Common Stock for $1.50 per share for at total of $10,000,002.50
to  certain  accredited  investors.  Allen  &  Company,  Incorporated  acted  as
placement  agent  in  connection  with the sale of the  6,666,667  shares.  As a
result, Allen & Company,  Incorporated's  warrants to purchase 900,000 shares of
the Company's Common Stock,  originally  issued as commission in connection with
the  Preferred  Stock sale on  November  24,  1997,  became  exercisable  for an
additional  400,000  shares of the  Company's  Common  Stock.  The  warrants  to
purchase  the  additional  400,000  shares  of the  Company's  Common  Stock are
exercisable  through November 25, 2002, at an exercise price of $0.01 per share.
Of the total warrants to purchase 900,000 shares of Common Stock issued to Allen
& Company,  Incorporated  on November  24,  1997,  warrants to purchase  700,000
shares of the Company's Common Stock are currently exercisable.

     Due to the fact the sales price of the  6,666,667  shares was below a price
of $2.00 per share,  the  Company  issued an  additional  416,667  shares to the
investor  who  purchased  1,250,000  shares of the  Company's  common  stock for
$2,500,000 in April 1998 in order to satisfy certain price protection agreements
the Company has with such investor.


9. Subsequent Events

     On October 30,  1998,  the Company  settled the lawsuit  filed  against the
Company and others in the District Court of Harris County,  Texas, by Heartland,
Inc. of Wichita and Collins & McIlhenny,  Inc. on November 14, 1997, for a total
of $200,000  and warrants to purchase  200,000  shares of the  Company's  Common
Stock at an exercise price of $1.00,  exercisable  through January 28, 1999. The
lawsuit was dismissed with prejudice for all  defendants  involved.  The Company
believes the lawsuit was without  merit,  but a settlement  was reached to avoid
incurring additional legal costs.

     The Company  recorded the fair market value of the warrants  (approximately
$34,000)  using  the  Black-Scholes  option  pricing  model  with the  following
weighted average assumptions:  risk free interest rate 5.53%,  dividend yield of
0%,  volatility  factors of the Company's  Common Stock of 1.046, and a weighted
average life expectancy of the warrants of .25 years. The lawsuit was previously
discussed  in Item 3 of the  Company's  Annual  Report on Form 10-K for the year
ended December 31, 1997.

     On October 31, 1998,  warrants to purchase  200,000 shares of the Company's
Common Stock at an exercise price of $0.25 expired.

                                       9
<PAGE>
<TABLE>
<CAPTION>


10. Investments

     The results from operations of the Company's equity-based investment in KKM
are summarized below:

                                              Karakuduk-Munay Inc
                                 Statement of Expenses and Accumulated Deficit
                          For the Nine Month Period Ended September 30, 1998 and 1997
                                            (Amounts in US Dollars)
                                                  (Unaudited)


                                                   For The Three Months Ended            For The Nine Months Ended
                                                September 30,       September 30,     September 30,      September 30,
                                                    1998                1997              1998               1997
                                                ---------------------------------------------------------------------
<S>                                              <C>                <C>                <C>                <C>       
Management service fee                           $  152,000         $   90,000         $  427,000         $  270,000
General and administrative expenses                 557,000            269,000          1,100,000            511,000
Depreciation of fixed assets                         75,000               --              225,000               --
Interest expense                                    283,000            104,000            695,000            259,000
                                                 ----------         ----------         ----------         ----------

Net loss                                          1,067,000            463,000          2,447,000          1,040,000

Accumulated deficit, beginning of period          5,396,000          2,928,000          4,016,000          2,351,000
                                                 ----------         ----------         ----------         ----------

                                                 ----------         ----------         ----------         ----------
Accumulated deficit, end period                  $6,463,000         $3,391,000         $6,463,000         $3,391,000
                                                 ----------         ----------         ----------         ----------



                                                      10
</TABLE>

<PAGE>


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations


1. Liquidity and Capital Resources

     The only oil and gas interest of the Company at this time is 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 has raised  $12,500,000  through
the sale of Common Stock and $2,070,000  through debt  obligations.  The Company
repaid  notes  payable  of  $95,000  to  Howard  Karren  on July 30,  1998,  and
$1,000,000  to two  related  parties,  Allen &  Company,  Incorporated  and John
McMillian,  a director of the Company,  on August 5, 1998, using proceeds raised
from the sale of Common Stock. Under the terms of the $1,000,000 note, repayment
was  required  on the  earlier of 180 days from the funding of the loans or upon
the  Company's  receipt  of a minimum of  $10,000,000  in equity  financing.  In
conjunction  with the loans,  the Company issued warrants to purchase  1,000,000
shares of the Company's  Common Stock,  at an exercise price of $3.50 per share.
The Company  recorded the warrants at their fair market value of $367,000,  as a
discount of notes payable,  amortizable  over the life of the loans. The Company
received  $10,000,000  in equity  financing on July 27, 1998.  Accordingly,  the
Company repaid the $1,000,000  note, and recognized a $236,000 loss on the early
extinguishment of debt.

     On July 3, 1998, the Company borrowed $975,000 from the Chase Bank of Texas
(Chase) . The note accrues  interest at an adjustable  prime rate, as determined
by Chase.  As of  November  16,  1998,  Chase's  stated  prime  rate is 8%.  The
principal of the loan,  plus  accrued  interest,  is payable in 4  installments:
$250,000  on  December  3, 1998,  March 3, 1999,  and June 3, 1999,  and a final
principal  payment of $225,000 on August 31, 1999. The proceeds of the loan were
used by the Company for the winterization and refurbishment of a drilling rig to
be used by KKM in Kazakhstan,  expansion of KKM's existing camp facilities,  and
partial  construction of an 18-mile  pipeline  between the camp and the existing
export pipeline.

     The $975,000 loan is fully guaranteed with a stand-by letter of credit from
an  investor in the  Company.  In return for  issuing  the loan  guarantee,  the
Company  paid the  guarantor  $10,000  plus related  costs,  issued  warrants to
purchase  20,000  shares of the Company's  Common Stock at an exercise  price of
$.01 per share,  and granted the guarantor a security  interest in the Company's
Common Stock of CAP-G.  There are no other  material  negative  covenants in the
loan agreement.

     In the event of the Company's default on the $975,000 note, the guarantor's
security interest in the Company's Common Stock in CAP-G cannot be perfected for
at least 30 days after  notification  of such default.  In the event of default,
the Company may make full payment of any  outstanding  principal and interest on
the note plus any  additional  charges  incurred by the  guarantor to completely
remove any security  interest held by the guarantor in the Company's  investment
in CAP-G.

     The Company is currently seeking 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
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. If the
Company fails to obtain the additional capital required to develop the Karakuduk
Field, the Company's investment in the field most likely will be lost.

     The Company's financial statements have been presented on the basis that it
is a going  concern,  which  contemplates  the  realization  of  assets  and the
satisfaction  of liabilities  in the normal course of business.  The Company has
incurred  recurring  operating  losses  and has no  operating  assets  presently

                                       11
<PAGE>


generating sufficient cash to fund its operating and capital  requirements.  The
Company  current cash reserves and cash flow from  operations are not sufficient
to meet its capital requirements through fiscal 1998.

     As of September 30, 1998,  substantially  all of the  Company's  assets are
invested in the development of the Karakuduk Field. Since the Karakuduk Field is
in the early  stage of  development,  the  Karakuduk  Field  does not  currently
produce any revenue.  The development of the Karakuduk Field,  through KKM, will
require substantial amounts of additional capital.  The terms of the KKM revised
license require a work plan from the commencement of operations through December
31,  1997,  of at  least  $10,000,000,  which  has  been  satisfied.  Additional
requirements  of $34.5  million  and $12  million  exist  for the  years  ending
December  31, 1998 and 1999,  respectively.  The capital  requirements  required
under the license will be primarily used to fund KKM's  drilling  operations for
the  Karakuduk  Field,  to build  the  required  Field  infrastructure  and camp
facilities necessary to support drilling and production operations, to construct
an 18-mile pipeline between the field and the export pipeline,  and to construct
a central processing unit (cpu) to process oil production from the Field.

     The Company will not be able to satisfy the $34.5 million  requirement  for
the year ending  December 31, 1998,  and has  requested  that the  obligation be
deferred  until the year  ended  December  31,  1999.  If the  deferment  is not
granted,  KKM will not be in compliance with the terms of KKM's License with the
Government of Kazakhstan  and the License may be terminated by the Government of
Kazakhstan.  In the event  KKM's  License  to  develop  the  Karakuduk  Field is
terminated,  the Company's  interest in the Karakuduk  Field may be lost. If the
Company  receives a deferment  of the  capital  requirement,  the  Company  will
require  substantial  additional  funding in order to satisfy  the 1999  capital
commitment under the License.  If the 1999 capital requirement is not satisfied,
KKM's  License may be  terminated  and the  Company's  interest in the Karakuduk
Field may be lost.

     As of  November  16,  1998,  KKM has  placed  approximately  8,000  tons of
production into the export pipeline. KKM has an existing marketing contract with
Munay-Impex,  a subsidiary of KazakhOil,  obligating Munay-Impex to purchase oil
from KKM in minimum  increments  of 5,000 tons.  KKM has not sold any of the oil
production in the pipeline to Munay-Impex under the existing contract.  Instead,
KKM is carrying  the  production  as  inventory  and is  attempting  to sell the
production  to the export  market  outside of the  Commonwealth  of  Independent
States,  where KKM expects to obtain a higher  price per  barrel.  If KKM cannot
complete a sale on the world export market, KKM will sell the current production
in inventory to Munay-Impex,  in accordance with the existing contract. KKM will
record oil revenues when a sale has been completed.

     On September  25, 1998,  the Company  requested  and received an additional
extension to December  31, 1998,  from the  Overseas  Private  Investment  Corp.
("OPIC") for political risk  insurance.  OPIC  originally  granted the Company a
binding  executed  letter of commitment on September 25, 1996. The Company has a
standby  facility  for which it has made  eight  payments  of  $31,250  plus one
additional payment of $15,625. The Company expects to execute the contract on or
before December 31, 1998.

     The Company has no other material  commitments  for cash outlay and capital
expenditures other than for normal operations.

2. Results of Operations

     In 1996,  the Company  accounted  for its  investment in KKM using pro rata
consolidation.  In 1997,  the Company  changed to the equity  method in order to
reflect  the  legal  ownership  right  of the  other  shareholders  in KKM.  The
consolidated  financial  statements  for the quarter  ended  September  30, 1997
reported herein have been  reclassified to reflect the equity method.  There was
no impact on previously reported earnings.

Three  Months  Ended  September  30, 1998  Compared  with the Three Months Ended
September 30, 1997

     The Company's  operations during the three months ended September 30, 1998,
resulted in a net loss of $1,117,000  compared to a net loss of $482,000 for the
three months ended September 30, 1997.

                                       12
<PAGE>


     Interest income increased by $246,000 from the three months ended September
30,  1997,  due to  increased  financing  provided  by  CAP-G  to KKM for  KKM's
operations in Kazakhstan.  Interest expense  increased by $67,000 from the three
months ended  September 30, 1997, due to increased  amortization of discounts on
notes payable outstanding during the three months ended September 30, 1998.

     General and  administrative  costs  increased by $274,000  during the three
months ended  September 30, 1998 as compared to the three months ended September
30, 1997, due to expanding workover and exploration operations in Kazakhstan and
increased  professional fees relating to the lawsuit that was settled on October
30, 1998, and public SEC filings (Registration Statement on Form S-3). Also, the
Company's equity loss in KKM increased by $303,000 during the three months ended
September 30, 1998 as compared to the three months ended September 30, 1997, due
to increased  operational  costs directly  related to development of oil and gas
properties held by KKM.

     The  Company   recognized  an   extraordinary   loss  of  $236,000  on  the
extinquishment  of debt during the three months ended  September 30, 1998,  from
the retirement of two notes totaling $1,000,000.

Nine Months  Ended  September  30,  1998  Compared  with the Nine  Months  Ended
September 30, 1997

     The Company's  operations  during the nine months ended September 30, 1998,
resulted in a net loss of $3,056,000  compared to a net loss of  $1,482,000  for
the nine months ended September 30, 1997.

     Interest income  increased by $534,000 from the nine months ended September
30,  1997,  due to  increased  financing  provided  by  CAP-G  to KKM for  KKM's
operations in  Kazakhstan.  Interest  expense  remained  unchanged from the nine
months ended September 30, 1997.

     General and  administrative  costs  increased by  $1,163,000  from the nine
months  ended  September  30,  1997.   Without   consideration  of  stock  based
compensation,  a non-cash item,  general and  administrative  costs increased by
$472,000 due to expanding  workover and  exploration  operations in  Kazakhstan,
legal fees associated with the lawsuit that was settled on October 30, 1998, and
professional   fees   relating  to  the   Company's   non-routine   SEC  filings
(Registration  Statement on Form S-1 and Form S-3).  Also, the Company's  equity
loss in KKM increased by $703,000 from the nine months ended September 30, 1997,
due to increased  operational  costs directly  related to development of oil and
gas properties held by KKM.

     The  Company   recognized  an   extraordinary   loss  of  $236,000  on  the
extinquishment of debt during the nine months ended September 30, 1998, from the
retirement of two notes totaling $1,000,000.

3. Year 2000 Issue

     The Company has  assessed  the Year 2000 issue and does not expect the Year
2000  problem  to have a  material  impact on the  Company's  operations.  After
consulting with major vendors,  contractors,  and technical field personnel, the
Company does not anticipate any material costs to result from Year 2000 problems
impacting the Company's operations.

Item 3 - Quantitative and Qualitative Disclosures About Market Risks

     Not Applicable.


                                       13
<PAGE>


     Part II - Other Information


Item 1 - Legal Proceedings

     On October 30,  1998,  the Company  settled the lawsuit  filed  against the
Company and others in the District Court of Harris County,  Texas, by Heartland,
Inc. of Wichita and Collins & McIlhenny,  Inc. on November 14, 1997, for a total
of $200,000  and warrants to purchase  200,000  shares of the  Company's  Common
Stock at an exercise price of $1.00,  exercisable  through January 28, 1999. The
lawsuit was dismissed with prejudice for all  defendants  involved.  The Company
believes the lawsuit was without  merit,  but a settlement  was reached to avoid
incurring additional legal costs.

     The Company  recorded the fair market value of the warrants  (approximately
$34,000)  using  the  Black-Scholes  option  pricing  model  with the  following
weighted average assumptions:  risk free interest rate 5.53%,  dividend yield of
0%,  volatility  factors of the Company's  Common Stock of 1.046, and a weighted
average life expectancy of the warrants of .25 years. The lawsuit was previously
discussed  in Item 3 of the  Company's  Annual  Report on Form 10-K for the year
ended December 31, 1997.


Item 2 - Changes in Securities and Use of Proceeds

     On July 3, 1998, the Company issued  warrants to purchase  20,000 shares of
the Company's  Common Stock at an exercise price of $.01 per share,  in exchange
for a stand-by  letter of credit  securing the $975,000 loan to the Company from
the Chase Bank of Texas.  The Company  issued the warrants in reliance  upon the
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended.  The guarantor had available all material  information  concerning  the
Company.  The warrant certificate bears an appropriate  restrictive legend under
the  Securities  Act of 1933,  as amended.  No  underwriter  was involved in the
transaction.

     Effective on July 28 and July 29, 1998, the Company sold  6,666,667  shares
of the Company's Common Stock for $1.50 per share for at total of $10,000,002.50
to certain  accredited  investors.  The Company sold the shares in reliance upon
the exemption  from  registration  under  Sections 4(2) of the Securities Act of
1933, as amended, and Regulation D promulgated  thereunder.  A Form D was timely
filed in  connection  with the sales.  The  investors,  who all were  accredited
investors,  had available all material  information  concerning the Company. The
certificates bear an appropriate  restrictive legend under the Securities Act of
1933,  as amended.  Allen & Company,  Incorporated  acted as placement  agent in
connection with the sale of the 6,666,667 shares. As a result,  Allen & Company,
Incorporated's  warrants  to purchase  900,000  shares of the  Company's  Common
Stock,  originally  issued as commission in connection  with the Preferred Stock
sale on November 24, 1997, became  exercisable for an additional  400,000 shares
of the Company's Common Stock.  The warrants to purchase the additional  400,000
shares of the Company's Common Stock are exercisable  through November 25, 2002,
at an  exercise  price of $0.01 per share.  Of the total  warrants  to  purchase
900,000  shares  of Common  Stock  issued to Allen &  Company,  Incorporated  on
November 24, 1997,  warrants to purchase  700,000 shares of the Company's Common
Stock are currently exercisable.

     Due to the fact the sales price of the  6,666,667  shares was below a price
of $2.00 per share,  the  Company  issued an  additional  416,667  shares to the
investor  who  purchased  1,250,000  shares of the  Company's  common  stock for
$2,500,000 in April 1998 in order to satisfy certain price protection agreements
the Company has with such  investor.  The Company does not consider the issuance
of 416,667 shares to be a sale.

     During the quarter ended  September 30, 1998,  the Company  granted  5-year
options to purchase  110,000  shares of the Company's  Common Stock to employees
of, and  consultants  to, the  Company.  The Company made the grants in reliance
upon the exemption from registration under Section 4(2) of the Securities Act of
1933, as Amended.  Such persons had  available to them all material  information
concerning the Company. The options will have an appropriate  restrictive legend
under the Securities Act of 1933, as amended.

                                       14
<PAGE>



Item 5 - Other Information

     In June,  1998, the Financial  Accounting  Standards  Board issued SFAS No.
133, "Accounting for Derivative  Instruments and Hedging  Activities",  which is
effective for fiscal years beginning after June 15, 1999, with earlier  adoption
encouraged.  This  Statement  requires  companies to record  derivatives  on the
balance sheet as assets and liabilities, measured at fair value. Gains or losses
resulting from the changes in the values of those derivatives would be accounted
for  depending on the use of the  derivative  and whether it qualifies for hedge
accounting.  The Company has not determined what the effect of SFAS No. 133 will
be on results of operations and financial position.  The Company will adopt this
accounting standard as required by January 1, 2000.



Item 6 - Exhibits and Reports on Form 8-K

(a)  Exhibits

       10.1    Credit Support and Pledge Agreement  between  Whittier  Ventures,
               LLC and Chaparral Resources, Inc. dated July 2, 1998.

       10.2    Warrants issued to Whittier Ventures, LLC

       10.3    Settlement  Agreement  and  Release  between  Heartland,  Inc. of
               Wichita and Collins & McIlhenny,  Inc. and  Chaparral  Resources,
               Inc., Howard Karren, Whittier Trust Company, and James A. Jeffs
               dated October 30, 1998.

       10.4    Warrants  issued to  Heartland,  Inc.  of Wichita  and  Collins &
               McIlhenny,  Inc., as joint tenants, and to Don M. Kennedy.

       10.5    Loan Agreement between Challenger Oil Services, PLC and Chaparral
               Resources, Inc. dated September 10, 1998.

       10.6    Promissory  Note  between  Challenger  Oil  Services,  PLC   and 
               Chaparral Resources, Inc. dated September 10, 1998.

       27      Financial Data Schedule


(b)  Reports on Form 8-K

               None


                                       15
<PAGE>


                                   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:   November 16, 1998



                                   Chaparral Resources, Inc.,
                                   a Colorado corporation



                                   By: /s/  Howard Karren
                                      ------------------------------------------
                                      Howard Karren
                                      President and Chief Executive Officer



                                   By: /s/  Michael B. Young
                                      ------------------------------------------
                                      Michael B. Young, Treasurer and Controller
                                      And Principal Accounting Officer


                                       16

<PAGE>

                                  Exhibit Index

      10.1     Credit Support and Pledge Agreement  between  Whittier  Ventures,
               LLC and Chaparral Resources, Inc. dated July 2, 1998.

      10.2     Warrants issued to Whittier Ventures, LLC

      10.3     Settlement  Agreement  and  Release  between  Heartland,  Inc. of
               Wichita and Collins & McIlhenny,  Inc. and  Chaparral  Resources,
               Inc., Howard Karren, Whittier Trust Company,  and James A. Jeffs,
               dated October 30, 1998.

      10.4     Warrants  issued to  Heartland,  Inc.  of Wichita  and  Collins &
               McIlhenny,  Inc., as joint tenants, and to Don M. Kennedy.

      10.5     Loan Agreement between Challenger Oil Services, PLC and Chaparral
               Resources, Inc. dated September 10, 1998.

      10.6     Promissory  Note  between  Challenger  Oil  Services,  PLC   and
               Chaparral Resources, Inc. dated September 10, 1998.

      27       Financial Data Schedule


                                       17