FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 For the fiscal year ended December 31, 1997

                                       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

Securities registered pursuant to Section 12(g) of the Act:

                          $0.10 Par Value Common Stock
                          ----------------------------
                                (Title of Class)

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  |_|

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

     As of March 27, 1998, the aggregate market value of the Registrant's voting
stock held by nonaffiliates was $87,020,964

     As of March 27, 1998,  Registrant  had  49,720,456  shares of its $0.10 par
value common stock issued and outstanding.

                                                               


<PAGE>


                                     PART I

ITEM 1.  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 that was based in Denver,  Colorado until March 1, 1997
when the Company moved its  headquarters to Houston,  Texas.  Historically,  the
Company produced and sold crude oil and natural gas to oil and gas purchasers in
the Rocky Mountain and Western  states of 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).  The Company's
strategy is to obtain  development  rights to oil and gas fields located outside
the United  States where  discoveries  have been made and the Company  estimates
there  are oil  reserves,  but the  fields  have  either  never  been  placed on
production  or the  Company  believes  that the fields  could be  enhanced  with
efficient  management  and  technical  experience  provided by the Company.  The
Karakuduk Oil Field Project ("Karakuduk Field" or "Karakuduk Project") described
below is the  Company's  first oil field to be acquired  under the Company's new
corporate  strategy.  The Company divested its domestic working interest oil and
gas  properties  in early 1997,  including  the  Company's  South  Douglas Creek
interest.


Karakuduk Project

     The Company  currently owns all of the outstanding  common stock of Central
Asian  Petroleum  Guernsey  Limited  ("CAP-G")  which  has  a  50%  interest  in
Karakuduk-Munay,  Inc.  ("KKM"),  which  holds  100%  of the  right  to  develop
Karakuduk Field.

     The  Company  acquired  45% of the  outstanding  stock  of  CAP-G  prior to
December 1, 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  restricted  Common Stock,  up to an additional 55% of the outstanding
stock of CAP-G.  The Company  consummated the purchase of 25% of the outstanding
stock of CAP-G in April 1996 by paying  $2,000,000  in cash and issuing  685,000
shares of the Company's  Common Stock.  The Company acquired an additional 5% of
the outstanding stock of CAP-G in April 1996 for $250,000 cash.

     To acquire an additional 15% of the outstanding  common stock of CAP-G, the
Company  agreed  to pay  $1,975,000  in cash and  issue  900,000  shares  of the
Company's  Common Stock.  This purchase was  consummated on March 11, 1996, when
the Company paid  $750,000 in cash and issued  900,000  shares of the  Company's
Common Stock.  The remaining  cash balance of $1,225,000 for the purchase was to
be paid in four quarterly  equal payments of $306,250  between June 11, 1996 and
March 11,  1997.  The first  payment  of  $306,250  was paid in June 1996 and an
additional  $175,000 was paid in September 1996. The agreement was  subsequently
revised so that the Company paid $200,000 in December  1996. The Company has now
paid the $543,750  balance of the purchase price. In addition,  in December 1997
the Company acquired the remaining 10% of the outstanding  common stock of CAP-G
for which the Company  paid  $1,625,000  (which  includes  $800,000 of costs the
Company  previously  paid on behalf of the prior owner of the 10%  interest) and
issued 400,000 shares of Common Stock.


Markets

     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 changes in world


                                      -2-
<PAGE>


oil prices in recent  months and there can be no  assurance  of any future price
stability.

     KKM has  entered  into a protocol  of  intentions  whereby  the entity that
operates  the  KazTrans  Oil  pipeline  and KKM have  undertaken  to  conclude a
contract which will give KKM access to the pipeline.  This access will allow KKM
to ship oil to export  markets.  In addition to this protocal, on March 7, 1998
KKM signed a contract with the export-import  firm of Munay-Impex,  a subsidiary
of KazakhOil,  to export crude oil produced by KKM to both the  Commonwealth  of
Independent  States  (CIS) and other  countries in the amount up to 100,000 (one
hundred  thousand)  metric  tons  according  to  the  schedule  of  shipment  of
Kazakhstan  oil during 1998. KKM will supply crude oil to Munay-Impex in amounts
of not less than 5-10 thousand tons.

     The ability of the Company to realize the  carrying  value of its assets is
dependent on the Company  being able to extract and transport  hydrocarbons  and
finding appropriate markets for their sale. Currently, exports from the Republic
of Kazakhstan  are  dependent on limited  transport  routes and, in  particular,
access to the  Russian  pipeline  system.  Domestic  markets in the  Republic of
Kazakhstan  might not  permit  world  market  price to be  obtained.  Management
believes,   however,   that  over  the  life  of  the  project,   transportation
restrictions  will be alleviated and prices will be achievable for  hydrocarbons
extracted  to allow the  Company  full  recovery  of the  carrying  value of its
assets.  In this regard,  KKM has entered into a contract with Munay-Impex which
is referenced  above for export of crude oil of up to 100,000 metric tons during
1998. The contract was signed on March 7, 1998. Currently, oil is being produced
through the field  separators  into storage tanks or directly into oil transport
trucks for delivery to the pipeline under the terms of the contract.

     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.

See also "Item 2. Properties--The Karakuduk Field."

Competition

     Foreign  oil  and  gas   exploration   and  the  acquisition  of  producing
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,  in some  cases  with
greater  financial  resources  and 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.  The Company's  operations may be subject to regulation by foreign
governments or other regulatory bodies governing the area in which the Company's
overseas  operations  are  located.  Regulations  govern such things as drilling
permits, production rates, environmental protection,  pollution control, royalty
rates and taxation  rates among  others.  These  regulations  may  substantially
increase  the costs of doing  business  and  sometimes  may prevent or delay the
starting  or  continuing  of  any  given  exploration  or  development  project.
Moreover,   regulations  are  subject  to  future  changes  by  legislative  and
administrative  action and by judicial  decisions which may adversely affect the
petroleum  industry  in general and the  Company in  particular.  At the present
time, it is impossible to predict the effect any current or future  proposals or
changes in existing laws or regulations  will have on the Company's  operations.
The  Company  believes  that it complies  with all  applicable  legislation  and
regulations in all material respects.

     Subsequent to December 31, 1997,  the  Kazakhstan  government tax authority
began  conducting an audit of KKM. The Company  believes that as of December 31,
1997, KKM has adequately  provided for any potential tax  liabilities  which may
exist.

     Environmental. Based upon a study undertaken on behalf of the Company by an
unaffiliated  party,  the Company does not believe that its business  operations
foreign and domestic presently impair environmental quality. However, compliance
with  foreign  and  domestic  regulations  which  have been  enacted  or adopted
regulating the discharge of materials into the environment could have an adverse
effect  upon the  Company,  the extent of which the Company is unable to assess.
Since inception the Company has not made any material  capital  expenditures for
environmental  control  facilities  and has no plans to do so. KKM  removed  all
material  left in the  Karakuduk  Field by the Soviet  drillers  and the Company
believes that Karakuduk Field is in compliance with all applicable environmental
standards.

                                      -3-
<PAGE>


Employees

     As of March  27,  1998,  the  Company  had 7  full-time  employees  and one
part-time employee. CAP-G operates through its officers and directors and has no
employees.  KKM has 80 employees and retains  independent  contractors  on an as
needed basis through the Company's  wholly owned subsidiary Road Runner Services
Company.


ITEM 2.  PROPERTIES

The Karakuduk Field

     The Karakuduk  Field is located in the Mangistau  Region of the Republic of
Kazakhstan.  KKM's  license to develop  the  Karakuduk  Field  covers an area of
approximately  16,922.5  acres  and has been  granted  to KKM for a period of 25
years.  The agreement  granting KKM the right to develop the Karakuduk Field was
approved by the Ministry of Oil and Gas Industries of the Republic of Kazakhstan
on August 30, 1995.

     The  Karakuduk  Field is  geographically  located  approximately  227 miles
northeast of the regional  capital city of Aktau, 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
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  Kazakhstan  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 were 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 drilling a maximum 90 additional oil wells and
26 water  injection  wells may be required to fully develop the field.  Peak oil
production  from the field is  expected to occur by 2001,  although  the time or
amount of development or production cannot presently be assured.

     Although the Company has a reserve  report on the Karakuduk  Field that was
commissioned  by the  Company and that was  reviewed by a petroleum  engineering
group  retained by the Company,  the reserve  report is over three years old and
did not consider the potential  adverse impact of  marketability on price of any
oil which might be produced.  Therefore,  the Company does not claim that any of
the  reserves  specified  in the reserve  report are proven.  As a result of the
Company  recently  reentering a well in the  Karakuduk  Field and because of the
Company's  future drilling plans for the Karakuduk Field, the Company expects to
be able to obtain an updated reserve report for the Karakuduk Field in late 1998
or early 1999.

     The Karakuduk Field is approximately 18 miles north of the Mukat-Mangishlak
railroad, the Mangishlak-Astrakghan water pipeline, the Beyneu-Uzen high voltage
utility lines, and the Uzen-Atrau-Samara oil and gas pipelines.  KKM has entered
into a protocol of intentions  whereby the entity that operates the KazTrans Oil
pipeline  and KKM have  undertaken  to  conclude a contract  which will give KKM
access  to the  pipeline.  This  access  will  allow  KKM to ship oil to  export
markets.  In addition to this protocol, on March 7, 1998, KKM signed  a contract


                                      -4-

<PAGE>


with the export-import firm of Munay-Impex, a subsidiary of KazakhOil, to export
crude oil produced by KKM to both the  Commonwealth of Independent  States (CIS)
and other  countries in the amount up to 100,000 (one hundred  thousand)  metric
tons  according to the schedule of shipment of Kazakhstan  oil during 1998.  KKM
will supply crude oil to  Munay-Impex  in amounts of not less than 5-10 thousand
tons.  The planned  development  program for the Karakuduk  Field will include a
pressure  maintenance  operation  that the  Company  believes  could  result  in
additional  recoverable  reserves.

     The ability of the Company to realize the  carrying  value of its assets is
dependent  on being able to  extract  and  transport  hydrocarbons  and  finding
appropriate  markets for their sale.  Currently,  exports  from the  Republic of
Kazakhstan are dependent on limited transport routes and, in particular,  access
to the Russian pipeline  system.  Domestic markets in the Republic of Kazakhstan
might  not  permit  world  market  price to be  obtained.  Management  believes,
however, that over the life of the project,  transportation restrictions will be
alleviated and prices will be achievable for hydrocarbons extracted to allow the
Company full recovery of the carrying value of its assets. KKM, according to its
license  agreement with the  Government of Kazkhstan,  has a priority use of the
existing pipeline network.  In this regard, KKM has entered into a contract with
Munay-Impex, which is referenced above, for export of crude oil of up to 100,000
metric tons during 1998.  The  contract was signed on March 7, 1998.  Currently,
oil is being  produced  through  the  field  separators  into  storage  tanks or
directly into oil transport  trucks for delivery to the pipeline under the terms
of the contract.

     Because of uncertainties  surrounding the prospect, no proved reserves have
been  attributed to the  Karakuduk  Field.  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 license  requires a minimum  work plan of
approximately  $10 million by December 31, 1997 (which has been  satisfied),  an
additional  $34.5  million by December  31, 1998 and $12 million by December 31,
1999.  The  agreement  provides  KKM with the  right to defer the  minimum  work
program under certain conditions.  As part of the minimum work plan requirement,
the  Company  has  loaned  CAP-G more than $12  million  to fund  KKM's  current
operation.  KKM's 1998 budget of $34 million has been  approved by the KKM Board
of Directors through December 31, 1998. It is planned that this requirement will
be funded by the Company through loans by its  subsidiary,  CAP-G, to KKM and by
the sale of oil by KKM. In addition, the Company is attempting to obtain limited
or non-recourse  project financing for KKM, which may reduce the amount of loans
from CAP-G.

     The  Karakuduk  Field will be  developed  in phases.  Phase I,  expected to
require at least one to two years,  began during 1996.  Phase I expenditures are
to include the  recompletion of four existing wells.  Also, it is planned that a
development well program in the Karakuduk Field will commence in the second half
of 1998 as a part of Phase II Development.

     Total costs, including engineering design, well recompletions, drilling and
completion costs,  storage tanks and facilities,  oil transport  trucks,  roads,
camp facilities, communication facilities, field transportation, office overhead
and personnel costs, for Phase I are estimated to be $10 to $12 million.

     The Company  currently is responsible  for providing 100% of the balance of
the funding  necessary for the  completion of the  development  of the Karakuduk
Field.

     The Company first produced  crude oil from the Karakuduk  Field in December
1997.  The  produced  oil is  transported  by truck to the  export  pipeline  of
Say-Utes, which is 38 miles from the field. By the second quarter of 1998, it is
planned that any oil produced  will be  transported  using several  options:  by
pipeline from the field to a pipeline  terminal to be built at Railroad  Station
#6, which is  apaproximately 18 miles from the Karakuduk Field, or to a railroad
boarding  facility at the same location or both.  The oil will be transported by
railroad or via the Uzen-Atrau-Samara  pipeline to the Black Sea ports described
above for sale to international consumers.

     The first two workover wells  reentered in the Karakuduk  Field were tested
by KKM at a combined  sustained flow rate of approximately  2,000 barrels of oil
per day. The wells,  #21 and #10, are two of twenty-two  wells  drilled  between
1972 and 1992 to  delineate  the  Karakuduk  Oil Field.  None of such wells were
placed on production  when originally  drilled.  Well #21 and well #10 currently
have been placed on production  to fill storage tanks and transport  trucks that
deliver oil to the export pipeline. Workover completions are underway on well #7
and  well  #20.   Production  has  been   established  from  the  two  uppermost
oil-producing  zones in the  field.  The  additional  zones  will be  brought on
production in subsequent wells.

                                      -5-

<PAGE>


     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  specific  amounts or that the  Company  will ever  realize a profit as a
result of the Company's interest in the field.

     KKM was  re-registered on July 24, 1997, with the government of Kazakhstan.
The  re-registration  was required as a result of new legislation in Kazakhstan.
The Company  believes that KKM is now in compliance with all Kazakhstan laws and
regulations related to the registration requirements relating to legal entities.
The  re-registered  KKM  includes  as a  shareholder  Kazakh Oil,  the  national
petroleum  company which holds the majority of the interest of the government of
Kazakhstan  in KKM.  The  balance is owned by a private  Kazakhstan  joint stock
company.

     The permits and licenses  required to develop the Karakuduk Field have been
obtained.  However,  there is no assurance that any further permits or licenses,
if required,  will be obtained.  Also, because of uncertainties  surrounding the
project,  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  financed  or that  the
Karakuduk Field will be successfully  developed.  Further, the Company will face
all of the risks  inherent in attempting to develop an oil and gas property in a
foreign country.

     In the first quarter of calendar 1997,  the Company  disposed of all of its
remaining interests in oil and gas properties in the United States.

     See  also  Item  7--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 in this
report,  estimated  quantities  of the  Company's  proved  oil and  natural  gas
reserves  both  decreased  100% for the fiscal year ended  November 30, 1996, as
compared to the  previous  fiscal year.  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  100% at the fiscal year end November 30,
1996, 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. The Company claims no proved reserves as of December 31, 1997.

     Although the Company has a reserve  report on the Karakuduk  Field that was
commissioned  by the  Company and that was  reviewed by a petroleum  engineering
group  retained by the Company,  the reserve  report is over three years old and
did not consider the potential  adverse impact of  marketability on price of any
oil which might be produced.  Therefore,  the Company does not claim that any of
the  reserves  specified  in the reserve  report are proven.  As a result of the
Company  recently  reentering a well in the  Karakuduk  Field and because of the
Company's  future drilling plans for the Karakuduk Field, the Company expects to
be able to obtain an updated reserve report for the Karakuduk Field in late 1998
or early 1999.

     Since  January 1, 1997,  the  Company has not filed with or included in any
reports to any other Federal authority or agency any estimates of total,  proved
net oil or gas reserves.

                                      -6-

<PAGE>


     Net  Quantities  of Oil and Gas  Produced.  The  Company's  net oil and gas
production for each of the last three fiscal years and for the month of December
1996  (all of which  prior to 1997 was from  properties  located  in the  United
States) was as follows:

<TABLE>
<CAPTION>

                                                                            Year Ended November 30,
                      Year Ended                  Month of                  -----------------------
                   December 31, 1997            December 1996            1996                     1995
                   -----------------            -------------            ----                     ----
<S>                          <C>                     <C>                  <C>                      <C>  
Oil (Bbls)         Less than 1,000                  -0-                   1,737                    8,224
Gas (Mcf)               -0-                         -0-                  96,906                  132,924
</TABLE>

     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:

<TABLE>
<CAPTION>


                                                                       Average            Average            Average
     Year Ended            Month of             Year Ended           Sales Price        Sales Price         Production
    December 31,           December            November 30           Oil (Bbls)          Gas (Mcf)         Cost Per BOE
    ------------           --------            -----------           -----------        ----------        ------------     
    <S>                    <C>                  <C>                   <C>                <C>               <C>  
        1997                                                              *                  *                  *
                             1996                                         *                  *                  *
                                                   1996                 17.53              1.17                2.07
                                                   1995                 14.27              1.02                3.78
</TABLE>

*    The Company did not sell any  significant  quantities of oil and gas during
     these periods.

     The  above  table  represents  activities  related  only  to  oil  and  gas
production.

     Productive  Wells and Acreage.  As of December  31,  1997,  the Company had
interests in one productive oil well and no productive gas wells. As of December
31,  1997,  the Company had a net 50%  beneficial  interest in KKM which holds a
governmental  license to develop the Karakuduk Field, a 16,900 acre oil field in
the Republic of Kazakhstan  which was discovered in 1972 with the drilling of 22
exploratory and development  wells by the former Soviet Union.  These wells were
not produced  commercially.  On December 31, 1997, KKM delivered by truck to the
pipeline  oil that KKM had  recovered  from  testing  well #21,  the first  well
reentered in the  Karakuduk  Field.  Well #21 tested on a sustained  flow of 526
barrels of oil per day. The well was subsequently  shut-in until installation of
a transfer  system and a laboratory at Say-Utes was completed in February  1998.
The well produces oil  periodically to fill storage and/or transport trucks that
deliver  oil to the  export  pipeline.  As of March  23,  1998 Well #10 has been
reperforated and well #10 was produced at a sustained test flow rate with a 1/2"
choke of 1,450 barrels of oil per day.

     Drilling Activity. During the last fiscal year ended December 31, 1997, the
month of December  1996 and the  previous  two fiscal  years ended  November 30,
1996,  the  Company  did  not  participate  in the  drilling  of any  productive
exploratory and development wells. The Company did participate in the reentry of
one previous oil well which had never been placed on production.

     Present Activities. As of March 23, 1998, the Company was in the process of
reentering  well #20 and well #7.  Well #10 was  reperforated  and flowed  1,450
barrels of oil per day through a 1/2 choke.

     Offices.  On March 16,  1998,  the  Company  relocated  its offices to 2211
Norfolk,  Suite 1150,  Houston,  Texas  77098.  The new office is  comprised  of
approximately  5,570  square  feet and will be leased for a five year term at an
initial rental of approximately $7,891 per month.

                                      -7-

<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

     On November 14, 1997,  Heartland,  Inc. of Wichita and Collins & McIlhenny,
Inc. ("Plaintiffs") filed a lawsuit against the Company, Howard Karren, Whittier
Trust Company and James A. Jeffs in the District Court of Harris County,  Texas.
The Company was served with the Complaint on December 3, 1997.  Plaintiffs claim
that the Company breached an alleged agreement with them whereby Plaintiffs were
to raise  capital for the Company  through a private  placement of the Company's
securities,  that the  Company  and Mr.  Karren  made false  representations  in
connection  with the alleged  contract and that Whittier Trust Company and James
A. Jeffs  interfered  with the Company's  performance  of the alleged  contract.
Plaintiffs are seeking  actual  damages of $3,435,000  and exemplary  damages of
$25,000,000  from each defendant,  plus attorneys'  fees. A motion for a summary
judgment filed by the Plaintiff was denied by the Court.

     The  defendants  believe the  allegations  are without  merit and intend to
vigorously defend the lawsuit.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter was submitted to a vote of the Company's  security holders during
the Company's fiscal quarter ended December 31, 1997.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY 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 March 24, 1998,  the Company had  approximately  2,032  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.


                                      -8-

<PAGE>


     The following  table shows the range of high,  low and closing sales prices
for each quarter during the Company's last two calendar years ended December 31,
1997, as reported by the National Association of Securities Dealers, Inc.

    Trading Range                               Price Range
 Fiscal Quarter Ended                  High        Low      Closing
 --------------------                  ----        ---      -------

   March 31, 1996                      1 11/32    11/16     1 3/16
   June 30, 1996                       1 21/32    1 1/32    1 3/8
   September 30, 1996                  1 3/4      1 3/16    1 5/16
   December 31, 1996                   1 13/32    3/4       29/32
   March 31, 1997                      1 3/16     3/4       7/8
   June 30, 1997*                      1          3/4       13/16
   September 30, 1997                  1 1/4      11/16     1 5/32
   December 31, 1997                   3 3/32     1 1/16    2 1/2

*    On May 29,1997, the Company changed its fiscal year end from November 30 to
     December 31.

The  following is  information  as to all  securities of the Company sold by the
Company since November 30, 1996,  which were not registered under the Securities
Act of 1933, as amended ("Securities Act").

     In November and December, 1996, the Company borrowed $1,850,000 for interim
financing pursuant to unsecured convertible  promissory notes that bore interest
at 8% per annum, which was payable monthly,  and that were due and payable on or
before May 29, 1998. The promissory  notes were  convertible  into the Company's
Common  Stock at the lower of $0.75 per share or 75% of the market  price of the
Common  Stock on the date of the  conversion  if the market  price was less than
$1.00 per share on such  date.  The  proceeds  from the first of such  loans was
received on  November  22,  1996.  The Company  issued the  promissory  notes in
reliance  upon  the  exemption  from  registration  under  Section  4(2)  of the
Securities  Act. The persons  represented  to the Company that they acquired the
promissory  notes for their own  accounts  and not with a view to  distribution.
Such  persons had  available  to them all material  information  concerning  the
Company.  The promissory notes bear an appropriate  restrictive legend under the
Securities Act. No underwriter was involved in the transaction.

     In connection  with such  borrowings,  the Company issued the lenders stock
purchase  warrants  that  terminate on November 30, 1999, to purchase a total of
462,500  shares of the  Company's  Common Stock at $0.25 per share.  The Company
further agreed that the Company would issue the lenders  warrants to purchase an
additional  185,000 shares of the Company's Common Stock if the promissory notes
were  not paid or  converted  by May 29,  1997,  and  warrants  to  purchase  an
additional  370,000 shares of the Company's Common Stock if the promissory notes
were not paid or converted  by November  30,  1997.  Of the warrants to purchase
185,000 shares,  the Company was required to issue warrants to purchase  125,000
shares.  Such warrants are  exercisable for a period of three years at $0.25 per
share. As of November 30, 1997,  $1,500,000 of the notes had been converted into
the Company's  Common Stock and the remaining  notes were completely paid off by
the Company. The Company issued the warrants in reliance upon the exemption from
registration  under Section 4(2) of the Securities Act. The persons  represented
to the Company  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 Company.  The  certificates  evidencing the warrants
bore an appropriate  restrictive legend under the Securities Act. No underwriter
was involved in the transaction.

     The Company  attempted  to  negotiate  an  agreement  pursuant to which the
Company  would acquire 100% of the issued and  outstanding  capital stock of M-D
International  Petroleum,  Inc. ("MDI"), a private company.  On January 8, 1997,
the Company  agreed to issue  180,000  shares of the  Company's  Common Stock to
Enron Oil & Gas  Uzbekistan,  Ltd.  ("EOGU") to obtain an option to acquire MDI.
The Company issued the shares in reliance upon the exemption  from  registration
under  Section  4(2) of the  Securities  Act.  EOGU had  available  all material
information  concerning the Company. The certificate evidencing the shares bears
an appropriate  restrictive  legend under the Securities Act. No underwriter was
involved in the transaction.

                                      -9-

<PAGE>


     On February 12, 1997, the Company  entered into a Severance  Agreement with
Paul V.  Hoovler  pursuant to which Mr.  Hoovler  received  warrants to purchase
100,000  shares of the Company's  Common Stock at an exercise price of $0.85 per
share and warrants to purchase  100,000 shares of the Company's  Common Stock at
an  exercise  price of $1.25 per  share.  The  Company  issued the  warrants  in
reliance  upon  the  exemption  from  registration  under  Section  4(2)  of the
Securities  Act.  Mr.  Hoovler had  available  to him all  material  information
concerning the Company.  The warrants have and the  certificates  evidencing the
shares underlying the warrants will bear an appropriate restrictive legend under
the Securities Act. No underwriter was involved in the transaction.

     On April 22,  1997,  the Company  sold  3,076,923  shares of the  Company's
Common  Stock  for  $0.65  per  share  for a total of  $2,000,000  to a  private
investor. In connection with the transaction,  the Company also issued a warrant
to  the  investor  to  purchase  up to an  additional  4,615,385  shares  of the
Company's  Common Stock for  $3,000,000  or $0.65 per share.  The warrant was to
expire on December 31, 1997, if not previously exercised.  In October, 1997, the
private  investor  exercised  a portion of the warrant by  purchasing  2,307,692
shares of the Company's  Common Stock.  At the same time,  the Company agreed to
extend the expiration  date of the remaining  portion of the warrant to December
31, 1998.  In November,  1997,  the private  investor  exercised  the  remaining
portion of the warrant by purchasing  2,307,693  shares of the Company's  Common
Stock and exercised  another  warrant that the private  investor had received in
connection  with a loan made by the private  investor in December,  1996, to the
Company. The warrant related to 125,000 shares of the Company's Common Stock and
was  exercisable  at a price of $0.25 per  share.  In April  1997,  the  private
investor  also  converted  a $500,000  promissory  note (plus  $2,000 of accrued
interest)  that had  previously  been issued by the  Company to it into  772,991
shares of the Company's  Common Stock at a conversion  price of $0.65 per share.
The Company  issued the shares and the warrant in  reliance  upon the  exemption
from  registration  under Section 4(2) of the  Securities  Act. The investor had
available to the investor all material  information  concerning the Company. The
certificates   evidencing  the  shares  and  the  warrant  bear  an  appropriate
restrictive  legend under the Securities Act. No underwriter was involved in the
transaction.

     On July 17, 1997, the shareholders of the Company approved a 1997 Incentive
Stock Plan pursuant to which all non-employee directors were to receive an award
of 250 shares of Common  Stock of the Company  for each  meeting of the board of
directors  attended by such director.  The directors have waived their rights to
receive shares for the meetings in 1997. Also on July 17, 1997, the shareholders
approved a 1997 Non-Employee Directors' Stock Option Plan pursuant to which each
year each non-employee director will receive an option to purchase 25,000 shares
of Common Stock of the Company. The first options relating to a total of 200,000
shares  that are  exercisable  at a price  of  $0.83  per  share  were  received
effective July 17, 1997.

     On September  2, 1997,  the Company  agreed to issue  87,669  shares of the
Company's Common Stock to Charles P. Karren in lieu of $78,000 of accrued salary
that had not been paid to Mr. Karren.  The Company issued the shares in reliance
upon the exemption from  registration  under Section 4(2) of the Securities Act.
Mr. Karren had available to him all material information concerning the Company.
The certificate  evidencing the shares bears an appropriate  restrictive  legend
under the Securities Act. No underwriter was involved in the transaction.

     On  September  2, 1997,  the Company  granted five year options to purchase
2,885,000  shares of the  Company's  Common Stock to various  directors  of, and
consultants  to, the  Company.  Options  relating  to  1,442,500  shares have an
exercise price of $0.75 per share and options  relating to 1,442,500 shares have
an exercise price of $1.50 per share. The Company issued the options 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 will bear an  appropriate  restrictive  legend under the  Securities
Act. No underwriter was involved in the transaction.

                                      -10-

<PAGE>


     On September 3, 1997,  the Company  sold  461,538  shares of the  Company's
Common Stock for $0.65 per share for a total of $300,000 to a private  investor.
In  connection  with the  transaction,  the Company also issued a warrant to the
investor to purchase up to an additional  461,538 shares of the Company's Common
Stock for $300,000 or $0.65 per share. The warrant was to expire on December 31,
1997, if not previously  exercised.  The private investor exercised a portion of
the warrant on December 31, 1997,  and received a total of 384,616 shares of the
Company's  Common  Stock.  The  Company  issued the  shares  and the  warrant in
reliance  upon  the  exemption  from  registration  under  Section  4(2)  of the
Securities  Act.  The  investor  had  available  to the  investor  all  material
information concerning the Company. The certificates  evidencing the shares bear
an appropriate  restrictive  legend under the Securities Act. No underwriter was
involved in the transaction.

     On  November  24,  1997,  the  Company  executed a  Subscription  Agreement
("Agreement")  with an  investor,  which was not  affiliated  with the  Company.
Pursuant to the Agreement, the investor purchased 50,000 shares of the Company's
Series A  Preferred  Stock,  no par value,  for a purchase  price of $100.00 per
share or an aggregate purchase price of $5,000,000.

     The Series A  Preferred  Stock is  convertible  at the option of the holder
thereof at any time or from time to time on or prior to the redemption date into
Common Stock.  The conversion price of the Series A Preferred Stock is $2.25 per
share.  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 per share.

     Allen & Company  Incorporated  acted as placement  agent in connection with
the sale of the Series A Preferred Stock. Allen & Company  Incorporated  elected
to receive its fees in the form of warrants  to purchase  900,000  shares of the
Company's  Common Stock that were originally  exercisable  through  November 25,
2002, at an exercise price of $0.01 per share. Due to the fact that the investor
did not purchase additional shares of preferred stock pursuant to the Agreement,
Allen & Company Incorporated has agreed that warrants to purchase 700,000 of the
shares of the Company's Common Stock will only be exercisable if Allen & Company
Incorporated finds alternative funding acceptable to the Company by November 25,
1999.

     The Company issued the shares of Series A Preferred  Stock and the warrants
in reliance  upon the  exemption  from  registration  under  Section 4(2) of the
Securities  Act.  The  investor  represented  to the Company  that the  investor
acquired  the  shares  for the  investor's  own  account  and not with a view to
distribution.   The  investor  had   available  to  the  investor  all  material
information  concerning the Company. The certificates  evidencing the shares and
the warrants bear an appropriate restrictive legend under the Securities Act.

     In December  1997,  the Company  exercised  an option to acquire 10% of the
outstanding shares of CAP-G owned by one person. As a part of the consideration,
the Company issued  400,000  shares of Common Stock to such person.  The Company
issued the shares 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  certificates  evidencing  the shares
issued bear an appropriate  restrictive legend under the Securities Act and stop
transfer  instructions  have been and will be placed  with the  Company's  stock
transfer agent. No underwriter was involved in the transaction.

     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  693,000 shares of the
Company's Common Stock to various employees of, and consultants to, the Company,
granted  (subject to  shareholder  ratification)  90,000 shares of the Company's
Common Stock to the directors of the Company and granted  190,000  shares of the
Company's Common Stock to various 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. 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 will bear an appropriate  restrictive legend under the Securities
Act. No underwriter was involved in the transaction.

                                      -11-


<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

     The following is selected consolidated financial information concerning the
Company.  This  information  should be read in conjunction with the Consolidated
Financial Statements appearing elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>

                                   Year Ended     Month of                            Year Ended
                                  December 31,   December     November 30,    November 30,   November 30,   November 30,
                                  ------------   ----------   ----------------------------------------------------------
                                      1997         1996           1996            1995           1994           1993
                                                               
                                                                <S>            <C>           <C>            <C>       
Oil and gas sales...............         --           --      $  147,000       $ 255,000     $  374,000     $  414,000
Total revenues*.................         --           --         147,000         255,000        374,000        414,000
Noncash write-down of oil
  and gas properties............         --           --             --          619,000        416,000        230,000
Net income (loss)...............  (2,603,000)    (130,000)    (2,416,000)       (704,000)      (474,000)      (123,000)
Net income (loss) per
  common share..................        (.06)        (.00)          (.08)          (0.04)         (0.02)         (0.01)
Working capital.................   3,356,000            *        259,000         366,000        497,000        709,000
Total assets....................  23,519,000            *     14,498,000       5,595,000      2,388,000      2,597,000
Long-term obligations and
   redeemable preferred stock ..   4,710,000            *      1,491,000         461,000             --        115,000
Shareholders' equity............  18,578,000            *     12,114,000       4,920,000      2,035,000      2,167,000
Present value of proved reserves          --           --             --         427,000      1,084,000      1,360,000
Proved oil reserves (bbls)......          --           --             --          66,185        111,690        141,748
Proved gas reserves (mcf).......          --           --             --       3,062,417      3,294,730      2,305,142
</TABLE>

-------------------
*  Not applicable due to one month short period ended December 31, 1996


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Liquidity and Capital Resources

     Previously,  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 KKM through  CAP-G.  KKM is a closed
joint stock company in Kazakhstan.

     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.
Since January 1, 1997, the Company raised $2,300,000  through the sale of Common
Stock,  $3,309,000  through the exercises of warrants and $5,000,000 through the
sale of Series A Preferred  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


                                      -12-

<PAGE>


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 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.

     In December  1997 the Company  exercised an option to acquire the remaining
10% of CAP-G.  The  Company now owns all of CAP-G,  providing  a 50%  beneficial
interest in the  Karakuduk  Field.  The Company was  required to pay  $1,625,000
(which includes  $800,000 of costs the Company  previously paid on behalf of the
prior owner of the 10% interest)  and issue  400,000  shares of Common Stock for
the  remaining 10% of CAP-G.  The other 50% of the  Karakuduk  Field is owned by
KazakhOil,  the  national  oil  company,  and a private  Kazakhstan  joint stock
company.

     As of December  31, 1997,  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.  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 six  payments of $31,250
with  another  payment due on or before  April 1, 1998.  The Company  expects to
execute the contract on or before June 30, 1998.

Year 2000 Issue

     The Year 2000 Issue is the result of computer  programs being written using
two digits rather than four to define the applicable  year. Any of the Company's
computer programs that have  date-sensitive  software may recognize a date using
"00" as the year 1900 rather than the year 2000.  This could  result in a system
failure or miscalculations causing disruptions of operations,  including,  among
other things, a temporary inability to process  transactions,  send invoices, or
engage in similar  normal  business  activities.  The Company does not expect to
incur any  material  operating  expenses  or be  required  to invest  heavily in
computer system improvements to be Year 2000 compliant.

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

                                      -13-

<PAGE>


Change in Fiscal Year End

     In order to unite  the  reporting  period of the  Company  with that of its
subsidiaries,  the fiscal  year of the Company was changed to a December 31 year
end from the previous  November 30 year end.  This change took effect on May 29,
1997.  As a result of this  change,  year to date data is as of  December 31 for
1997 and as of November 30 for 1996 and 1995.  The activity  for  December  1996
only includes corporate activity and is immaterial.

Results of  Operations  Year Ended  December 31, 1997 Compared  with  Year Ended
 November 30, 1996.

     As  mentioned  above,  during 1997 the Company  changed  from a fiscal year
ended November 30 to a fiscal year ended  December 31. The Company's  operations
during the fiscal year ended December 31, 1997, and the month ended December 31,
1996, resulted in losses before  extraordinary  items, if any, of $2,389,000 and
$130,000, respectively, due to the Company's ongoing transition to international
exploration  and  production  operations.  The  Company's  operational  loss for
December  1996  consisted  of  miscellaneous  corporate  level  expenses  and is
immaterial to the overall operational results of the Company.

     Results for the fiscal year ended November 30, 1996 have also been restated
to reflect the equity method of accounting for the Company's  investment in KKM.
In 1996, the Company accounted for KKM using proportional  consolidation.  After
adoption of the equity method,  the Company's net loss for the fiscal year ended
November 30, 1996,  $2,416,000,  remained  unchanged from the amount  originally
reported.

     Oil and gas  revenues  and  production  costs  decreased  by  $147,000  and
$37,000,  respectively,  from the  year  ended  November  30,  1996,  due to the
disposition of all of the Company's  domestic oil and gas properties  during the
first quarter of 1997. Interest income increased by $267,000 from the year ended
November 30, 1996 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 and interest expense increased by $341,000
and $225,000,  respectively, also due to KKM's increased operational activity in
Kazakhstan.  The Company's  equity loss in KKM,  however,  decreased by $139,000
from the year ended November 30, 1996 due to additional  capitalization of costs
directly  related to  development  of oil and gas  properties  held by KKM.  The
Company  recognized a $36,000  economic loss on the disposition of the Company's
domestic properties.

     In 1997,  the  Company  recognized  a  $214,000  extraordinary  loss on the
extinguishment  of long term  debt.  The  Company  did not have any  other  debt
obligations outstanding as of December 31, 1997.


Results of Operations Year Ended November 30, 1996 Compared with Year Ended
November 30, 1995

     The  Company's  operations  during  fiscal  1996  resulted in a loss before
extraordinary  item  of  $2,179,000  primarily  due to the  move  from  domestic
operations  into an  international  operation.  Production  costs were down from
$115,000  in fiscal  1995 to  $37,000  in fiscal  1996 as a result of  continued
decreased  production  from  the  Company's  domestic  operations.  General  and
administrative  expenses increased from $166,000 in fiscal 1995 to $2,336,000 in
fiscal 1996 as a result of consulting fees to M-D International Petroleum,  Inc.
of approximately  $500,000,  additional  compensation  recorded of approximately
$385,000,  consisting  of  $210,000  for bonuses to the former  Chief  Executive
Officer and the former Chief  Financial  Officer of the Company and $175,000 for
compensation  related to 350,000 shares of the Company's Common Stock granted to
the Chairman of the Board of the Company,  and additional  expenses for start-up
costs  in  Kazakhstan.  Interest  expense  also  increased  in  relation  to the
financing of the  projects.  In fiscal 1996,  there was no write down of oil and
gas properties as there had been in fiscal 1995 which had totaled $619,000.  The
result of these  changes was a loss of $2,416,000 or $0.08 per share for 1996 as
compared  to a loss of  $704,000  or $0.04  per share for  fiscal  1995,  before
extraordinary loss.

     For fiscal 1996, there was a $237,000 or $0.01 extraordinary per share loss
on the  extinguishment  of  long  term  debt  which  resulted  in a net  loss of
$2,416,000 or $0.08 per share for 1996.

     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.

                                      -14-

<PAGE>


Management's Discussion of Changes in Standardized Measure

     Standardized measure of discounted future net cash flows remained unchanged
from the fiscal  year ended  November  30, 1996 and  decreased  100% in the year
ended  November 30, 1996 as compared to the year ended  November 30, 1995 due to
the withdrawal of the Company from domestic operations.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Item 14(a) for a list of the Financial Statements and the supplementary
financial information included in this report following the signature page.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     On January 16, 1997, the Company engaged Ernst & Young LLP as the Company's
principal  independent  accountant  in place of Grant  Thornton LLP. On July 23,
1996, the Company  requested and received the resignation of Grant Thornton LLP.
There were no disagreements during the Company's two fiscal years ended November
30, 1995, or any interim period subsequent thereto between the Company and Grant
Thornton LLP on any matter of  accounting  principles  or  practices,  financial
statement  disclosure,  or auditing scope or procedure which, if not resolved to
the  satisfaction of Grant Thornton LLP, would have caused Grant Thornton LLP to
make reference in its reports to the subject matter of such  disagreements.  The
opinion of Grant  Thornton LLP on the  Company's  financial  statements  for the
fiscal years ended November 30, 1995 contained no adverse  opinion or disclaimer
of opinion,  nor was such opinion  qualified as to  uncertainty,  audit scope or
accounting  principles,  except  that the  opinion  on the  Company's  financial
statements for the fiscal year ended November 30, 1995, raised substantial doubt
about the  Company's  ability to continue as a going  concern.  The  decision to
change accountants was approved by the Company's Board of Directors.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     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.

<TABLE>
<CAPTION>



       Name of Director or Officer and         Director                       Principal Occupation
          Position, in the Company              Since      Age             During the last Five Years
       -------------------------------          ------     ---             --------------------------


<S>                                              <C>       <C>   <C>                                                
Howard Karren                                    1996      67    Chairman  of the  Board of the  Company  since
Chairman of the Board,                                           1996;  Chief Executive  Officer of the Company
President and Chief                                              since   January  1997  and  President  of  the
Executive Officer                                                Company since  February  1997.  Senior Advisor
                                                                 to the  Chairman and Chief  Executive  Officer
                                                                 of  Enron  Oil &  Gas  Co.,  an  oil  and  gas
                                                                 company,  from  1994 to  1996.  President  and
                                                                 Vice    Chairman    of   Enron   Oil   &   Gas
                                                                 International Co. from 1984 until 1994.


                                                     -15-

<PAGE>



        Name of Director or Officer and        Director                       Principal Occupation
          Position, in the Company              Since     Age             During the last Five Years
       --------------------------------         -----     ---             --------------------------

Arlo G. Sorensen                                 1996      57    Chief  Financial  Officer and Principal Chief
                                                                 Financial Officer  Accounting  Officer of the
                                                                 Company  since March 1997.  Treasurer  of the
                                                                 Company from February 1997 to February  1998.
                                                                 Trustee  of  M.H.  Whittier  Corporation,   a
                                                                 private   investment   entity,   since  1985.
                                                                 Chairman  of  the  Board  and a  director  of
                                                                 Whittier Trust  Company,  trust company since
                                                                 1988.

David A. Dahl                                    1997      36    Secretary  of the Company  since August 1997;
                                                                 Secretary   President   of  Whittier   Energy
                                                                 Company,  an  oil  and  gas  exploration  and
                                                                 production company,  since 1997, President of
                                                                 Whittier Ventures,  LLC, a private investment
                                                                 entity,   since  January  1996,  and  a  Vice
                                                                 President of Whittier Trust Company,  a trust
                                                                 company,  since April 1993, a Vice  President
                                                                 of Merus  Capital  Management,  an investment
                                                                 manager, from 1990 to 1993.

Alan D. Berlin                                   1997      58    A  partner  of  Aitken   Irvin  Lewin   Berlin
                                                                 Vrooman & Cohn,  LLP since  1995.  Engaged  in
                                                                 the  private  practice  of law for  over  five
                                                                 years  prior to  joining  Aitken  Irvin  Lewin
                                                                 Berlin  Vrooman & Cohn LLP.  Secretary  of the
                                                                 Company  from  January  1996 to  August  1997;
                                                                 President  of the  International  Division  of
                                                                 Belco  Petroleum  Corp.  from 1985 to 1987 and
                                                                 held  various  other   positions   with  Belco
                                                                 Petroleum Corp.  from 1977 to 1985.  Currently
                                                                 a director of Belco Oil & Gas Corp.

Walter A. Carozza                                1997      42    President of Victory  Ventures  LLC, a private
                                                                 equity    reinvestment   firm,   since   1997.
                                                                 Manager   of  and   investor   in  East  River
                                                                 Ventures,  LP, and M3  Partners,  LC,  venture
                                                                 capital   funds,    since   1996   and   1994,
                                                                 respectively.  Involved in the  financing  and
                                                                 management   of   companies   since  1986.   A
                                                                 director of ETEX, Inc.,  Caring  Technologies,
                                                                 Inc., Interlink Health Services,  Inc. and The
                                                                 Rock Island Group, Inc.

Ted Collins, Jr.                                 1997      59    President   of  Collins  &  Ware,   Inc.,   an
                                                                 independent  oil and gas company,  since 1988.
                                                                 President  of Enron Oil & Gas Co.,  an oil and
                                                                 gas  company,  from  1982 to  1988;  Executive
                                                                 Vice  President  and a  director  of  American
                                                                 Quasar  Petroleum  Co. from 1969 to 1982.  Mr.
                                                                 Collins is a director  of Hanover  Compression
                                                                 Company, Mid Coast Energy Resources,  Inc. and
                                                                 Queen Sand Resources, Inc.

Peter G. Dilling                                 1995      47    President and a director of M-D  International
                                                                 Petroleum,  Inc.,  an  oil  and  gas  company,
                                                                 since   September   1994.  A  partner  of  M-D
                                                                 International,  an unincorporated  oil and gas
                                                                 business,  from  March  1993  to the  present.
                                                                 Vice  Chairman  of the  Board  of the  Company
                                                                 from March 1997 to August 1997.

                                                       -16-

<PAGE>
        Name of Director or Officer and        Director                       Principal Occupation
           Position, in the Company             Since     Age             During the last Five Years
        -------------------------------         -----     ---             --------------------------

John G. McMillian                                1997      71    Retired  since 1995.  Chairman,  President and
                                                                 Chief   Executive   Officer  of   Allegheny  &
                                                                 Western  Energy  Corporation,  an oil  and gas
                                                                 company,   from  1987  to  1995;  founder  and
                                                                 former  Chairman and Chief  Executive  Officer
                                                                 of  Northwest  Energy  Company  and  owner and
                                                                 Chairman  and  Chief   Executive   Officer  of
                                                                 Burger  Board  Company.  A director  of Marker
                                                                 International and Excalibur Technologies.

Michael J. Muckleroy                             1997      67    Independent    oil   operator    since   1994.
                                                                 Chairman and Chief Executive  Officer of Enron
                                                                 Liquid  Fuels,  a  subsidiary  of Enron  Corp.
                                                                 which  is  engaged  in  the   processing   and
                                                                 marketing  and  trading  of oil and  gas  from
                                                                 1984 to 1994.

Michael B. Young                                 N/A       29    Treasurer and Controller of the Company since
                                                                 Treasurer and  Controller  February 1998; Tax
                                                                 Manager  in the  Oil & Gas  Tax  Practice  of
                                                                 Arthur Andersen LLP, an accounting firm, from
                                                                 June 1991 to February 1998.

</TABLE>


     Except as  indicated  in the above  table,  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.

     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
in 1995,  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.  Mr. McGee subsequently  resigned as a director and officer of the
Company to become Co-Managing Director of KKM in Aktau,  Kazakhstan.  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
year annual meeting of shareholders.

     In connection with borrowings in August 1996, the Company agreed to add two
directors  selected by two of the  lenders,  Whittier  Ventures LLC and Whittier
Energy Company (collectively "Whittiers").  In connection with the transactions,
James A. Jeffs resigned from the Company's board of directors. At the request of
the Whittiers,  on December 2, 1996, Arlo G. Sorensen  replaced Mr. Jeffs on the
Company's board of directors and on January 3, 1997, David A. Dahl was appointed
to the Company's  board of directors.  The Whittiers will have the right to have
their two  representatives  nominated  for  directors  of the Company  until the
Whittiers no longer have any investment in the Company.

                                      -17-

<PAGE>


     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.


             SECTION 16(a) BENEFICAL OWNERSHIP REPORTING COMPLIANCE

     Based solely upon a review of the Forms 3 and 4 and any amendments  thereto
furnished to the Company  during the  Company's  fiscal year ended  December 31,
1997 and Form 5 and amendments  thereto furnished to the Company with respect to
such fiscal year,  during the Company's  fiscal year ended December 31, 1997, no
persons who were  directors,  officers or beneficial  owners of more than 10% of
the  Company's  outstanding  Common  Stock  during  such  fiscal year filed late
reports on Form 3, 4, or 5 except for Walter A.  Carozza who did not timely file
his Form 3, and failed to file a Form 5  reporting  one  transaction  during the
fiscal year ended  December 31, 1997,  Peter G. Dilling who failed to file three
Forms 4 reporting  a total of seven  transactions  and a Form 5 reporting  three
transactions  during the fiscal year ended  December 31, 1997 and Howard  Karren
who did not timely file a Form 5 reporting three transactions  during the fiscal
year ended December 31, 1997.

ITEM 11. EXECUTIVE COMPENSATION

         In May 1997,  the Company  changed its fiscal year end from November 30
to December  31. The  following  table shows all cash  compensation  paid by the
Company for services  rendered  during the fiscal years ended December 31, 1997,
during the month of December 1996 and during the fiscal years ended November 30,
1996 and November 30, 1995 to Howard  Karren and to Paul V. Hoovler  (there were
no  executive  officers of the Company  whose annual  salary and bonus  exceeded
$100,000 during the fiscal year ended December 31, 1997).

<TABLE>
<CAPTION>

                                           Summary Compensation Table
                                                                                                             Long Term
                                                                                                            Compensation
                                                                           Annual Compensation                 Awards
                                                                     ------------------------------------    ----------

                                   Year                    Year
                                  Ended                   Ended                                 Other        Securities   All Other
      Name and                   December   Month of    November                               Annual        Underlying   Compen-
      Principal Position            31,     December       30,        Salary ($)  Bonus($)  Compensation ($)  Options(#)   sation
      ------------------         --------   ---------   --------     ---------  --------  ----------------  ----------    ----------
<S>                                <C>     <C>            <C>        <C>          <C>       <C>              <C>           <C> 
      Howard Karren                1997                                   --         --           --         1,025,000         --
      Chief Executive Officer                1996                         --         --           --               --          --
      and President since                                  1996           --         --       $175,000(1)          --          --
      January 1997 and February                            1995           --         --           --               --          --
      1997, respectively                                                                          --

      Paul V. Hoovler              1997                                $12,408       --           --                           --
      Chief Executive
                                             1996                      $ 5,000    $12,500         --           200,000(4)      --
                                                           1996        $60,000(2)    --        $4,937(3)           --     $40,000(5)
      Officer and President                                1995        $60,000       --        $4,413(3)           --     $40,000(5)
      until January 1997 and                                                                             
      February 1997,
      respectively
</TABLE>

                                                             -18-

<PAGE>


---------------------

(1)  In connection  with Howard  Karren  becoming a Director and Chairman of the
     Company  of  the  Company,  subject  to a  certain  contingency  which  was
     satisfied in April 1996,  the Company agreed to issue 350,000 shares of the
     Company's  restricted  common  stock to Howard  Karren,  a director  of the
     Company, or his designees. The $175,000 represents the fair market value of
     the  350,000  shares  on  April 5,  1996,  the  date  the  contingency  was
     satisfied.

(2)  In addition,  on August 19, 1996, the Company's board of directors  awarded
     Mr.  Hoovler a cash bonus of  $140,000 as  recognition  of past and present
     services  to the  Company  to be used by Mr.  Hoovler to  exercise  certain
     warrants,  granted to Mr.  Hoovler  pursuant  to the  Company's  1989 Stock
     Warrant Plan, to purchase  500,000 shares of the Company's  Common Stock at
     an exercise  price of $0.28 per share.  This bonus will not become  payable
     until receipt of notice from Mr. Hoovler, which notice may not be given and
     shall not be  effective,  until the earlier of (i)  completion of a sale or
     farmout by the Company of all or a portion of its interest in the Karakuduk
     Oil  Field in  Kazakhstan,  ("Karakuduk  Field")  or (ii) the date when the
     Company  makes a public  disclosure  of a sale or farmout of the  Karakuduk
     Field.  At its sole  option and  discretion,  the  Company  may, in lieu of
     making payment of such bonus to Mr.  Hoovler,  use all or a portion of such
     bonus as a direct  offset to Mr.  Hoovler's  obligation to make any payment
     due to the Company upon exercise of the warrants.  Anything mentioned above
     to the contrary notwithstanding, in the event Mr. Hoovler has exercised and
     paid for the  warrants  prior to the date the bonus  becomes  payable,  the
     Company  shall  pay such  bonus  directly  to Mr.  Hoovler,  but only  upon
     completion  of a sale or farmout of all or a portion of its interest in the
     Karakuduk Field.

(3)  Represents the amounts distributed pursuant to a royalty participation plan
     to Paul V. Hoovler.

(4)  Represents shares underlying  warrants that were received by Mr. Hoovler as
     a  part  of  a  severance  agreement  with  the  Company.   See  "Executive
     Compensation--Termination of Employment Agreements."

(5)  The Company had a Deferred  Compensation and Death Benefit Plan for Paul V.
     Hoovler. The Company paid Mr. Hoovler $40,000 annually from this plan until
     Mr. Hoovler voluntarily terminated his employment in February 1997 at which
     time he received  the life  insurance  policy on his life which  previously
     provided for the major  portion of any costs to the  Company.  The plan was
     fully funded when the Company paid,  during the Company's fiscal year ended
     November  30, 1991,  the final  payment of a premium of $18,000 on the life
     insurance policy.

                                      -19-


<PAGE>
<TABLE>
<CAPTION>

                                        Option Grants in Last Fiscal Year

         The  following  table  sets  forth   information   concerning   options
(warrants)  granted by the  Company to Howard  Karren and Paul V.  Hoovler  from
December 1, 1996 through December 31, 1997.

                       Number of
                       Securities
                       Underlying         % of Total Options                                     
                       Options            (Warrants) Granted to                                  Market Price
                       (Warrants)         Employees                Exercise or     Expiration    on Date of
Name                   Granted            During Period            Base Price      Date          Grant (1)
----                   ----------         ------------------       -----------     ----------    -------------
<S>                     <C>                     <C>                <C>             <C>           <C>      
Howard Karren        25,000 Shares             1.9%                $0.828125       7/16/2007     $0.82812
                    500,000 Shares            36.6%                $0.75           9/1/2002      $0.8125
                    500,000 Shares            36.6%                $1.50           9/1/2002      $0.8215
                        
Paul V. Hoovler     100,000 Shares (2)         7.5%                $0.85           2/12/2001     $0.828125
                    100,000 Shares (2)         7.5%                $1.25           1/1/2002      $0.828125
                        
</TABLE>


(1)  The  market  price on the date of  grant is based on the mean  between  the
     closing bid and asked prices of the  Company's  Common Stock on the date of
     grant or on the  next day  before  the  date of grant on which  there  were
     reported bid and asked prices of the Company's Common Stock.

(2)  Mr.  Hoovler's  warrants were  received as a part of a severance  agreement
     with the Company.  See "Executive  Compensation--Termination  of Employment
     Agreements."

                          Fiscal Year-End Option Values

     The following table sets forth information  concerning  unexercised options
(warrants) held by Howard Karren and by Paul V. Hoovler at December 31, 1997:

                                      -20-


<PAGE>

<TABLE>
<CAPTION>

                                    Number of Securities
                                   Underlying Unexercised                     Value of Unexercised
                                        Options as of                        In-the-Money Options at
                                     December 31, 1997(#)                     December 31, 1997($)
                                ----------------------------            -----------------------------
Name                           Exercisable/        Unexercisable           Exercisable/ Unexercisable
----                           -----------         -------------           -----------  -------------
<S>                             <C>                     <C>             <C>                     <C>
Howard Karren...........        1,025,000             - 0 -             $1,379,180(1)         - 0 -
Paul V. Hoovler.........          600,000             100,000           $1,285,000(1)       $125,000
</TABLE>

-----------------------

(1)  The value was determined by multiplying the number of shares underlying the
     warrants by the difference  between the exercise price and the closing sale
     price of the Company's Common Stock on December 31, 1997.

Compensation of Directors

     On July 17, 1997, the shareholders of the Company approved a 1997 Incentive
Stock Plan pursuant to which all non-employee directors were to receive an award
of 250 shares of Common  Stock of the Company  for each  meeting of the board of
directors  attended by such director.  The directors have waived their rights to
receive shares for the meetings in 1997. Also on July 17, 1997, the shareholders
approved a 1997 Non-Employee Directors' Stock Option Plan pursuant to which each
year each non-employee director will receive an option to purchase 25,000 shares
of Common Stock of the Company.

     On January 23, 1998,  the Board of  Directors  of the  Company,  subject to
ratification of the grants by the shareholders of the Company at the next Annual
Meeting of  Shareholders,  granted each director of the Company 10,000 shares of
the Company's Common Stock for their service to the Company. There were no other
standard or other  arrangements for the compensation of the Company's  directors
in effect for the Company's fiscal year ended December 31, 1997.

Termination of Employment Arrangements

     Paul V. Hoovler,  the former Chief  Executive  Officer and President of the
Company,  entered  into a  severance  agreement  ("Agreement")  with the Company
effective February 12, 1997. Pursuant to the Agreement, Mr. Hoovler received his
salary and unpaid  vacation time accrued  through  February 12, 1997.  Also, the
Company  agreed to amend the  Company's  1989 Stock  Warrant  Plan to enable Mr.
Hoovler  to  transfer  the  warrants  granted  to him in 1996 to a member of his
family or a trust created by him.

     Further, Mr. Hoovler was granted warrants to purchase 100,000 shares of the
Company's  Common Stock at an exercise price of $0.85 per share, for a period of
four years and warrants to purchase 100,000 shares of the Company's Common Stock
at an exercise  price of $1.25 per share that became  exercisable  on January 1,
1998, and remain exercisable for a period of four years from such date.

     Also,  pursuant  to the  Agreement,  the  Company  agreed  to assign to Mr.
Hoovler, or an entity controlled by Mr. Hoovler, the existing overriding royalty
interest  ("ORRI")  that the  Company  holds in  approximately  89  wells.  Such
assignment will be for a three-year period. In exchange for the assignment,  Mr.
Hoovler agreed to pay a former  employee of the Company ten percent (10%) of the
net revenues received from such ORRI during the three-year  period. In addition,
upon Mr.  Hoovler's  request,  the Company  agreed to assign its interest in the
Company's royalty  participation  plan to Mr. Hoovler or an entity controlled by
Mr.  Hoovler.  The Company  also agreed to assign to Mr.  Hoovler the  Company's
ownership  interest in two life insurance  policies that the Company held on Mr.
Hoovler's life. Finally,  pursuant to the Agreement,  Mr. Hoovler was allowed to
bid on or retain certain office furniture and equipment of the Company.

                                      -21-

<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following  table sets forth as of March 24, 1998,  the number of shares
of the  Company's  outstanding  Common Stock  beneficially  owned by each of the
Company's  current  directors and executive  officers,  sets forth the number of
shares of the Company's  outstanding  Common Stock  beneficially owned by all of
the Company's current directors and executive officers as a group and sets forth
the number of shares of the  Company's  outstanding  Common  Stock owned by each
person who owned of record,  or was known to own  beneficially,  more than 5% of
the Company's outstanding shares of Common Stock:

Name and Address of Beneficial Owner            Amount and Nature of     Percent
or Name of Executive Officer or Director      Beneficial Ownership(1)   of Class
----------------------------------------      -----------------------   --------

Allen & Company Incorporated.................          8,331,107(2)      16.4%
711 Fifth Avenue
New York, New York 10022
Drake and Company............................          2,490,000          5.0%
Citibank Performance Portfolio A.A.
c/o Citibank, N.A.
153 E. 53rd Street, 21st Floor
New York, New York 10043
Whittier Ventures, LLC.......................          3,233,556(3)       6.5%
1600 Huntington Drive
South Pasadena, California 91030
Howard Karren................................          1,175,000(4)       2.3%
David A. Dahl................................          5,019,803(5)      10.1%
Alan D. Berlin...............................             25,000(6)        *
Walter A. Carozza............................             25,000(7)        *
Ted Collins, Jr..............................               100,000        *
Peter G. Dilling.............................            626,618(8)       1.3%
John G. McMillian............................            425,000(9)        *
Michael J. Muckleroy.........................                10,000        *
Arlo G. Sorensen.............................            86,242(10)        *
Michael B. Young.............................            60,000(11)        *
All Directors and Officers
   as a Group (ten persons)..................         7,552,663(12)      14.7%

*    Less than 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. The shares shown do not include any shares that
     any directors are entitled to receive  pursuant to the 1997 Incentive Stock
     Plan for  meetings  held in 1998.  The shares  shown do not include  10,000
     shares granted to each director  subject to shareholder  ratification.  See
     "Executive Compensation-Compensation of Directors."

                                      -22-

<PAGE>


(2)  Based on  Amendment  No.  1 to  Schedule  13D.  Includes  1,128,720  shares
     underlying presently exercisable warrants.  Does not include 700,000 shares
     underlying a warrant that is not exercisable.

(3)  Includes 262,500 shares underlying presently exercisable warrants.

(4)  Includes 1,025,000 shares underlying presently  exercisable  options.  Does
     not include  285,000 shares  underlying an option granted to Mr. Karren and
     does not  include  10,000  shares  granted to Mr.  Karren in  January  1998
     because the directors are still discussing the terms of such grants.

(5)  Includes 75,000 shares underlying  presently  exercisable  options owned by
     David A. Dahl, the 3,233,556 shares beneficially owned by Whittier Ventures
     LLC,  349,185  shares  owned by  Whittier  Energy  Company,  87,500  shares
     underlying presently  exercisable warrants owned by Whittier Energy Company
     and 1,274,562 shares beneficially owned by Whittier Trust Company. David A.
     Dahl has no pecuniary interest in the shares beneficially owned by Whittier
     Ventures LLC, Whittier Energy Company or Whittier Trust Company but, as the
     President of Whittier  Ventures LLC and Whittier  Energy Company and as the
     Vice  President of Whittier  Trust  Company,  Mr. Dahl has voting power and
     investment  power over such shares and, thus, may be deemed to beneficially
     own such  shares  pursuant  to Rule  13d-3  adopted  under  the  Securities
     Exchange Act of 1934,  as amended.  Mr.  Dahl's  address is the same as the
     address of Whittier Ventures, LLC.

(6)  Includes 25,000 shares underlying a presently exercisable option.

(7)  Includes 25,000 shares underlying a presently exercisable option.

(8)  Includes 25,000 shares underlying presently  exercisable  options.  601,618
     shares are owned directly by Spectrum Development, Inc. which is controlled
     by Mr.  Dilling,  and the  601,618  shares  include  301,618  of a total of
     1,250,000 shares being held in escrow in connection with the acquisition of
     Central Asian Petroleum, Inc. Does not include 400,000 shares underlying an
     option that is not currently exercisable.

(9)  Includes 25,000 shares underlying a presently exercisable option.

(10) Includes 75,000 shares underlying presently  exercisable options and 11,242
     shares  owned by  Whittier  1982 Oil Trust for  which Mr.  Sorensen  is the
     trustee and has voting and investment power over such shares.  Mr. Sorensen
     is a  director  of  Whittier  Ventures  LLC and  Whittier  Energy  Company.
     However, Mr. Sorensen disclaims beneficial ownership of the shares that are
     owned by Whittier Ventures LLC and Whittier Energy Company.

(11) Includes 50,000 shares underlying a presently  exercisable option. Does not
     include a grant for  30,000  shares  that will vest with  respect to 10,000
     shares on each of January 30,  1999,  2000 and 2001,  if Mr. Young is still
     employed by the Company on those dates. The shares will vest earlier if Mr.
     Young is  terminated  without  cause or if the  Company is bought or merges
     with another company.

(12) Includes the shares as described in notes (5) through (12) above.

ITEM 13. 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 field in the central Asian  Republic of  Kazakhstan,  that was
discovered in the early 1970s but never placed on production

     In  mid-September  1994, the Company  acquired a 25% interest in CAP-G.  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

                                      -23-

<PAGE>




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 first elected at the
1995 Company's Annual Meeting of Stockholders  under the arrangement.  Mr. McGee
resigned  as a director  of the  Company  on  October  1,  1997,  and became the
Co-Managing Director of CAP-G. 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 4,250,000 shares of restricted  Common Stock
for CAP-D  which  were  placed in escrow  and are to be  released  to the former
shareholders of CAP-D, including Messrs. Dilling and McGee and James A. Jeffs, a
director of the Company until November 1996, or their  affiliates,  from time to
time in connection  with  development of the Karakuduk  Field.  Of the 4,250,000
shares  originally  placed in escrow,  3,000,000  shares have been  released and
delivered to the former  shareholders  of CAP-D.  The additional 55% interest in
CAP-G was acquired by the Company from nonaffiliated parties.

     The previous  management of the Company had been  negotiating  an agreement
pursuant  to which the  Company  would  have  acquired  100% of the  issued  and
outstanding  capital stock of MDI, a private  company of which the  shareholders
include a director of the Company,  Mr. Dilling, and two former directors of the
Company, Messrs. Jeffs and McGee. At the time of the acquisition, the only asset
that MDI would have had would have been a 5%  interest in a joint  venture  that
Enron Oil and Gas Uzbekistan,  Ltd.("EOGU")  was negotiating for the development
of natural gas fields in the Republic of Uzbekistan.  The agreement with MDI was
not consummated.  On January 8, 1997, the Company agreed to issue 180,000 shares
of the  Company's  Common  Stock to EOGU to obtain an option to acquire MDI. The
Company  also  granted  EOGU  registration  rights  with  respect to the 180,000
shares.  In the interim,  the principal  shareholders of MDI,  including Messrs.
Dilling,  Jeffs and McGee, agreed that if the Company did not acquire MDI within
a specified  time period,  the principal  shareholders  would  transfer  180,000
shares of the Company's Common Stock owned by them to the Company to replace the
180,000 shares issued by the Company to EOGU.  Because such  acquisition did not
occur within the specified time period, such principal shareholders  transferred
the 180,000 shares to the Company and the shares were cancelled.  The Company is
no longer pursuing the acquisition of MDI.

     In May 1996 through  February 1997, the Company paid a base  consulting fee
of $60,000 per month to MDI for  assistance  by MDI in seeking means for meeting
the Company's funding  obligations for the Karakuduk  Project.  The Company also
assumed  certain  obligations  of MDI to pay up to $42,000  during the six month
period ending September 30, 1996 to two other unaffiliated  consultants  engaged
to assist  MDI and the  Company  to  acquire  and  review  oil and  natural  gas
exploration or development  projects in the former Soviet Union. From March 1997
to August,  1997,  the Company  reimbursed  MDI for MDI's  expenses  incurred in
connection  with the  Karakuduk  Project.  Currently  there are no  transactions
contemplated between the Company and MDI.

     In November and December, 1996, the Company borrowed $1,850,000 for interim
financing pursuant to unsecured convertible  promissory notes that bore interest
at 8% per annum, which was payable monthly,  and that were due and payable on or
before May 29, 1998. The promissory  notes were  convertible  into the Company's
Common  Stock at the lower of $0.75 per share or 75% of the market  price of the
Common  Stock on the date of the  conversion  if the  market  price is less than
$1.00 per share on such  date.  The  proceeds  from the first of such loans were
received on November 22, 1996.  Whittier Ventures,  LLC, Whittier Energy Company
and Victory Ventures LLC loaned  $1,500,000 of the $1,850,000 that was loaned to
the  Company.  Whittier  Ventures,  LLC,  Whittier  Energy  Company  and Victory
Ventures LLC subsequently  converted their loans into the Company's Common Stock
as described below.

     In connection with such borrowings, the Company agreed to issue the lenders
warrants  that  terminate on November  30, 1999,  to purchase a total of 462,500
shares of the  Company's  Common  Stock at $0.25 per share and agreed to add two
directors  selected by two of the  lenders,  Whittier  Ventures LLC and Whittier
Energy Company, to the Company's Board of Directors.  The Company further agreed
that the  Company  would issue the  lenders  warrants to purchase an  additional

                                      -24-

<PAGE>


185,000 shares of the Company's  Common Stock if the  promissory  notes were not
paid or  converted  by May 31,  1997,  and  warrants to  purchase an  additional
370,000 shares of the Company's  Common Stock if the  promissory  notes were not
paid or converted by November  30,  1997.  Just prior to November 30, 1997,  the
Company offered to repay the then outstanding  promissory  notes,  including the
promissory  notes to Whittier  Ventures LLC and  Whittier  Energy  Company.  The
lenders advised the Company that they were considering whether or not to convert
their  promissory  notes into shares of the Company's Common Stock and requested
the  Company  to not  repay  the  promissory  notes by  November  30,  1997.  In
connection  with such  requests,  the lenders  agreed that the lenders would not
receive any of the warrants to purchase an  additional  370,000 of the Company's
Common Stock if the promissory  notes were not paid or converted by November 30,
1997. The warrants that were issued are  exercisable for a period of three years
at $0.25 per share.  Effective  November  30,  1997,  Whittier  Ventures LLC and
Whittier  Energy Company  converted the principal and accrued  interest in their
promissory notes into 1,047,556 shares and 349,185 shares, respectively,  of the
Company's Common Stock.

     Walter A. Carozza,  a director of the Company,  is the President of Victory
Ventures  LLC. On April 22,  1997,  the  Company  sold  3,076,923  shares of the
Company's  Common Stock for $0.65 per share for a total of $2,000,000 to Victory
Ventures  LLC. In  connection  with the  transaction,  the Company also issued a
warrant to Victory Ventures LLC to purchase up to an additional 4,615,385 shares
of the Company's  Common Stock for  $3,000,000  or $0.65 per share.  In October,
1997,  Victory  Ventures  LLC  exercised a portion of the warrant by  purchasing
2,307,692  shares of the Company's  Common Stock.  At the same time, the Company
agreed to extend the expiration date of the remaining  portion of the warrant to
December 31, 1998.  In  November,  1997,  Victory  Ventures  LLC  exercised  the
remaining portion of the warrant by purchasing 2,307,693 shares of the Company's
Common  Stock and  exercised  another  warrant  that  Victory  Ventures  LLC had
received in  connection  with a loan made by Victory  Ventures  LLC in December,
1996,  to the Company.  The warrant  related to 125,000  shares of the Company's
Common Stock was exercisable at a price of $0.25 per share. Victory Ventures LLC
subsequently  distributed  to its members or sold to various  persons all of the
Company's  Common Stock owned by Victory  Ventures  LLC so that,  as of the date
hereof,  Victory  Ventures LLC no longer owns any shares of the Company's Common
Stock.

     In April, 1997,  Victory Ventures LLC also converted a $500,000  promissory
note (plus $2,000 of accrued  interest) that had  previously  been issued by the
Company to Victory  Ventures  LLC in December  1996 into  772,308  shares of the
Company's Common Stock at a conversion price of $0.65 per share.

     On August 29, 1997, Whittier Ventures LLC loaned the Company $100,000.  The
loan was repaid on  December 4, 1997,  with  interest at a rate of 1% per month.
The loan was  unsecured.  On October 9, 1997,  Whittier  Ventures LLC loaned the
Company an additional  $200,000.  The loan was repaid on December 4, 1997,  with
interest at a rate of 1% per month.  The loan was unsecured.  In September 1997,
Howard Karren advanced  $61,000 to CAP-G which was repaid by CAP-G to Mr. Karren
without  interest in  December  1997.  Mr.  Karren  also  personally  guaranteed
payments to various suppliers.

     Aitken Irvin Lewin Berlin Vrooman & Cohn,  LLP, a law firm in which Alan D.
Berlin, a director of the Company, is a partner,  provides legal services to the
Company  for which the law firm  charges  the Company an amount not in excess of
the law firm's normal billing rates.  The total amount of fees that were paid by
the Company to the law firm during the Company's  year ended  December 31, 1997,
did not exceed 5% of the law firm's gross  revenues for the law firm's last full
fiscal year.

     On  November  24,  1997,  the  Company  executed a  Subscription  Agreement
("Agreement")  with an  investor,  which was not  affiliated  with the  Company.
Pursuant to the Agreement, the Company 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  or an  aggregate  purchase  price of Five  Million  Dollars
($5,000,000).  The investor also agreed to purchase an additional  25,000 shares
of the  Company's  Series A Preferred  Stock for an  additional  $2,500,000  and
150,000  shares  of the  Company's  Series B and  Series C  Preferred  Stock for
$15,000,000.

                                      -25-

<PAGE>


     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 that are convertible  into the Company's  Common Stock at $2.25 per share.
The number of shares of Common Stock  issuable upon  conversion of each share of
Series A Preferred  Stock will be determined by dividing $100 by the  conversion
price per share.  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.

     The Series B Preferred  Stock and Series C Preferred  Stock would have been
convertible  at the  option of the  holders  thereof at any time or from time to
time on or prior to the redemption date into Common Stock.  The conversion price
of the  Series  B  Preferred  Stock  was  initially  $3.00  per  share;  and the
conversion  price of the Series C Preferred Stock was initially $4.25 per share.
The number of shares of Common Stock  issuable upon  conversion of each share of
Series B Preferred Stock and Series C Preferred Stock would have been determined
by dividing $100 by the conversion price per share.

     Allen & Company  Incorporated (Allen & Company) acted as placement agent in
connection  with the sale of 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 $0.01 per share.

     The Company  has agreed to allow Allen & Company to retain the  warrants to
purchase 700,000 shares of the Company's Common Stock related to the $17,500,000
in funds not received under the original terms of the Agreement,  provided Allen
& Company raises  additional  capital for the Company within the two year period
ending November 25, 1999. Based on a subsequent 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  raises  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 raise additional capital for the Company under terms acceptable
to the Company, Allen & Company will return the unearned portion of the warrants
to the Company.

     On July 17, 1997, the shareholders of the Company approved a 1997 Incentive
Stock Plan pursuant to which all non-employee directors were to receive an award
of 250 shares of Common  Stock of the Company  for each  meeting of the board of
directors  attended by such director.  The directors have waived their rights to
receive shares for the meetings in 1997. Also on July 17, 1997, the shareholders
approved a 1997 Non-Employee Directors' Stock Option Plan pursuant to which each
year each non-employee director will receive an option to purchase 25,000 shares
of Common Stock of the Company. The first options relating to a total of 200,000
shares  that are  exercisable  at a price  of  $0.83  per  share  were  received
effective July 17, 1997.

     On January 23, 1998,  the Board of  Directors  of the  Company,  subject to
ratification of the grants by the shareholders of the Company at the next Annual
Meeting of  Shareholders,  granted each director of the Company 10,000 shares of
the Company's Common Stock for their service to the Company.

In connection with his  employment,  the Company granted Michael B. Young a five
year  option to  purchase  50,000  shares of the  Company's  Common  Stock at an
exercise  price of $2.25 per share and granted Mr.  Young  40,000  shares of the
Company's  Common Stock that,  subject to certain  conditions,  will vest 10,000
shares on each of January 30, 1998,  1999,  2000, and 2001. All unvested  shares
shall vest  immediately if the Company is bought or merges with another  company
or if Mr. Young is terminated without cause.

                                      -26-

<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)(1) Financial Statements.
            ---------------------

     Table of Contents

     Chaparral Resources, Inc.
     -------------------------
     Report of Independent 
     Consolidated Balance Sheets--As of December 31, 1997 and November 30, 1996
     Consolidated Statements of Operations--Years  ended December 31, 1997,
       November 1996 and November 1995, and the month ended, December 31,1996.
     Consolidated  Statements of Cash Flows--Years  ended December 31, 1997,
       November 1996 and November 1995, and the month ended December 31, 1996.
     Consolidated Statement of Changes in Stockholders'  Equity--Thirteen months
       ended December 31, 1997 and the years ended November 1996 and
       November 1995.
     Notes to Consolidated Financial Statements
     Supplemental Information - Disclosure About Oil and Gas producing
       Activities - Unaudited

     Karakuduk-Munay, Inc.
     ---------------------
     Report of Independent Auditors
     Balance Sheets - As of December 31, 1997 and 1996 
     Statements of Expenses and Accumulated Deficit - Years ended December 31,
       1997, 1996 and 1995 
     Statements of Cash Flows - Years ended December 31, 1997, 1996 and 1996 
     Notes to the Financial Statements 

     (a)(2) Financial Statement Schedules.
            ------------------------------
                  
          All schedules for which provision is made in the applicable accounting
     regulations  of the  Securities  and Exchange  Commission  are not required
     under the related  instructions or are inapplicable  and,  therefore,  have
     been omitted.


     (b) Current Reports on Form 8-K:
         ----------------------------

     The Company filed the following Current Reports on Form 8-K during the last
fiscal quarter ended December 31, 1997:

     Current Report on Form 8-K dated November 6, 1997 (Item 7). 
     Current Report on Form 8-K/A dated October 31, 1997 (Items 5 and 7). 
     Current Report on Form 8-K dated October 31, 1997 (Items 5 and 7).
     Current Report on Form 8-K/A dated December 3, 1997 (Item 5).

     (c) Exhibits.
         ---------

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.

2.3            Amendment   to   Stock   Acquisition   Agreement   and   Plan  of
               Reorganization  dated March 10, 1996 between Chaparral Resources,
               Inc.,  and the  Shareholders  of Central Asian  Petroleum,  Inc.,
               incorporated by reference to the Company's Registration Statement
               No. 333-7779.

                                      -27-

<PAGE>


Exhibit No.           Description and Method of Filing
-----------           --------------------------------

3.1            Restated  Articles of  Incorporation + Amendments dated September
               25,  1976,  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 +
               Amendments  dated April 21,  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            Articles of Amendment to the Restated Articles of Incorporation +
               Amendments dated April 12, 1994.

3.4            Articles of Amendment to the Restated Articles of Incorporation +
               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.

3.5            Articles of Amendment to the Restated Articles of Incorporation +
               Amendments dated July 17, 1996,  incorporated by reference to the
               Company's Registration Statement No. 333-7779.

3.6            Articles of Amendment to the Restated Articles of Incorporation +
               Amendments dated November 25, 1997,  incorporated by reference to
               Exhibit  3.1 to the  Company's  Current  Report on Form 8-K dated
               October 31, 1997.

3.7            Bylaws,  as amended  through  October 31, 1997,  incorporated  by
               reference to Exhibit 3(ii) to the Company's  Quarterly  Report on
               Form 10-Q for the quarter ended September 30, 1997.

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.

                                      -28-

<PAGE>

Exhibit No.           Description and Method of Filing
-----------           --------------------------------


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.

10.10          Consulting  Agreement  dated May 14, 1996 with M-D  International
               Petroleum,  Inc.,  incorporated  by  reference  to the  Company's
               Registration Statement No. 333-7779. 1

10.11          Promissory Notes and Modifications of Promissory  incorporated by
               reference to Exhibit (3) to the Company's  Current Report on Form
               8-K dated November 22, 1996.

10.12          Amendment  effective December 6, 1996 to Purchase Agreement dated
               effective  January  12, 1996  between  the  Company and  Guntekin
               Koksal,  incorporated  by  reference  to  Exhibit  10.12  to  the
               Company's  Annual  Report on Form 10-K for the fiscal  year ended
               November 30, 1996.

10.13          Severance  Agreement  dated February 12, 1997 between the Company
               and Paul V. Hoovler,  incorporated  by reference to Exhibit 10.13
               to the  Company's  Annual Report on Form 10-K for the fiscal year
               ended November 30, 1996.

10.14          Severance  Agreement  dated February 12, 1997 between the Company
               and Matthew R.  Hoovler,  incorporated  by  reference  to Exhibit
               10.14 to the Company's  Annual Report on Form 10-K for the fiscal
               year ended November 30, 1996.

10.15          Purchase and Sale Agreement effective January 1, 1997 between the
               Company and Conoco  Inc.,  incorporated  by  reference to Exhibit
               10.15 to the Company's  Annual Report on Form 10-K for the fiscal
               year ended  November  30,  1996.  

10.16          Amendments  to Chaparral  Resources,  Inc.  Stock  Warrant  Plan,
               incorporated  by  reference  to  Exhibit  10.16 to the  Company's
               Annual Report on Form 10-K for the fiscal year ended November 30,
               1996.

10.17          Agreement dated August 30, 1995 for  Exploration  Development and
               Production of Oil in Karakuduk  Oil Field in Mangistan  Oblast of
               the  Republic  of  Kazakhstan  between  Ministry  of Oil  and Gas
               Industries of the Republic of Kazakhstan for and on Behalf of the
               Government of the Republic of Kazakhstan  and Joint Stock Company
               of Closed Type  Karakuduk  Munay Joint Venture,  incorporated  by
               reference to Exhibit 10.17 to the Company's Annual Report on Form
               10-K for the fiscal year ended  November 30, 1996. 

10.18          License for the Right to Use the  Subsurface  in the  Republic of
               Kazakhstan,  incorporated  by reference  to Exhibit  10.18 to the
               Company's  Annual  Report on Form 10-K for the fiscal  year ended
               November 30, 1996.

10.19          Amendment  dated  April  14,  1997 to  Purchase  Agreement  dated
               effective  January 12,  1996,  between  the Company and  Guntekin
               Koksal,   incorporated  by  reference  to  Exhibit  10.1  to  the
               Company's  Quarterly  Report on Form 10-Q for the  quarter  ended
               February 28, 1997.

10.20          Subscription  Agreement  dated April 22, 1997  between  Chaparral
               Resources,   Inc.  and  Victory  Ventures  LLC,  incorporated  by
               reference to Exhibit 10.1 to the  Company's  Quarterly  Report on
               Form 10-Q for the quarter ended June 30, 1997.

10.21          Warrant  Certificate  dated December 31, 1997  entitling  Victory
               Ventures LLC to purchase up to  4,615,385  shares of Common Stock
               of  Chaparral  Resources,  Inc.,  incorporated  by  reference  to
               Exhibit 10.2 to the Company's  Quarterly  Report on Form 10-Q for
               the quarter ended June 30, 1997.

                                      -29-

<PAGE>

Exhibit No.           Description and Method of Filing
-----------           --------------------------------


10.22          Form of Warrant  issued to Black  Diamond  Partners  LP, Clint D.
               Carlson, John A. Schneider, Victory Ventures LLC, Whittier Energy
               Company and Whittier  Ventures LLC in connection  with loans made
               by them to  Chaparral  Resources,  Inc. in November  and December
               1996 and to Black Diamond Partners LP, Clint D. Carlson,  Wittier
               Energy  Company  and  Whittier  Ventures  LLC  in  July  1997  in
               connection  with the same loans,  incorporated  by  reference  to
               Exhibit 10.3 to the Company's  Quarterly  Report on Form 10-Q for
               the quarter ended June 30, 1997.

10.23          Chaparral Resources, Inc. 1997 Incentive Stock Plan, incorporated
               by reference to Exhibit 10.4 to the Company's Quarterly Report on
               Form 10-Q for the quarter ended June 30, 1997.

10.24          Chaparral  Resources,  Inc.  1997  Nonemployee  Directors'  Stock
               Option,   incorporated  by  reference  to  Exhibit  10.5  to  the
               Company's  Quarterly  Report on Form 10-Q for the  quarter  ended
               June 30, 1997.  

10.25          Amendment to Common Stock  Purchase  Warrant  dated  December 31,
               1997 entitling  Victory  Ventures LLC to purchase up to 4,615,385
               shares of Common Stock of Chaparral Resources, Inc., incorporated
               by reference to Exhibit 10.1 to the Company's Quarterly Report on
               Form 10-Q for the quarter ended September 30, 1997.

10.26          Amendment  dated  September 11, 1997, to License for Right to Use
               the  Subsurface in the Republic of  Kazakhstan,  incorporated  by
               reference to Exhibit 10.2 to the  Company's  Quarterly  Report on
               Form 10-Q for the quarter ended September 30, 1997.

10.27          Warrant  Certificate  entitling  Allen & Company  Incorporated to
               purchase  up to  900,000  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/A dated  October 31, 1997.

10.28          Form  of   Subscription   Agreement   dated  November  21,  1997,
               incorporated  by  reference  to  Exhibit  10.19 to the  Company's
               Current Report on Form 8-K dated October 31, 1997.

10.29          Letter  dated  February  4, 1998,  from the Company to Michael B.
               Young.

10.30          Release and Understanding with H. Guntekin Koksal

10.31          Termination  Agreement  dated March 6, 1998 with  Exeter  Finance
               Group

10.32          Agreement dated March 7, 1998, with Munay-Impex

10.33          Agreement dated March 31, 1998, effective as of November 4, 1997
               between the Company and Allen & Company Incorprated

16             Letter dated July 23, 1996 from Grant Thornton LLP confirming the
               circumstances pursuant  to  which Grant Thornton LLP resigned  as
               Registrant's principal independent  accountants,  incorporated by
               reference to Exhibit 16 to the Company's  Current  Report on Form
               8-K dated July 23, 1996.

21             Subsidiaries of the Registrant.

23.1           Consent of Grant Thornton LLP

23.2           Consent of Ernst & Young LLP

23.3           Consent of Ernst & Young Kazakhstan

27             Financial Data Schedule

27.1           Financial Data Schedule Restated for 1996

                                      -30-






<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                               CHAPARRAL RESOURCES, INC.
                               a Colorado corporation


                               By /s/ Howard Karren
                                  ----------------------------------------------
                                    Howard Karren
                                    President, Principal Executive Officer


                               By /s/ Arlo G. Sorensen
                                  ----------------------------------------------
                                  Arlo G. Sorensen
                                  Chief Financial Officer and Principal
                                  Accounting Officer

                                  Dated March 27, 1998

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated: 

    Date                  Name and Title               Signature
    ----                  --------------               ---------

March 27, 1998            Howard Karren                /s/ Howard Karren
                          Director                    --------------------------
                                             
March 27, 1998            Alan Berlin                  /s/  Alan Berlin
                          Director                    --------------------------
                         
March 27, 1998            Walter A. Carozza            /s/  Walter A. Carozza
                          Director                    --------------------------
                         
March 27, 1998            Ted Collins, Jr.             /s/  Ted Collings, Jr.
                          Director                    --------------------------
                          
March 27, 1998            David A. Dahl                /s/  David A. Dahl
                          Director                    --------------------------
                          
March 27, 1998            Peter G. Dilling             /s/  Peter G. Dilling
                          Director                    --------------------------
                          
March   , 1998            John G. McMillian            
                          Director                    --------------------------

March   , 1998            Michael J. Muckleroy        
                          Director                    --------------------------

March 27, 1998            Arlo G. Sorensen             /s/  Arlo G. Sorensen
                          Director                    --------------------------



                                       31
<PAGE>
                        Consolidated Financial Statements

                            Chaparral Resources, Inc.


                         Years ended December 31, 1997,
                  November 30, 1996 and November 30, 1995 and
                       the One Month Period ended December
                 31, 1996 with Reports of Independent Auditors



<PAGE>





                            Chaparral Resources, Inc.

                        Consolidated Financial Statements


              Years ended December 31, 1997, November 30, 1996 and
                1995 and One Month Period ended December 31, 1996






                                    Contents

Chaparral Resources, Inc.

Report of Independent Auditors ...........................................  1

Report of Independent Certified Public Accountants........................  2

Audited Consolidated Financial Statements

Consolidated Balance Sheets ..............................................  3
Consolidated Statements of Operations.....................................  5
Consolidated Statements of Cash Flows.....................................  6
Consolidated Statements of Changes in Stockholders' Equity................  8
Notes to Consolidated Financial Statements................................  9


Supplemental Information - Disclosures About Oil and Gas
   Producing Activities - Unaudited......................................  26

Karakuduk-Munay, Inc.

Report of Independent Auditors...........................................  31

Balance Sheets...........................................................  32
Statements of Expenses and Accumulated Deficit ..........................  33
Statements of Cash Flows ...............................................   34
Notes to the Financial Statements ......................................   35



<PAGE>

                         Report of Independent Auditors



The Board of Directors and Stockholders
Chaparral Resources, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets of  Chaparral
Resources,  Inc. as of December 31, 1997 and November 30, 1996,  and the related
consolidated  statements of operations,  cash flows and changes in stockholders'
equity  for each of the years  then  ended and for the one  month  period  ended
December 31, 1996.  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 audit.

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.  as of  December  31,  1997  and  November  30,  1996,  and the
consolidated  results  of its  operations  and its cash flows for the years then
ended and for the one month period ended  December 31, 1996, in conformity  with
generally accepted accounting principles.

The accompanying  financial  statements have been prepared  assuming the Company
will  continue  as a going  concern.  As  discussed  in Note 2 to the  financial
statements,  the  Company has  incurred  recurring  operating  losses and has no
operating  assets which are presently  generating cash to fund its operating and
capital requirements.  The Company requires significant  additional financing to
meet its financial  commitments  and  requirements  through  calendar year 1998.
These conditions 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 2. 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.


                                                 /s/  Ernst & Young, LLP
                                                 -------------------------------
                                                 ERNST & YOUNG LLP

Houston, Texas
March 13, 1998,
except for Note 7, as to which the date is
March 31, 1998

                                       1
<PAGE>



                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
Chaparral Resources, Inc.

We have audited the  accompanying  consolidated  statements of operations,  cash
flows and changes in stockholders' equity of Chaparral  Resources,  Inc. for the
year 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 audit 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 audit provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated  results of its operations and its cash
flows for the year ended  November 30, 1995 of  Chaparral  Resources,  Inc.,  in
conformity with generally accepted accounting principles.

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 2 to the  financial  statements,  the  Company  requires
significant  additional  financing  to meet its  financial  requirements.  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 2. 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

                                       2
<PAGE>
<TABLE>
<CAPTION>
                                             Chaparral Resources, Inc.

                                            Consolidated Balance Sheets


                                                                  December 31             November 30
                                                                     1997                    1996
                                                                 -------------------------------------
<S>                                                               <C>                     <C>   
Assets
Current assets:
   Cash and cash equivalents                                     $  3,423,000             $    782,000
   Accounts receivable:
     Joint interest participants                                         --                      8,000
     Oil and gas purchasers                                              --                     53,000
      Other                                                           102,000                     --
   Prepaid expenses                                                    62,000                    3,000
   Oil and gas properties under agreement for sale                       --                    306,000
                                                                 ------------             ------------
Total current assets                                                3,587,000                1,152,000

Oil and gas properties and investments - full cost method
     Republic of Kazakhstan (Karakuduk Field)--
       not subject to depletion (Notes 3 and 4):                   19,922,000               13,234,000

Furniture, fixtures and equipment                                      13,000                  193,000
Less accumulated depreciation                                          (3,000)                (176,000)
                                                                 ------------             ------------
                                                                       10,000                   17,000
                                                                 ------------             ------------

Other assets                                                             --                     95,000




                                                                 ------------             ------------
Total assets                                                     $ 23,519,000             $ 14,498,000
                                                                 ============             ============







See accompanying notes

                                                        3
<PAGE>
                                            Chaparral Resources, Inc.

                                            Consolidated Balance Sheets




                                                                 December 31               November 30
                                                                     1997                     1996
                                                                ---------------------------------------
Liabilities and stockholders' equity
Current liabilities:
   Accounts payable:
     Trade                                                      $    177,000               $     16,000
     Joint interest participants--revenue                               --                       42,000
   Accrued liabilities                                                54,000                     91,000
   Accounts payable--CAP-G shares                                       --                      744,000
                                                                ------------               ------------
Total current liabilities                                            231,000                    893,000

Long-term obligations:
   Notes payable (including $1,000,000 to related
     party in 1996)                                                     --                    1,106,000
   Accrued compensation                                              210,000                    385,000
Commitments and contingencies (Note 14)
Redeemable preferred stock - cumulative,
     convertible (Note 7): 
     Series A, 50,000 issued and outstanding,
     at stated value, includes $5.00 cumulative
     annual dividend, less $500,000 cost of issuance,
     $5,000,000 redemption value                                   4,500,000                       --

     175,000 shares subscribed  (25,000 Series A;
     75,000 Series B; 75,000 Series
     C), less subscription
     receivable of $17,500,000                                          --                         --

Stockholders' equity (Note 7):
   Common stock - authorized, 100,000,000
     shares at December 31, 1997 and
     November 30, 1996, of $.10 par value;
     issued and outstanding, 49,720,456 and
     37,526,517 shares at December 31, 1997
     and November 30, 1996                                         4,971,000                  3,753,000
   Capital in excess of par value                                 30,340,000                 20,482,000
   Unearned portion of restricted stock awards                      (109,000)                      --
   Preferred stock - 1,000,000 shares authorized,
     225,000 shares outstanding or subscribed
     of Series A, B and C as per above                                  --                         --
   Stock subscription receivable                                  (1,770,000)                      --
   Accumulated Deficit                                           (14,854,000)               (12,121,000)
                                                                ------------               ------------
Total stockholders' equity                                        18,578,000                 12,114,000
                                                                ------------               ------------
Total liabilities and stockholders' equity                      $ 23,519,000               $ 14,498,000
                                                                ============               ============

                                                            




See accompanying notes.

                                                            4

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                             Chaparral Resources, Inc.

                                       Consolidated Statements of Operations



                                                        Year Ended       Month Ended     Year Ended      Year Ended
                                                        December 31      December 31     November 30     November 30
                                                           1997             1996            1996            1995
                                                        ------------------------------------------------------------
<S>                                                    <C>              <C>              <C>             <C>  
Revenue:
   Oil and gas sales                                    $       --      $       --      $    147,000    $    255,000

Costs and expenses:
   Production costs                                             --              --            37,000         115,000
   Write-down of oil and gas properties                         --              --              --           619,000
   Depreciation and depletion                                  7,000            --             3,000          74,000
   General and administrative                              1,654,000         118,000       1,468,000         166,000
                                                        ------------------------------------------------------------
                                                           1,661,000         118,000       1,508,000         974,000
                                                        ------------------------------------------------------------

Loss from operations                                      (1,661,000)       (118,000)     (1,361,000)       (719,000)

Other income (expense):
   Interest income                                           421,000           4,000         154,000          25,000
   Interest expense                                         (298,000)        (17,000)        (90,000)        (17,000)
   Equity in loss from investment
    (Note 3 and 4)                                          (832,000)           --          (971,000)           --
   Other, net                                                (19,000)          1,000          89,000           7,000
                                                        ------------------------------------------------------------
                                                            (728,000)        (12,000)       (818,000)         15,000
                                                        ------------------------------------------------------------

Loss before extraordinary item                            (2,389,000)       (130,000)     (2,179,000)       (704,000)

Extraordinary loss on extinguishment
 of long-term debt                                          (214,000)           --          (237,000)           --
                                                        ------------------------------------------------------------

Net loss                                                $ (2,603,000)       (130,000)   $ (2,416,000)   $   (704,000)
                                                        ============================================================   

Basic and Diluted Earnings per Share:
Net loss per share before extraordinary item            $       (.05)     $     --      $       (.07)   $       (.04)
Extraordinary loss per share                            $       (.01)     $     --      $       (.01)   $       --
Net loss per share                                      $       (.06)     $     --      $       (.08)   $       (.04)
Weighted average number of shares
   outstanding                                            41,561,432      37,526,517      32,081,382      18,865,454


See accompanying notes
                                                    5
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                             Chaparral Resources, Inc.

                                       Consolidated Statements of Cash Flows



                                                                  Year ended        Month Ended       Year Ended        Year Ended
                                                                  December 31       December 31       November 30       November 30
                                                                     1997               1996              1996              1995
                                                                  -----------------------------------------------------------------
<S>                                                               <C>               <C>               <C>               <C>
Cash flows from operating activities
Net loss                                                          $(2,603,000)      $  (130,000)      $(2,416,000)      $  (704,000)
Adjustments to reconcile net loss to
   net cash provided by (used in) operating
   activities:
       Equity loss from investment                                    832,000              --             971,000              --
     Depreciation and depletion                                         7,000              --               4,000            74,000
     Loss on the sale of oil and gas properties                         3,000            (3,000)             --                --
        Bad debt expense                                               37,000              --                --                --
     Write-down of oil and gas properties                              30,000              --                --             619,000
     Stock issued for services and bonuses                            195,000              --                --              27,000
     Amortization of note discount                                    198,000              --                --              17,000
     Loss on extinguishment of debt                                   214,000              --             237,000              --
     Changes in assets and liabilities:
       (Increase) decrease in:
         Accounts receivable                                         (129,000)           51,000            25,000           218,000
         Prepaid expenses                                             (59,000)             --              10,000              --
              Other                                                    95,000              --                --                --
       Increase (decrease) in:
         Accounts payable                                             177,000           (44,000)          108,000           (64,000)
         Accrued liabilities                                           19,000           (19,000)         (317,000)          (59,000)
         Accrued compensation                                            --                --             385,000              --
                                                                   ----------------------------------------------------------------
Net cash provided by (used in) operating activities
                                                                     (984,000)         (145,000)         (993,000)          128,000

Cash flows from investing activities
Additions to property and equipment                                    (6,000)             --                --             (86,000)
Investment in foreign oil and gas properties                       (6,504,000)          (17,000)       (6,936,000)       (1,088,000)
Proceeds from sale of interest in oil and gas
   properties                                                         282,000              --             161,000            41,000
Decrease in cash value of insurance
   and annuities                                                         --                --                --              40,000
Decrease in minority interest                                            --                --                --             (16,000)
Decrease in equipment inventory                                          --                --                --               1,000
Sale of bonds                                                            --                --                --             299,000
Redemption of certificates of deposit                                    --                --                --              20,000
Increase in other assets                                                 --                --             (74,000)             --
                                                                   ----------------------------------------------------------------
   Net cash used in investing activities                           (6,228,000)          (17,000)       (6,849,000)         (789,000)



                                                      6
<PAGE>


                                             Chaparral Resources, Inc.

                                 Consolidated Statements of Cash Flows (continued)





                                                                 Year ended       Month Ended         Year Ended         Year Ended
                                                                 December 31       December 31        November 30        November 30
                                                                    1997               1996              1996               1995
                                                                --------------------------------------------------------------------
Cash flows from financing activities
Proceeds from notes payable                                     $   300,000        $   500,000        $ 1,650,000        $   750,000
Payable for CAP(G) shares                                          (744,000)              --                 --                 --
Repayment of note payable                                          (450,000)          (200,000)          (750,000)              --
Proceeds from warrant exercise                                    3,309,000               --              316,000               --
Net proceeds from redeemable preferred stock
    issuance                                                      5,000,000               --                 --                 --
Net proceeds from private placement                               2,300,000               --            6,907,000             94,000
                                                                --------------------------------------------------------------------
Net cash provided by financing
   Activities                                                     9,715,000            300,000          8,123,000            844,000
                                                                --------------------------------------------------------------------

Net increase in cash and
   cash equivalents                                               2,503,000            138,000            281,000            183,000
Cash and cash equivalents at beginning
   of period                                                        920,000            782,000            501,000            318,000
                                                                --------------------------------------------------------------------
Cash and cash equivalents at end of period                      $ 3,423,000        $   920,000        $   782,000        $   501,000
                                                                ====================================================================

Supplemental cash flow disclosure
   Interest paid                                                $    53,000        $    17,000        $    36,000        $     5,000

Supplemental schedule of noncash
   investing and financing activities
     Common stock issued for acquisition
       of CAP-G                                                 $ 1,000,000        $      --          $ 1,833,000        $      --
     Accounts payable--CAP-G shares                                    --                 --              744,000               --
     Common stock issued for investment
       in affiliate                                                    --                 --                 --            3,162,000
     Discount recognized for note issued
       with detachable stock warrants                                74,250             93,750            290,000            306,000
     Warrants issued for common stock in
       conjunction with subscription and
       issuance of preferred stock                                2,270,000               --                 --                 --
     Common stock issued for compensation                           175,000               --                 --                 --

     Common stock issued upon:
       Conversion of debentures                                   1,500,000               --              264,000               --
       Conversion of accrued interest                                50,000               --                 --                 --



See accompanying notes.
                                                        7
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                 Chaparral Resources, Inc.

                                Consolidated Statements of Changes in Stockholders' Equity

                                                                        
                                                                 
                                           Common Stock            Capital in       Stock       Unearned       
                                    ------------------------       Excess of     Subscription  Restricted  Accumulated 
                                      Shares          Amount       Par Value     Receivable   Stock Awards  Deficit         Total
                                    ------------------------------------------------------------------------------------------------

<S>                                <C>             <C>            <C>          <C>         <C>           <C>            <C>  
Balance at November 30, 1994        15,782,317      1,578,000      9,458,000        --           --     (9,001,000)      2,035,000
Warrants exercised for capital
   stock                               265,375         27,000         67,000        --           --           --            94,000
Capital stock issued for
   investment in affiliate           4,400,000        440,000      2,722,000        --           --           --         3,162,000
Capital stock issued for services       12,500          1,000          9,000        --           --           --            10,000
Capital stock issued for
   employee and director bonuses        24,000          2,000         15,000        --           --           --            17,000
Debt issuance costs--stock
   warrants issued                        --             --          306,000        --           --           --           306,000
Net loss                                  --             --             --          --           --       (704,000)       (704,000)
                                    ----------------------------------------------------------------------------------------------
Balance at November 30, 1995        20,484,192      2,048,000     12,577,000        --           --     (9,705,000)      4,920,000
Warrants exercised for capital
   stock                               857,325         86,000        230,000        --           --           --           316,000
Conversion of debentures for
   capital stock                       600,000         60,000        204,000        --           --           --           264,000
Capital stock issued for services
Capital stock issued for
   investment in affiliate           1,585,000
                                                      159,000      1,674,000        --           --           --         1,833,000
Capital stock issued in private
   Placement                        14,000,000      1,400,000      5,507,000        --           --           --         6,907,000
Debt issuance costs--stock
   warrants issued                        --             --          290,000        --           --           --           290,000
Net loss                                  --             --             --          --           --     (2,416,000)     (2,416,000)
                                    ----------------------------------------------------------------------------------------------
Balance at November 30, 1996        37,526,517   $  3,753,000   $ 20,482,000        --           --   $(12,121,000)   $ 12,114,000
Warrants exercised for capital
   stock                             5,648,077        564,000      2,745,000        --           --           --         3,309,000
Conversion of debentures for
   capital stock                     2,169,732        216,000      1,333,000        --           --           --         1,549,000
Capital stock issued for services      437,669         44,000        209,000        --           --           --           253,000
Stock options issued for services         --             --          227,000        --       (109,000)        --           118,000
Capital stock issued for
   investment in affiliate             400,000         40,000        960,000        --           --           --         1,000,000
Capital stock issued in private
   Placement                         3,538,461        354,000      1,946,000        --           --           --         2,300,000
Debt issuance costs--stock
   warrants issued                        --             --          168,000        --           --           --           168,000
Preferred stock issuance and
    related common stock warrants         --             --        2,270,000   (1,770,000)        --           --          500,000
Net Loss                                  --             --             --          --           --     (2,733,000)     (2,733,000)
                                    ----------------------------------------------------------------------------------------------
Balance at December 31, 1997        49,720,456      4,971,000     30,340,000   (1,770,000)    (109,000) (14,854,000)    18,578,000
                                    ===============================================================================================

See accompanying notes
                                                        8
</TABLE>

<PAGE>

                            Chaparral Resources, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 1997


1. Summary of Significant Accounting Policies and Organization

Organization, Principles of Consolidation, and Basis of Presentation

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.  During  1997,  Chaparral  Resources,  Inc.  focused
substantially  all of its  efforts on the  exploration  and  development  of the
Karakuduk Field, located in the central Asian Republic of Kazakhstan.

The  consolidated   financial  statements  include  the  accounts  of  Chaparral
Resources,  Inc.  and its  100%  owned  subsidiaries,  Central  Asian  Petroleum
(Guernsey) Limited ("CAP-G"), Road Runner Services Company ("RRSC"), and Central
Asian Petroleum, Inc. (Delaware). Hereinafter, Chaparral Resources, Inc. and its
wholly-owned  subsidiaries  are collectively  referred to as "the Company".  All
significant intercompany transactions have been eliminated.

In  order  to  unite  the  reporting  period  of the  Company  with  that of its
subsidiaries,  the fiscal  year of the Company was changed to a December 31 year
end from the previous  November 30 year end.  This change took effect on May 29,
1997.  As a result of this  change,  financial  information  is  reported  as of
December 31, 1997,  November 30, 1996,  and November 30, 1995.  Additionally,  a
statement of  operations  and cash flows for the month ended  December 31, 1996,
are presented.

In 1995, the Company's ownership in CAP-G increased from 25% to 45%. The Company
acquired  an  additional  45%  interest in CAP-G in 1996.  In 1997,  the Company
concluded  the  acquisition  of the  remaining  10% minority  interest in CAP-G,
increasing its total ownership to 100%.

CAP-G owns a 50% interest in  Karakuduk-Munay,  Inc. ("KKM"), a Kazakhstan joint
stock  company,  which is a  participant  in an agreement  for the  exploration,
development  and production of oil in the Karakuduk  Field. 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 year ended November 30, 1996 reported  herein have been  reclassified to
reflect the equity method. There was no impact on previously reported earnings.



                                       9

<PAGE>


                            Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)




1. Summary of Significant Accounting Policies and Organization (continued)


Organization, Principals of Consolidation, and Basis of Presentation (continued)

On February 1, 1997, KKM was informed that a Kazakhstan  Presidential  Edict had
been issued announcing the liquidation of Munaygaz, the government-owned company
which held a 20% interest in KKM. As a result of this  action,  KKM was required
to re-register as required by Kazakh regulations.  KKM was re-registered on July
24, 1997,  with the government of Kazakhstan.  The Company  believes that KKM is
now in  compliance  with all laws and  regulations  related to the  registration
requirements  relating to Kazakhstan legal entities.  The  re-registered  KKM is
owned jointly by CAP-G (50%),  KazakhOil  (40%) and a private  Kazakhstan  joint
stock company (10%).  KazakhOil,  the national  petroleum company of Kazakhstan,
represents the majority of the ownership  interest in KKM held by the Kazakhstan
government.

On April 15,  1995,  the Company sold its 87%  interest in the  Reservoir  Creek
Gathering System joint venture.

Cash and Cash Equivalents

Cash  equivalents  are defined as highly liquid  investments  purchased  with an
original maturity of three months or less.

Oil and Gas Property and Equipment

The Company and KKM use the full cost method of accounting for their oil and gas
properties.  All  costs  incurred  directly  associated  with  the  acquisition,
exploration  and  development of oil and gas properties are  capitalized in cost
pools for each country in which the Company  operates.  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 based on proven reserves.

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.

                                       10

<PAGE>


                            Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)


1. Summary of Significant Accounting Policies and Organization (continued)


Oil and Gas Properties 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.

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.

Revenue Recognition

Revenues are recognized  when economic  performance  has occurred as a result of
the sale of oil and gas  production,  in accordance  with the accrual  method of
accounting.  Losses, if any, are provided for in the period in which the loss is
determined to occur.

Depreciation of Other Property and Equipment

Furniture, fixtures and equipment are depreciated using the straight-line method
over estimated useful lives, which range from three to ten years.

Administrative Overhead Reimbursement

The Company,  as operator of drilling  and/or  producing  properties,  including
equity  investees,  was  reimbursed  by the  non-operators  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.

Income Taxes

The Company  accounts  for income  taxes under the  provisions  of  Statement of
Financial  Accounting  Standards ("SFAS") No. 109,  Accounting for Income Taxes,
which require that taxes be provided 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.

Earnings Per Common Share

Basic  earnings  (loss) per common  share is  calculated  by dividing net income
(loss) by the aggregate of the weighted  average shares  outstanding  during the
period.  Diluted earnings (loss) per common share considers the dilutive effect,
if any, of the average number of common stock  equivalents  that are outstanding
during the period.  Diluted  earnings  per share are not  presented  because the
exercise  of stock  options  and  warrants  and the  effect  of the  convertible
preferred stock outstanding would be antidilutive.

Stock Based Compensation

The  Company   follows  the  method  of  accounting  for  employee  stock  based
compensation  plans  prescribed by APB No. 25, which is allowed by SFAS No. 123,
Accounting  for  Stock-Based  Compensation.  In accordance  with APB No. 25, the
Company has not recognized  compensation expense for stock options in situations
where  the  exercise  price  of the  options  equals  the  market  price  of the
underlying stock on the date of grant, otherwise known as the measurement date.

                                       11

<PAGE>


                            Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)




1. Summary of Significant Accounting Policies and Organization (continued)


New Accounting Standards

In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No.
121,  Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
Assets to Be Disposed Of,  which  requires  impairment  losses to be recorded on
long-lived  assets used in operations  when indicators of impairment are present
and the  undiscounted  cash flows  estimated to be generated by those assets are
less than the assets'  carrying  amount.  Statement  No. 121 also  addresses the
accounting  for  long-lived  assets  to be  disposed  of.  The  Company  adopted
Statement  No. 121 in 1997;  the effect of the  adoption  is  immaterial  to the
Company's overall financial results.

In February  1997,  the FASB issued  SFAS No. 128,  Earnings per Share. SFAS 128
replaced the  calculation  of primary and fully diluted  earnings per share with
basic and diluted earnings per share.  Unlike primary earnings per share,  basic
earnings  per share  exclude  any  dilutive  effects of options,  warrants,  and
convertible  securities.  Diluted  earnings  per share are very  similar  to the
previously  reported  fully diluted  earnings per share.  All earnings per share
amounts for all periods have been presented, and where appropriate,  restated to
conform  to the SFAS 128  requirements.  There is no  impact  of SFAS 128 on the
calculation  of both  basic and  diluted  earnings  per share for these  periods
because all potentially dilutive securities are antidilutive.

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS
130,  which is effective  for fiscal years  beginning  after  December 15, 1997,
establishes standards for reporting and presentation of comprehensive income and
its  components.  SFAS 130  requires  that all  items  that are  required  to be
recognized under accounting  standards as components of comprehensive  income be
reported in a financial  statement that is displayed with the same prominence as
other financial statements.  The Company adopted SFAS 130 as of January 1, 1998.
The  impact of SFAS 130 on the  Company's  financial  position  and  results  of
operations is not expected to be material.

Fair Value of Financial Instruments

All of the Company's financial instruments, including cash and cash equivalents,
trade receivables,  notes receivable,  and notes payable, have fair values which
approximate  their  recorded  values as they are either  short-term in nature or
carry interest rates which approximate market rates.

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,  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.

Risks and Uncertainties

The ability of KKM to realize the  carrying  value of its assets is dependent on
being able to extract,  transport and market  hydrocarbons.  Currently,  exports
from the  Republic of  Kazakhstan  are  restricted  since they are  dependent on
limited  transport  routes and, in  particular,  access to the Russian  pipeline
system.  Domestic  markets in the  Republic of  Kazakhstan  might not  currently
permit world market prices to be obtained.  Management believes,  however,  that
over the life of the project, transportation restrictions will be alleviated and
prices will be achievable for  hydrocarbons  extracted to allow full recovery of
the carrying value of its assets. See Note 2.



                                       12

<PAGE>


                            Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)




2. 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 December  31,  1997,
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  required of KKM by its
operating  license through fiscal 1998.  Should the Company not meet its capital
requirements  under the license  agreement to develop the Karakuduk  Field,  the
Company's  rights  under the  agreement  can be  terminated  (see Note 14).  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 is timely or on terms  favorable  to the  Company.  The  Company's  continued
existence  as a going  concern  is  dependent  upon the  success  of future  KKM
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.


                                       13



<PAGE>


                            Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)



3. Acquisition of CAP-G


As of December 31, 1997, the Company owns 100% of the  outstanding  common stock
of CAP-G. This wholly-owned subsidiary was acquired on a step basis.

The Company acquired 45% of the outstanding  stock of CAP-G prior to December 1,
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
restricted  common stock,  the remaining 55% of the outstanding  stock of CAP-G.
The Company consummated the purchase of 25% of the outstanding stock of CAP-G in
April  1996 by  paying  $2,000,000  in cash and  issuing  685,000  shares of the
Company's common stock. The Company acquired an additional 5% of the outstanding
common stock of CAP-G in April 1996 for $250,000 cash.

To acquire an  additional  15% of the  outstanding  common  stock of CAP-G,  the
Company  agreed  to pay  $1,975,000  in cash and  issue  900,000  shares  of the
Company's  common stock.  This purchase was  consummated on March 11, 1996, when
the Company paid  $750,000 in cash and issued  900,000  shares of the  Company's
common stock.  The remaining  cash balance of $1,225,000 for the purchase was to
be paid in four quarterly  equal payments of $306,250  between June 11, 1996 and
March 11,  1997.  The first  payment  of  $306,250  was paid in June 1996 and an
additional  $175,000 was paid in September 1996. The agreement was  subsequently
revised so that the Company paid $200,000 in December  1996. The Company has now
paid the $543,750  balance of the purchase price.  Finally,  in 1997 the Company
exercised an option to acquire the remaining 10% of the outstanding common stock
of CAP-G.  The Company paid  $1,625,000  (which  includes  $800,000 of loans the
Company  previously  made to  GAP-G  on  behalf  of the  prior  owner of the 10%
interest)  and  issued  400,000  shares  of  common  stock,  which  includes  an
additional 200,000 shares above the original agreed amount.

On September 17, 1997,  the Company  granted an option to an investor to acquire
5% of the issued and outstanding  shares of CAP-G on or before October 31, 1997.
Upon the closing of this  agreement,  the investor paid the Company  $450,000 of
the $1.5 million  purchase price,  with the remaining due on or before September
30,  1997.  The option  agreement  expired and the  Company was not  required to
return the deposit. The Company has recorded the $450,000 deposit as a reduction
in the oil and gas properties and investments in Kazakhstan.

The  acquisition  costs  exceeding the underlying net assets at the time of each
acquisition  of CAP-G  common  stock have been added to Oil and Gas  Investments
reflected on the balance sheet. The equity in losses for 1997 and 1996 have been
recorded at the full 50% interest due to the earlier  agreements  to acquire the
remaining shares in CAP-G and the Company financing 100% of CAP-G's operations.


4. Oil and Gas Investments

All costs  capitalized  related to the Karakuduk license are included in oil and
gas properties not subject to depletion.  Certain license  acquisition costs and
geological and geophysical expenditures incurred by the Company but not rebilled
to KKM have been capitalized.  Certain overhead costs and general administrative
costs have been expensed as incurred by KKM.



                                       14

<PAGE>

                            Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)


4.  Oil and Gas Investments (continued) 


Costs capitalized to Oil and Gas Investments consist of:

<TABLE>
<CAPTION>

                                                   December 31,                November 30,
                                                      1997                        1996
                                                  -----------------------------------------
<S>                                               <C>                           <C>    
Oil and Gas Investments:
  Investments in KKM common stock                 $    100,000                 $     90,000
  Advances to and interest due from KKM              9,820,000                    4,023,000
  Acquisition Costs                                 10,613,000                    9,291,000
  Other Capitalizable Costs                          1,192,000                      801,000
                                                  -----------------------------------------
Total Gross Oil and Gas Investments                 21,725,000                   14,205,000
  Less: Equity losses                               (1,803,000)                    (971,000)
                                                  -----------------------------------------
Total Oil and Gas Investment                      $ 19,922,000                 $ 13,234,000
                                                  =========================================

The condensed financial statements
  of KKM are as follows:

                                                  December 31,                 December 31,
                                                      1997                         1996
                                                  -----------------------------------------
Condensed Balance Sheet
  Current Assets                                  $    796,000                 $    111,000
  Non-Current Assets (primarily oil and gas
    properties, full cost method)
                                                     7,975,000                    2,286,000
  Current Liabilities                                2,194,000                      172,000
  Non-Current Liabilities                              573,000                      353,000
  Advances to and interest due from KKM              9,820,000                    4,023,000
  Common stock                                         200,000                      200,000
  Accumulated Deficit                                4,016,000                    2,351,000

Condensed Income Statement
  Revenues                                        $       --                   $       --
  Cost and Expenses                                  1,665,000                    1,942,000
  Net Loss                                           1,665,000                    1,942,000

</TABLE>

The Karakuduk  Field is still in a preliminary  stage of development by KKM. The
estimated future  development  expenditures in order to ascertain the quantities
of proved  reserves  attributable to the Karakuduk  Field are  significant.  All
costs incurred  related to the Phase I workover program have been capitalized to
oil and gas  properties  not  subject  to  depletion.  None of the  wells  being
recompleted were put into production, therefore the costs incurred to recomplete
these  wells were  deemed  equivalent  to  exploration  costs of new oil and gas
properties.

In 1996, the Company  entered into an agreement,  effective  January 1, 1997, to
sell  its  remaining  domestic  oil and gas  properties  for a  sales  price  of
approximately  $270,000.   Accordingly,  the  Company's  domestic  oil  and  gas
properties  have been  classified as oil and gas properties  under agreement for
sale in the balance  sheet at  November  30, 1996 and the full cost pool for the
United States has been fully written down.

                                       15


<PAGE>



                            Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)




4. Oil and Gas Properties--Full Cost (continued)

While the future  ability of the Company to export  hydrocarbons  and  therefore
realize world market  prices is uncertain  under  current  restricted  transport
options in the Republic of Kazakhstan, management believes that over the life of
the project as a whole, future cash flows justify the carrying amount of the oil
and gas  properties.  No  impairment  provision  has  been  reflected  in  these
financial statements.

5. Long-Term Debt

The Company has no long-term  debt as of December 31,  1997.  Long-term  debt at
November 30, 1996 consisted of convertible notes payable to private corporations
and individuals in the amount of $1,350,000.  Of the $1,350,000,  $1,000,000 was
received  from two  private  companies,  one of which  is a  stockholder  of the
Company.  On December 6, 1996, the Company borrowed an additional $500,000 under
the same terms from a private corporation. As additional consideration for these
notes,  the Company  issued to the note  holders,  warrants to purchase  462,500
shares of the Company's common stock at $.25 per share, exercisable at any time,
but no later than November 30, 1999. The notes were discounted by the fair value
of the warrants, with the discount being amortized over the life of the notes.




                                       16
<PAGE>

                            Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)




5. Long-Term Debt (continued)

If the notes were still outstanding on May 31, 1997, the Company agreed to issue
185,000 warrants as additional consideration to the holders. Furthermore, if the
notes were still  outstanding  on November 30, 1997, the Company agreed to issue
370,000  warrants  as  additional  consideration  to the  holders.  Under  these
provisions,  the Company issued  125,000 of the 185,000  warrants due to the May
31, 1997 deadline and none due to the November 30, 1997 deadline. The additional
warrants were  discounted  by the fair value of the warrants,  with the discount
being  amortized  over the life of the  notes.  On  dates  between  May 1997 and
November  1997 the notes were  repaid by the  Company at their face  value.  The
Company  recorded  an   extraordinary   loss  on   extinguishment   of  debt  of
approximately $214,000.

During 1995, the Company  issued a note payable to a private  corporation in the
amount of  $750,000.  As  additional  consideration  for this note,  the Company
issued to the holder warrants to purchase 500,000 shares of the Company's common
stock,  and to a private  corporation,  as a finder's fee,  warrants to purchase
200,000  shares at $.25 per share,  exercisable  at any time,  but no later than
October 30, 1998. The note was  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.  During 1996,  the note was repaid by the Company at the
face  value  of  $750,000.   The  Company  recorded  an  extraordinary  loss  on
extinguishment of debt for the unamortized discount of approximately $237,000.

6. Common Stock

1989 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. Under the plan,  warrants must be granted and
exercised within a 10-year period ending April 30, 1999.  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.  Warrants for 100,000,
225,000,  and 100,000 shares were exercised for values of  $28,000,$63,000,  and
$28,000 during 1997,1996, and 1995, respectively.

1997 Incentive Stock Plan

On July 17, 1997, the  shareholders  of the Company  approved the 1997 Incentive
Stock Plan  pursuant to which up to  1,000,000  shares of the  Company's  common
stock may be granted to  directors  and  employees  of, or  consultants  to, the
Company.  As of December 31, 1997,  none of the Company's  common stock had been
granted under the plan.

1997 Non-employee Directors' Stock Option Plan

On July 17, 1997, the  shareholders  approved the 1997  Non-employee  Directors'
Stock Option Plan. As of the date of each annual meeting of the  stockholders of
the Company,  each non-employee  director then in office or elected to the Board
of  Directors  of the  Company on such date will  receive a  ten-year  option to
purchase  25,000 shares at an exercise price equal to the average stock price on
the date of grant.  The aggregate  number of options to acquire shares under the
plan which may be issued may not  exceed 5% of the total  outstanding  number of
shares on the date of grant. As of December 31, 1997, options for 200,000 shares
with an exercise price of $0.83 have been issued under the plan.

Non-Qualified Stock Options

During 1997, the Company granted five year non-qualified options, generally with
vesting  periods of one year,  to purchase  2,885,000  restricted  shares of the
Company's common stock to various directors of, and consultants to, the Company.
Options  relating to 1,442,500  shares have an exercise  price of $.75 per share
and options  relating to  1,442,500  shares have an exercise  price of $1.50 per
share.


                                       17


<PAGE>

                           Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)




6.  Common Stock (continued)

Non-Qualified Stock Options (continued)

The Company issued various five-year,  non-qualified stock options to employees,
consultants  and directors of the Company during the year.  The Company  granted
options to purchase 126,000 shares of the Company's common stock, at an exercise
price of $.75. The Company granted options to purchase another 131,000 shares of
the Company's  common stock, at an exercise price of $1.50 a share.  The Company
has  recorded  the fair  value of these  stock  options  on the date of grant at
$227,000.

In  January  1998,  the  Company  granted  five-year,  non-qualified  options to
purchase  633,000  shares of the Company's  common stock at an exercise price of
$.87 a share to various  employees  of, and  consultants  to, the  Company.  The
Company also granted five-year,  non-qualified options to purchase 60,000 shares
of the Company's  common stock at an exercise price of $2.25 a share, to various
employees of, and consultants to, the Company.  Furthermore, the Company granted
90,000  shares  of  the  Company's   common   stock,   subject  to   shareholder
ratification,  to the directors of the Company and granted 190,000 shares of the
Company's common stock to various employees of, and consultants to, the Company.

Common Stock Offerings and Common Stock Warrant Issuances

During 1993,  the Company  sold a total of 2,685,750  shares of common stock and
issued  1,342,875  warrants to purchase  common stock with an exercise  price of
$.40. An additional 105,540 warrants to acquire shares of common stock were paid
as commission.  Prior to 1995, 650,625 of these warrants were exercised.  During
1995,  165,375 of these  warrants  were  exercised for the purchase of shares of
common  stock.  The exercise  price was $.40 per share,  for a total of $66,000.
During 1996,  632,325 of these  warrants were  exercised at an exercise price of
$.40 per share, for a total of $252,930.  All warrants issued in connection with
the 1993 private placement have been exercised.

During  1997,  the Company  entered  into an  agreement  to allow the Company to
acquire M-D, International Petroleum (MDI), a private company.  Accordingly,  on
January 8, 1997 the  Company  agreed to issue  180,000  shares of the  Company's
common stock having a value of $90,000 to the potential  joint venture  partner.
Simultaneously,  the  principal  stockholders  of MDI put 180,000  shares of the
Company's  common  stock into  escrow.  These  shares  would be  returned to the
Company if the Company did not acquire MDI by July 7, 1997. Under the agreement,
the Company was to acquire a 5% joint venture  interest for the  development  of
certain  natural  gas fields in  Uzbekistan.  The  agreement  of the  Company to
acquire MDI was contingent upon the potential joint venture partner successfully
obtaining rights to develop the natural gas fields in Uzbekistan.  As of July 7,
1997, EOGU had not obtained the agreement with Uzbekistan to develop the natural
gas  fields.  Consequently,  the  agreement  by the  Company to acquire  MDI was
nullified and the escrowed shares were returned to the Company and retired.

During February 1997, the Company  entered into a severance  agreement with Paul
V.  Hoovler,  the former Chief  Executive  Officer and President of the Company,
pursuant to which Mr. Hoovler  received  warrants to purchase  100,000 shares of
the Company's  common stock at an exercise  price of $.85 per share and warrants
to purchase 100,000 shares of the Company's common stock at an exercise price of
$1.25 per share.

                                       18

<PAGE>

                           Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)




6.  Common Stock (continued)

Common Stock Offerings and Common Stock Warrant Issuances (continued)

During 1997, the Company sold 3,076,923 shares of the Company's common stock for
$.65 per share for a total of  $2,000,000 to a private  investor.  In connection
with the  transaction,  the  Company  also  issued a warrant to the  investor to
purchase up to an additional  4,615,385 shares of the Company's common stock for
$3,000,000 or $.65 per share. The warrant was to expire on December 31, 1997. In
October and November 1997, the private  investor  exercised  warrants to acquire
4,615,385 shares of the Company's common stock. The same party exercised another
warrant for 125,000  shares of the  Company's  common  stock  exercisable  at an
exercise price of $0.25 per share. In April 1997, a private investor converted a
$500,000  promissory note (plus $2,000 of accrued  interest) that had previously
been issued by the Company into 772,991 shares of the Company's  common stock at
a conversion price of $.65 per share.

On October 28, 1997, 423,076 shares of the Company's common stock were issued to
a private  investor by way of a  "cashless"  exercise of a warrant as allowed by
the warrant.  This warrant was  originally  exercisable  for 500,000 shares at a
conversion price of $.25 per share.

In November  1997, a private  investor  converted a $1,000,000  promissory  note
(plus  $48,000 of  accrued  interest)  that  previously  had been  issued by the
Company  into  1,396,741  shares of the  Company's  common stock at a conversion
price of $.75 per share.

During 1997, the Company issued 87,669 shares of the Company's common stock to a
consultant in lieu of $78,000 of accrued fees that had not been paid.

In December 1997,  the Company  exercised an option to acquire the remaining 10%
of the outstanding shares of CAP-G (Note 3). As a part of the consideration, the
Company issued 400,000 shares valued at $1,000,000.

During  1996,  the Company sold  14,000,000  shares of common stock in a private
placement  at a price  of  $.50  per  share.  In  connection  with  the  private
placement,  the  Company  issued a warrant to purchase  1,022,000  shares to the
sales agent as a commission,  at an exercise price of $10.00. As of December 31,
1997 and November 30, 1996, the warrant has not been exercised.

During 1997, the Company sold 461,538  shares of the Company's  common stock for
$.65 per share for a total of $300,000 to a private investor. In connection with
the transaction, the Company also issued warrants to the investor to purchase up
to an additional  461,538  shares of the Company's  common stock for $300,000 or
$.65 per share.  The  private  investor  exercised  a portion of the  warrant on
December  31,  1997,  and  received a total of 384,616  shares of the  Company's
common stock. The remaining warrants expired on the same day.

SFAS 123 Disclosure

SFAS 123 requires that pro forma  information  regarding net income and earnings
per share be determined  as if the Company had accounted for its employee  stock
option  under the fair value  method as defined in that  Statement  for  options
granted or modified  after  December 31, 1994.  SFAS 123 requires  disclosure of
option plans for the previous three years, but since 1997 was the first year for
stock option issuances to meet the new requirement, weighted average assumptions
are  calculated  only for  1997.  The fair  value  for  applicable  options  was
estimated at the date of grant using the Black-Scholes option pricing model with
the following  weighted average assumption for 1997: risk free interest rates of
5.53%;  dividend yield of 0%; volatility factors of the expected market price of
the Company's  common stock of 0.83;  and a weighted average life expectancy of
the options of 4.9 years.



                                       19
<PAGE>
                          Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)




6.  Common Stock and Common Stock Warrants (continued)

Common Stock Offerings and Common Stock Warrant Issuances (continued)

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the option's  vesting  period.  The  Company's  pro
forma information follows:

                                         Year ended         Month ended
                                        December 31,        December 31,
                                           1997                 1996
                                    -------------------------------------

Net Loss under APB 25                  (2,603,000)            (130,000)

Effect of FASB 123                       (525,000)                --

Pro forma Net Loss                     (3,258,000)            (130,000)

Pro forma Basic and Diluted
            Earnings per Share             $(0.08)                --



A summary of the Company's stock option activity and related information for the
periods ended follows:
<TABLE>
<CAPTION>

                                           Shares                   Weighted                Weighted
                                            Under               Average Exercise       Average Contractual
                                           Option                     Price              Life Remaining
                                     -------------------    --------------------      --------------------
       <S>                            <C>                     <C>                     <C>   
       Outstanding, November 30, 1996                 -                       -                        -

                              Granted         1,786,000                 $  .763                4.4 years
                                              1,556,000                 $ 1.50                 4.3 years
                            Exercised                 -                 $  0.00                        -
                             Canceled                 -                 $  0.00                        -
                                     -------------------    --------------------      --------------------

       Outstanding, December 31, 1997         3,342,000                 $  1.11                        -
                                     -------------------    --------------------      --------------------

       Exercisable, December 31, 1997           200,000                 $  0.83                        -
                                     -------------------    --------------------      --------------------
</TABLE>


                                       20

<PAGE>
                         Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)



6.  Common Stock and Common Stock Warrants (continued)

Common Stock Offerings and Common Stock Warrant Issuances (continued)

The following table  summarizes all common stock purchase  warrant  activity for
the year ended December 31, 1997:


                                                  Number of          Exercise
                                                   Stock               Price
                                                  Warrants             Range
                                                  ------------------------------

Outstanding, November 30, 1995                    2,407,325        $0.25 - $0.40
Granted                                           1,439,500        $0.25 - $0.40
Exercised                                          (857,325)       $0.25 - $0.40
                                                 -------------------------------

Outstanding, November 30, 1996                    2,989,500        $0.25 - $0.28
Granted                                           6,426,923        $0.01 - $1.25
Exercised                                        (5,648,077)       $0.25 - $0.65
Expired                                            (153,846)       $0.25 - $0.65
                                                 -------------------------------
Outstanding, December 31, 1997                    3,614,500        $0.01 - $1.25
                                                 ===============================

The following  table  summarizes  the price ranges of all common stock  purchase
warrants outstanding as of December 31, 1997:

               Stock Warrants Outstanding as of December 31, 1997

              Number of Warrants         Exercise Price
              -----------------------------------------
                    100,000                   $0.25
                    100,000                   $1.25
                    750,000                   $0.28
                    742,500                   $0.25
                    900,000                   $0.01
                  1,022,000                $0.00001
              -------------------------------------

                  3,614,500        $0.00001 - $1.25
              =====================================


7. 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 the
common  stock.  The  basis  difference  representing  issuance  costs  is  being
amortized  directly to  additional  paid-in-capital  for the period  through the
redemption date.

                                       21

<PAGE>

                        Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)

7.  Redeemable Preferred Stock and Related Common Stock Warrants (continued)

The Series B Preferred  Stock and Series C Preferred  Stock,  once  issued,  are
convertible  into common stock at the option of the holders  thereof at any time
prior to the redemption  date.  The  conversion  price of the Series B Preferred
Stock is $3.00 per share;  and the  conversion  price of the Series C  Preferred
Stock is $4.25 per share.  The number of shares of common  stock  issuable  upon
conversion  of each share of Series B  Preferred  Stock and  Series C  Preferred
Stock is  determined  by dividing $100 by the  conversion  price per share.  The
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.



                                       22
<PAGE>


                            Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)




8. Income Taxes

The following is a summary of the provision for income taxes:
<TABLE>
<CAPTION>

                                                                      
                                                  Year Ended          One Month Ended          Year Ended             Year Ended
                                                 December 31,           December 31,          November 30,           November 30,
                                                     1997                   1996                  1996                   1995
                                           -----------------------------------------------------------------------------------------
<S>                                        <C>                         <C>                    <C>                       <C>   
Income taxes (benefit) computed
  at federal statutory rate                $     (910,000)             $(46,000)              $(762,000)             $(241,000)
Other                                             (60,000)               (3,000)                (86,000)               (57,000)
Change in asset valuation
  allowance                                       970,000                49,000                 848,000                298,000
                                           -----------------------------------------------------------------------------------------
Income taxes                               $         --                $   --                 $    --                $    --
                                           =========================================================================================

The components of the Company's  deferred tax assets and liabilities  under FASB
No. 109 are as follows:

                                                1997                    1996                  1995
                                           -------------------------------------------------------------

Deferred tax assets:
  Net operating loss carryforwards         $   5,812,000             $4,958,000            $4,131,000
  Full cost pool capitalization                     --                  267,000               246,000
  Valuation allowance                         (5,812,000)            (5,225,000)           (4,377,000)
                                           -------------------------------------------------------------
Deferred tax assets                        $        --               $     --              $    --
                                           =============================================================

</TABLE>


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 December 31, 1997, the Company has tax loss  carryforwards for federal income
tax purposes of  approximately  $11,653,000  available to offset future  taxable
income.  These carryforwards will expire at various times between 1998 and 2012.
The Company has issued a  significant  number of shares of common  stock,  stock
warrants,  and  preferred  stock during the year ended  December  31, 1997.  The
Company  is  also  currently  negotiating  for  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 December 31, 1997, unused statutory depletion  carryforwards,




                                       23
<PAGE>

                            Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)




8. Income Taxes (continued)

which have unlimited duration, are approximately $567,000. the unused investment
tax carryover was approximately $86,000 at December 31, 1997 and expires through
2000.  The loss  carryforward  at  December  31,  1997 for  financial  reporting
purposes is approximately $15,324,000, consisting of $13,408,000 in domestic and
$1,916,000 foreign loss carryforwards,  respectively. 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
and organizational costs related to foreign activities.

9. Related Party Transactions

The Company paid a director $24,000 during 1995 for public relations  consulting
services.

During 1996, the Company paid a basic consulting fee of  approximately  $500,000
to MDI, of which the  stockholders  include two  directors of the  Company,  for
assistance in seeking means for meeting the Company's funding obligation for the
Karakuduk Project.  During 1997, the Company paid an additional $180,000 to MDI,
but terminated the agreement in the first quarter of 1997.

The Company leased office space under a non-cancelable  operating  lease,  which
expired on March 31, 1997 from a related  party.  Beginning  April 1, 1997,  the
Company leased office space at a rate of  approximately  $2,000 per month.  This
lease  expired in  November  1997,  was  renewed  and then later  cancelled.  In
February  1998,  the Company  signed a new lease with an unrelated  party.  Rent
expense  was  $37,000 for 1997,  $46,000  for 1996,  and  $36,000 for 1995.  The
Company believes these rental expenses were at an arms length basis.

10. 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:

                     1997                              0%
                     1996                              32%
                     1995                              16%


11. 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.  No
distributions were made in 1997. Distributions were $12,000 for 1996 and $12,000
for 1995.

In February  1997,  as part of the  severance  agreement  with the former  Chief
Executive Officer of the Company (Note 14), the Company assigned its interest in
the  Royalty  Participation  Plan to the  former  Chief  Executive  Officer  and
President of the Company.



                                       24
<PAGE>



                            Chaparral Resources, Inc.

             Notes to Consolidated Financial Statements (continued)


12. Accrued Compensation

On August 19, 1996,  the Company's  Board of Directors  awarded the former Chief
Executive  Officer and the former Vice  President  of the Company  cash  bonuses
totaling  $210,000 as  recognition  for past and present  services to be used to
exercise  certain  warrants  granted in connection with the Company's 1989 Stock
Warrant  Plan.  These  bonuses will not become  payable until the earlier of (i)
completion  of a sale or  farmout  by the  Company  of all or a  portion  of its
interest in the  Karakuduk  Project,  or (ii) the date when the Company  makes a
public  disclosure  of a sale or farmout of the Karakuduk  Project.  The Company
does not  expect any events to occur in the near  future,  therefore,  the bonus
payable is considered long-term in nature.

In connection  with the  appointment of Mr. Howard Karren as the Chairman of the
Board of  Directors of the Company in 1996,  the Company  agreed to issue to Mr.
Karren,  or his  designee,  350,000  shares of  restricted  common  stock of the
Company. In 1996, the Company recorded accrued compensation for this transaction
in the amount of $175,000. During 1997, the common stock was issued.

13. Defined Contribution Plans

Effective December 31, 1990, the Company adopted a new defined contribution plan
(the "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,  of which
$20,000 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 the Internal  Revenue
Code. There are no employer matching contributions. During 1996, the Plan merged
into the 401(k) plan; as such, there were no  contributions  made by the Company
during 1997 or 1996.

14. Commitments and Contingencies

Under the terms of the license  agreement,  approved by the  Ministry of Oil and
Gas Industries of the Republic of Kazakhstan,  granting KKM the right to develop
the  Karakuduk  Field,  KKM has  committed to minimum  capital  expenditures  of
approximately  $10 million by December 31, 1997, an additional  $34.5 million by
December 31, 1998,  and another $12 million by December 31, 1999. As of December
31,  1997,  KKM has  fully  satisfied  its 1997  capital  commitments  under the
license agreement.

The Company has outstanding legal  proceedings  involving a lawsuit initiated by
Heartland,  Inc. of Wichita  and Collins &  McIlhenny,  Inc.  (Plaintiffs).  The
Complaint  was filed on November 14, 1997 against the  Company,  Howard  Karren,
Whittier  Trust  Company  and  James A.  Jeffs in the  District  Court of Harris
County,  Texas.  Plaintiffs  claim the  Company  breached  an alleged  agreement
whereby  Plaintiffs  were to raise  capital  for the  Company  through a private
placement of the Company's  securities.  The plaintiffs contend that the Company
and Howard  Karren made false  representations  in  connection  with the alleged
contract and that Whittier Trust Company and James A. Jeffs  interfered with the
Company's  performance  of the alleged  contract.  Plaintiffs are seeking actual
damages of $3,435,000  and exemplary  damages of  $25,000,000,  plus  attorney's
fees. A motion for a summary  judgment  filed by the Plaintiff was denied by the
Court.  The  Company  has not  recorded  any  provision  related  to this  legal
proceeding as management believes the Company will prevail.

Subsequent to December 31, 1997, the Kazakhstan  government tax authority  began
an audit of KKM.  The  Company  believes  KKM  provided  for all  potential  tax
contingencies which may exist.

                                       25

                                   
<PAGE>



            Supplemental Information - Disclosures About Oil and Gas
                        Producing Activities - Unaudited

The following  supplemental  information regarding the oil and gas activities of
the Company is presented pursuant to the disclosure requirements  promulgated by
the  Securities and Exchange  Commission  and Statement of Financial  Accounting
Standards ("SFAS") No. 69, Disclosures About Oil and Gas Producing Activities.

As discussed in Note 4, the Company entered into an agreement  effective January
1, 1997 to sell its domestic oil and gas properties.  Accordingly, the Company's
domestic oil and gas properties were classified as oil and gas properties  under
an  agreement  for sale at  November  30,  1996 and no  disclosures  for  proved
reserves  or future  cash  flows  have  been  made at  November  30,  1996.  The
properties  were  sold  in  accordance  with  the  above  agreement.  Due to the
uncertainties surrounding the development of the Karakuduk Field, along with the
limited  amount of  production  established  as of December 31, 1997,  no proved
reserves have been attributed to the field.  The Company  acquired no additional
producing properties in 1997.  Therefore,  no disclosures for proved reserves or
future  cash  flows  have  been  made at  December  31,  1997.  Acquisition  and
exploratory  costs incurred  related to the Company's  interest in the Karakuduk
Field,  however,  are disclosed below. The exploration  costs reflect the entire
exploratory costs incurred by the Company and KKM.

The following estimates of 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  producing  oil and gas  properties.
Additionally,  the price of oil has been very  volatile and downward  changes in
prices can significantly  affect  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
proved reserves were 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.

                                       26


<PAGE>


                  Supplemental Information - Disclosures About Oil and Gas
                        Producing Activities - Unaudited (continued)

                           Proved Oil and Gas Reserve Quantities
                               (All Within the United States)
<TABLE>
<CAPTION>


                                                                Oil                      Gas
                                                              reserves                 reserves
                                                               (bbls.)                  (Mcf.)
                                                            -----------------------------------

<S>                                                          <C>                     <C>      
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
Revisions of previous estimates                               (58,749)                   18,703
Sales of reserves                                                (531)                  (34,417)
Extensions, discoveries and other additions                       267                     6,638
Production                                                     (1,737)                  (96,906)
Transfer to oil and gas properties under agreement
   for sale                                                    (5,435)               (2,956,435)
Balance November 30, 1996                                        --                        --
Revisions of previous estimates                                  --                        --
Sales of reserves                                                --                        --
Extensions, discoveries and other additions                      --                        --
Production                                                       --                        --
                                                            -----------------------------------
Balance December 31, 1997                                        --                        --
                                                            ===================================

Proved developed reserves:
   November 30, 1995                                            7,235                   870,890
   November 30, 1996                                             --                        --
   December 31, 1997                                             --                        --




                                              27
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                             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
                                                           1997                    1996                   1995
                                                      -------------------------------------------------------------

<S>                                                   <C>                      <C>                      <C>        
Future cash inflows                                   $        --              $        --              $ 3,449,000
Future production and development
   costs                                                       --                       --               (2,478,000)
Future income tax expenses                                     --                       --                     --
                                                      -------------------------------------------------------------
Future net cash flows                                          --                       --                  971,000
10% annual discount for estimated
   timing of cash flows                                        --                       --                 (544,000)
                                                      -------------------------------------------------------------
Standardized measure of discounted
   future net cash flows                              $        --              $        --              $   427,000
                                                      =============================================================

The following are the principal  sources of changes in the standardized  measure
of discounted future net cash flows:

                                                                           Year ended November 30
                                                           1997                    1996                    1995
                                                      ------------------------------------------------------------

Beginning balance                                     $        --              $    427,000            $ 1,084,000
Expenditures which reduced future
   development costs                                           --                      --                   (3,000)
Acquisition of proved reserves                                 --                      --                     --
Sale of proved reserves                                        --                   (54,000)               (81,000)
Sales and transfers of oil and gas
   produced, net of production costs                           --                  (110,000)              (140,000)
Net increase (decrease) in price                               --                   860,000               (593,000)
Net decrease in costs                                          --                      --                  247,000
Extensions and discoveries                                     --                    17,000                165,000
Revisions of previous quantity
   estimates                                                   --                   (91,000)               (38,000)
Accretion of discount                                          --                    99,000                108,000
Effect of change in timing and other                           --                   253,000               (322,000)
Transfer to oil and gas properties
   under agreement for sale                                    --                (1,401,000)                  --
                                                     -------------------------------------------------------------
Ending balance                                       $         --              $       --              $   427,000
                                                     =============================================================


                                                       28
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                             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
                                                           1997               1996                    1995
                                                         -----------------------------------------------------
<S>                                                      <C>                <C>                    <C>   
Costs Incurred
Property acquisition costs--
   unproved leases                                       $  943,000         $ 6,559,000            $ 3,162,000
Property  acquisition costs--
   proved properties                                      5,745,000           1,701,000              1,088,000
Exploration costs                                              --
Development costs                                              --                  --                   30,000

Production Costs
Lease operating expense                                  $     --           $    26,000            $    95,000
Production tax                                                 --                11,000                 20,000
                                                         -----------------------------------------------------
                                                         $     --           $    37,000            $   115,000
                                                         =====================================================

Other Information
Net revenue (revenue less production
   costs, ad valorem and severance
   taxes)                                                $     --           $   110,000            $   140,000
Amortization per equivalent barrel
   of production*                                              --                  1.40                   2.33
Price per bbl. (oil)                                           --                 17.53                  14.27
Production cost per bbl. (oil)                                 --                  2.13                   6.34
Price per Mcf. (gas)                                           --                  1.17                   1.02
Production cost per Mcf. (gas)                                 --                   .34                    .47
Price per net equivalent bbl.*                                 --                  8.22                   8.33
Production cost per net equivalent bbl                         --                  2.07                   3.78


*   Natural gas converted to equivalent barrels using conversion ratio of 6:1.


                                                       29
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                             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
                                                            1997                   1996              1995
                                                         ---------------------------------------------------
<S>                                                     <C>                 <C>                     <C> 
Present value of proved reserves:
   Proved developed                                      $     --              $       --           $266,000
   Proved undeveloped                                          --                      --            161,000
                                                         ---------------------------------------------------
   Total                                                 $     --              $       --           $427,000
                                                         ===================================================

   Future net revenues of proved reserves:
     Proved developed                                    $     --              $       --           $383,000
     Proved undeveloped                                        --                      --            588,000
                                                         ---------------------------------------------------
     Total                                               $     --              $       --           $971,000
                                                         ===================================================



                                                      30
</TABLE>

<PAGE>






                         Report of Independent Auditors


The Board of Directors and Stockholders
Karakuduk-Munay, Inc.

We have audited the accompanying  balance sheets of Karakuduk-Munay,  Inc. as of
December  31,  1997  and  1996,  and the  related  statements  of  expenses  and
accumulated  deficit  and cash  flows for each of the three  years in the period
ended December 31, 1997,  1996,  and 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 audit.

We conducted  our audits in accordance  with U.S.  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 financial position of  Karakuduk-Munay,  Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with U.S. generally accepted accounting principles.

The accompanying  financial  statements have been prepared  assuming the Company
will  continue  as a going  concern.  As  discussed  in Note 3 to the  financial
statements,  the  Company has  incurred  recurring  operating  losses and relies
solely on the  foreign  shareholder  to  provide  all  funding in the form of an
interest bearing loan. The Company requires significant  additional financing to
meet its financial  commitments and  requirements  through calendar year 1998 as
described  in Note 16.  These  conditions  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 3. 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.


                                         /s/  Ernst & Young
                                         ---------------------------------------
                                         ERNST & YOUNG 


Almaty, Kazakhstan
March 13, 1998


                                       31
<PAGE>




                               Karakuduk-Munay Inc
                                 Balance Sheets
                           December 31, 1997 and 1996
                             (Amounts in US Dollars)



ASSETS                                                 1997            1996
                                                   ----------------------------

Cash                                               $    414,384    $     36,889
Prepaid and Other Receivables (Note 4)                  272,455          16,476
VAT Receivable (Note 5)                                  10,099          57,296
                                                   ------------    ------------
Total Current Assets                                    795,938         110,661


Materials and Supplies Inventory (Note 6)               511,858          28,421

Property, Plant and Equipment, net (Note 7)           1,589,057         451,935

Oil and Gas Properties - full cost method,
not subject to depletion (Note 8)                     5,874,525       1,805,588
                                                   ------------    ------------
TOTAL ASSETS                                       $  8,771,378    $  2,396,605
                                                   ============    ============


LIABILITIES AND PARTNERS' DEFICIT

Accounts Payable (Note 10)                         $  2,100,722    $     50,016
Accrued Liabilities (Note 10)                           621,750         390,806
Miscellaneous Taxes Payable                              45,106          49,406
                                                   ------------    ------------
Current Liabilities                                $  2,767,578    $    490,228


Loans Payable to Partner (Note 11)                    9,819,497       4,023,095
Accrued Payable for compensation for land usage            --            34,000

Commitments and Contingencies (Note 14 & 16)         

PARTNER'S DEFICIT

Charter Capital (Note 13)                               200,000         200,000
Accumulated Deficit                                  (4,015,697)     (2,350,718)
                                                   ------------    ------------
                                                     (3,815,697)     (2,150,718)

                                                   ------------    ------------
TOTAL LIABILITIES AND PARTNERS' DEFICIT            $  8,771,378    $  2,396,605
                                                   ============    ============


                      See accompanying notes which form an
                  integral part of these financial statements.


                                       32

<PAGE>
<TABLE>
<CAPTION>


                                                Karakuduk-Munay Inc
                                 Statements of Expenses and Accumulated Deficit
                              For the Periods Ended December 31, 1997, 1996 and 1995
                                              (Amounts in US Dollars)


                                                     1997                    1996                   1995
                                                  ----------------------------------------------------------
<S>                                               <C>                     <C>                    <C>        
Management Service Fee (Note 11)                  $   495,000             $   825,000            $   318,750
General and Administrative Expenses                   836,868                 909,520                 86,799
Interest Expense (Note 11)                            155,624                 137,533                  2,414
Depreciation on Fixed Assets (Note 7)                 147,660                  42,709                    581
Miscellaneous Taxes                                    30,214                   2,937                   --
Exchange Loss/Gain                                       (387)                 24,475                   --
                                                  -----------             -----------            -----------
Net Loss                                            1,664,979               1,942,174                408,544

Accumulated deficit, beginning of period            2,350,718                 408,544                   --
                                                  -----------             -----------            -----------

Accumulated deficit, end of period                $ 4,015,697             $ 2,350,718            $   408,544
                                                  ===========             ===========            ===========





                                      See accompanying notes which form an
                                   integral part of these financial statements.


                                                      33

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                Karakuduk-Munay Inc
                                             Statements of Cash Flows
                              For the Periods Ended December 31, 1997, 1996 and 1995
                                              (Amounts in US Dollars)



                                                                      1997                1996                  1995
                                                                  -----------------------------------------------------
<S>                                                               <C>                   <C>                   <C>  
Cash flows from operating activities:
Net loss                                                          $(1,664,979)         $(1,942,174)         $  (408,544)

Adjustments to reconcile net loss to
 net cash used by operating activities:

Depreciation of fixed assets                                          147,660               42,709                  581
Amortization of Signature Bonus                                          --                   --                  5,130
Changes in working capital:
(Increase)/Decrease in Prepaid and Other Receivables                 (255,979)              76,230              (92,706)
(Increase) in VAT Receivable                                          (51,803)             (57,296)                --
(Increase) in Inventory                                              (483,437)             (28,421)                --
Increase in Accounts Payable and Accrued Liabilities                2,026,650              100,834               21,238
Increase/(Decrease) in Miscellaneous Taxes Payable                     (4,300)              45,985                3,421
Increase/(Decrease) in Long Term Payable for Land Usage               (34,000)              34,000                 --
                                                                  -----------          -----------          -----------
Net Cash Used by Operating Activities                                (320,188)          (1,728,133)            (470,880)

Cash Flows From Investing Activities:
Purchase of Fixed Assets                                           (1,284,782)            (464,208)             (31,017)
Investments in Oil and Gas Assets
   (net of assets contributed
   in-kind through Charter Fund)                                   (4,068,937)          (1,237,718)                --
Payment of Signature Bonus                                               --               (513,000)                --
                                                                  -----------          -----------          -----------
Net Cash Used in Investing Activities                              (5,353,719)          (2,214,926)             (31,017)

Cash Flows From Financing Activities:
Cash contributed as Charter Fund                                         --                 40,000              100,000
Increase in Loan due to Cash Contribution                           4,134,783            2,240,000              100,000
Increase in Loans Payable for Management
Services and Other Expenditures                                     1,526,995            1,527,339              334,559
Increase in Loans Payable for Interest                                389,624              137,533                2,414
                                                                  -----------          -----------          -----------
Net Cash Provided by Financing Activities                           6,051,402            3,944,872              536,973


Net Increase in Cash                                                  377,495                1,813               35,076
Cash at beginning of year                                              36,889               35,076                 --
                                                                  -----------          -----------          -----------
Cash at end of year                                               $   414,384          $    36,889          $    35,076




                                       See accompanying notes which form an
                                    integral part of these financial statements.




                                                         34

</TABLE>


<PAGE>

                              Karakuduk-Munay Inc.
                       Notes to the Financial Statements
                               December 31, 1997
                             In terms of US Dollars


1. Organization and Background Information

Formation
---------

Karakuduk-Munay Inc. (the "Company"), a Kazakhstan Joint Stock Company of Closed
Type,   was   founded   by   "Munaygaz"   State   Holding   Company    (formerly
Kazakhstanmunaygaz  National Petroleum Company),  "Jarkin" State Holding Company
(formerly PGO  Mangistauneftegazgeologiya),  and  Korporatsiya  Mangistau  Terra
International (formerly Korporatsiya  Kramds-Mangistau  Inc.),  collectively the
"Kazakh  Shareholders",  and Central Asian  Petroleum  (Guernsey)  Limited.  The
Company and the  Ministry of Oil and Gas in the Republic of  Kazakhstan  entered
into an agreement on August 30, 1995 ("Inception")  referred to as the Agreement
for  Exploration,  Development  and  Production of Oil in Karakuduk Oil Field in
Mangistau Oblast of the Republic of Kazakhstan (the "Agreement"). The management
and operational  framework  within which the Company must conduct its activities
are dictated by the Agreement.

The  Company  may  be  terminated  under  certain  conditions  specified  in the
Agreement. The term of the Agreement is 25 years commencing from the date of the
Company's  registration.  The Agreement can be extended to a date agreed between
the Ministry of Oil and Gas and the Company as long as  production  of petroleum
and/or gas is continued in the exploration field.

Changes in Shareholders
-----------------------

In accordance with the Edict # 410 dated 24 March 1997 and Edict # 1287 dated 26
August 1997 issued by the Government of the Republic of Kazakhstan,  40 % of the
Charter Fund of the Company  belonging to  "Jarkin"/"Aksay"  and "Munaygaz" were
transferred to KazakhOil,  the state owned oil and gas company.  The Company and
new shareholder have been legally  re-registered with the Ministry of Justice of
the Republic of Kazakhstan on July 24, 1997.

Principal Activity

The Company was  established  for the  purposes of  exploring,  developing,  and
producing  oil and gas  deposits  in the  Karakuduk  Field  in the  Republic  of
Kazakhstan  acting on the basis of the Agreement  which the Company entered into
with the  Ministry of Oil and Gas in the  Republic of  Kazakhstan  on August 30,
1995.

The Company's work program and minimum expenditure  commitment was stipulated in
License  MG  249  dated  June  28,  1995.  These  expenditure  obligations  were
subsequently  amended  by  Resolution  P65-H  of  September  18,  1996,  and  by
Resolution P97-H of December 8, 1997. The latter Resolution requires the Company
to  expenditure  commitments  of US$10  million by December  31,  1997,  US$34.5
million  by  December  31,  1998,  and  US$12  million  by  December  31,  1999.
Expenditure  commitments through 1997 exceeded the commitment  requirement.  The
excess is applicable against future obligations. Should the license terms not be
adhered to, the License may be  withdrawn by the  Government  of the Republic of
Kazakhstan.

The activity  during 1997 has been primarily to conduct various studies into the
most appropriate  drilling and development strategy for the Karakuduk field. The
Company  also  commenced  construction  of the field camp and access road to the
field to facilitate the  commencement of expansion of activities when production
commences in 1998. The Company also worked over one well,  which will be brought
into  production  in 1998.  The  remaining  operations  conducted by the Company
related to corporate  affairs,  re- registration of the Company  necessitated by
the transfer of  shareholders,  and other activity  pertaining to the startup of
the operations.

                                       35

<PAGE>
                              Karakuduk-Munay Inc.
                       Notes to the Financial Statements
                               December 31, 1997
                             In terms of US Dollars


2. Basis of Presentation

The  Company  maintains  its  accounting  records  and  prepares  its  financial
statements in US dollars and in  accordance  with  accounting  prescribed in the
Accounting Procedure of the Agreement.  The accompanying  financial  statements,
prepared in  accordance  with U.S.  generally  accepted  accounting  principles,
differ in minor respects (related to disclosure) from those issued for statutory
purposes in Kazakhstan.

The material accounting principles adopted by the Company are described below:

Foreign Currency Translation
----------------------------

Transactions  arising in currencies other than US dollars are translated into US
dollars in accordance with the temporal method.

Cash and other monetary  assets held and  liabilities  denominated in currencies
other  than US dollars  are  translated  to US dollars at the rates of  exchange
ruling as of December 31, 1997 (75.55 Kazakh Tenge per US dollar).  Non-monetary
assets and liabilities denominated in currencies other than US dollars have been
translated at the estimated  historical  exchange rate prevailing on the date of
the  transaction.  Exchange gains and losses arising from  translation of non-US
dollar  amounts at the  balance  sheet date are  recognized  as an  increase  or
decrease  in income  for the  period.  By using  the US dollar as its  reporting
currency  for the  financial  statements  and by using  the  temporal  method of
translation  where  applicable,  the effects of  inflation  have been taken into
consideration  in all material  respects  since  movements in the exchange  rate
between the US dollars and Tenge during 1995 to 1997 are considered a reasonable
approximation of the general price index.

The Tenge is not a convertible  currency  outside of the Republic of Kazakhstan.
The translation of Tenge  denominated  assets and liabilities in these financial
statements  does not  indicate  that the Company  could  realize or settle these
assets and liabilities in U.S. dollars.

As of 31 December,  1997, US$103,966 of net monetary liabilities are denominated
in Tenge.

Interest Capitalization
-----------------------

Beginning in 1997, the Company  capitalized  certain  borrowing costs as part of
the cost of oil and gas properties.  The Company has capitalized  US$234,000 for
1997. Other interest costs are expensed as incurred.

Depreciation, Depletion and Amortization
----------------------------------------

Oil and Gas Assets
------------------

The  Company  follows  the  full  cost  method  of  accounting  for  oil and gas
properties.   Accordingly,  all  costs  directly  associated  with  acquisition,
exploration  and  development  of oil and gas reserves are  capitalized  in cost
pools for each country in which the Company  operates.  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 based on proven reserves.



                                       36

<PAGE>

                             Karakuduk-Munay Inc.
                       Notes to the Financial Statements
                               December 31, 1997
                             In terms of US Dollars


Oil and Gas Properties 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.

Property Plant and Equipment
----------------------------

Depreciation of equipment is calculated on the straight line method based on the
estimated useful life of the assets as follows:

         Office Buildings and Apartments            20 years
         Office Equipment                            3 years
         Vehicles                                    5 years
         Field Buildings                            15 years
         Field Equipment                            up to 10 years

Inventory
---------

Inventory is valued using the first-in,  first-out method and is at the lower of
cost and net realizable value.

Revenue Recognition
-------------------

Revenues are recognized  when economic  performance  has occurred as a result of
the sale of oil and gas  production,  in accordance  with the accrual  method of
accounting.  Losses, if any, are provided for in the period in which the loss is
determined to occur.

Income Taxes
------------

The Company  accounts  for income  taxes under the  provisions  of  Statement of
Financial  Accounting  Standards ("SFAS") No. 109,  Accounting for Income Taxes,
which require that taxes be provided 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.

Earnings Per Common Share
-------------------------

Basic earnings  (loss) and diluted  earnings  (loss) per share are not presented
due to the Company being of a "closed"  nature and having no  underlying  shares
outstanding.

                                       37


<PAGE>


                             Karakuduk-Munay Inc.
                       Notes to the Financial Statements
                               December 31, 1997
                             In terms of US Dollars


New Accounting Standards
------------------------

In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No.
121,  Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
Assets to Be Disposed Of,  which  requires  impairment  losses to be recorded on
long-lived  assets used in operations  when indicators of impairment are present
and the  undiscounted  cash flows  estimated to be generated by those assets are
less than the assets'  carrying  amount.  Statement  No. 121 also  addresses the
accounting  for  long-lived  assets  to be  disposed  of.  The  Company  adopted
Statement  No. 121 in 1997;  the effect of the  adoption  is  immaterial  to the
Company's overall financial results.

In June 1997,  the FASB issued SFAS No. 130,  Reporting  Comprehensive  Income .
SFAS 130, which is effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting and presentation of comprehensive income and
its  components.  SFAS 130  requires  that all  items  that are  required  to be
recognized under accounting  standards as components of comprehensive  income be
reported in a financial  statement that is displayed with the same prominence as
other financial statements.  The Company adopted SFAS 130 as of January 1, 1998.
The  impact of SFAS 130 on the  Company's  financial  position  and  results  of
operations is not expected to be material.

Fair Value of Financial Instruments
-----------------------------------

All of the Company's financial instruments,  including loans payable to partner,
cash and trade  receivables  have fair values which  approximate  their recorded
values as they are either  short-term  in nature or carry  interest  rates which
approximate market rates.

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,  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.

                                       38

<PAGE>


                             Karakuduk-Munay Inc.
                       Notes to the Financial Statements
                               December 31, 1997
                             In terms of US Dollars


Leases
------

Rent expenses for  non-cancelable  operating leases are recognized on a straight
line basis.

3. Going Concern

These  financial  statements  have been prepared  assuming that  Karakuduk-Munay
Inc.,  will continue as a going  concern.  The Company has incurred an operating
loss and relies solely on Central Asian Petroleum  (Guernsey) Limited to provide
all funding in the form of an interest  bearing  loan,  as discussed in Note 11.
The Company does not  anticipate  that its current cash  reserves and cash flows
from  operations  will be  sufficient to meet its capital  requirements  through
fiscal year 1998. Should the Company not meet its capital requirements under the
license agreement to develop the Karakuduk Field, the Company's rights under the
agreement may 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 can be  obtained  on terms  favorable  or
affordable to the Company.

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
liabilities that may result from the outcome of this uncertainty.

4. Prepaid and Other Receivables

Prepayments  and Other  Receivables  consists of outstanding  travel advances at
December 31, 1997,  prepayment of taxes and prepayments of equipment to be added
to Oil and Gas Assets in 1998 and can be summarized as follows:

                                                         1997             1996

Travel Advances to employees                        $  18,606         $  6,868

Import VAT, Custom duties and prepaid taxes            41,256            1,796

Advance payment for Oil and Gas Assets                212,593            7,812
                                                    ---------         --------
Total                                               $ 272,455         $ 16,476
                                                    =========         ========


The increase in these amounts  reflects the higher  activity level of operations
towards the end of 1997.

5. VAT Receivable

VAT  receivable  is a Tenge  denominated  asset and is due from the  Republic of
Kazakhstan.  While  theoretically  refunds  of excess  VAT paid are due from the
Republic  within 10 days of a claim being made,  and several  refunds  have been
received  by the  Company  in 1996 and 1997,  current  practice  indicates  that
receipt is uncertain  until such time as other taxes  payable to the Republic by
the Company, are available for offset against the VAT receivable.

                                      39

<PAGE>


                             Karakuduk-Munay Inc.
                       Notes to the Financial Statements
                               December 31, 1997
                             In terms of US Dollars


6. Materials and Supplies Inventory

                                                  1997                  1996
                                              ------------------------------

Inventory in-house                            $224,998               $28,421

Inventory in-transit                           286,860                     -
                                              --------               -------
Total                                         $511,858               $28,421
                                              ========               =======


The above  categories of Materials  and Supplies  Inventory  represent  workover
materials, spare parts and diesel fuel for use in oil field operations.

7. Plant, Property and Equipment

Upon  full  amortization  of  tangible  assets,  the right of  ownership  of the
tangible  assets shall be transferred to the Kazakhstan  Ministry of Oil and Gas
in  accordance  with the  Agreement.  The  Company is entitled to the use of the
fully  amortized  tangible  assets  during  the whole term of the  Agreement.  A
summary of property, plant and equipment at December 31, 1997 is provided in the
table below:

Cost                                    Balance as at           Balance as at 
                                      December 31, 1996       December 31, 1997
                                      -----------------       ----------------
                                         US Dollars               US Dollars

Office Buildings and Apartments         $   29,469               $   67,212

Office Equipment and Furniture             167,594                  227,318

Vehicles                                   298,162                  541,479

Field Buildings                               --                    329,936

Field Equipment and Furniture                 --                    169,190

Capital work-in process
                                              --                    444,872
                                        ----------               ----------
Total                                      495,225                1,780,007

                                        ----------               ----------
Accumulated Depreciation                    43,290                  190,950
                                        ----------               ----------
Net Book Value                          $  451,935               $1,589,057
                                        ==========               ==========


Included  in the  additions  to Field  Buildings  is  US$89,962  relating to the
residential  camp that was  previously  classified  within Oil and Gas Assets in
1996.

                                       40

<PAGE>

                             Karakuduk-Munay Inc.
                       Notes to the Financial Statements
                               December 31, 1997
                             In terms of US Dollars


8. Oil and Gas Assets Not Subject to Amortization

The Company has undertaken  certain  appraisal and  feasibility  work in 1997 in
order to ascertain the most appropriate  future development and drilling program
for the Karakuduk field in Kazakhstan. The results are still being analyzed.

There are no other  licenses  currently  held by the Company and hence all costs
capitalized as related to the Karakuduk license have not been amortized in 1997.

Management fees related to the salary costs of individuals  directly  associated
with  exploration  and appraisal  activities  on the  Karakuduk  field have been
capitalized  along  with  the  license  acquisition  costs  and  geological  and
geophysical expenditures.  Certain overhead costs and general and administrative
costs have been expensed.

Costs  excluded from the  amortization  consist of the following at December 31,
1997 (US dollars):

                                 Exploration 
       Year       Acquisition    and Appraisal    Development              
     Incurred       Costs          Costs             Costs         Total
     --------     ----------     ------------     -----------    ----------

       1995      $  507,870      $1,297,718             --        $  507,870

       1996            --              --               --         1,297,718

       1997            --         4,068,937             --         4,068,937
                 ----------      ----------      ----------      ----------
      Total      $  507,870      $5,366,655             --        $5,874,525


Management  believe  that over the life of the  project as a whole,  future cash
flows  justify the carrying  amount of assets  disclosed  above.  No  impairment
provision has therefore been deemed necessary in these financial statements.

9. Bonuses

The Company was required to pay an unrecoverable  (non-tax deductible) Signature
Bonus  to  the  Kazakhstan  Ministry  of  Geology  amounting  to  US$513,000  in
accordance with the Agreement.  This amount will be amortized using the units of
production method over 25 years, when production commences.

Production  based bonuses will be payable to the Kazakhstan  Ministry of Geology
amounting to US$500,000 when cumulative  production  reaches ten million barrels
and US$1,200,000 when cumulative  production reaches fifty million barrels.  The
production  bonuses  will  be  considered  tax  deductible  expenditures  in the
calculation of profits taxes. No amounts related to the production  bonuses have
been accrued as production had not commenced at December 31, 1997.



                                       41

<PAGE>

                             Karakuduk-Munay Inc.
                       Notes to the Financial Statements
                               December 31, 1997
                             In terms of US Dollars


10. Accounts Payable and Accrued Liabilities

                                                 1997                   1996
                                           ----------               --------
Accounts Payable                           $2,100,722               $ 50,016

Accrued Management Service Fee                573,750                318,750
Accrued Liabilities                            48,000                 72,056
                                           ----------               --------
Total                                      $2,767,578               $490,228
                                           ==========               ========



Accounts  Payable as of December 31, 1997 includes  US$1.3 million in respect of
the  acquisition  of the  pipeline  that is to link the oil  field to the  state
pipeline. The remaining Accounts Payable represents payables for equipment to be
installed in the oil field.

11. Loans Payable to Partner

As discussed in Note 3, Central Asian  Petroleum  (Guernsey)  Limited bears sole
financial responsibility for the fulfillment of all funding for the Company. The
various forms of funding from Central  Asian  Petroleum  (Guernsey)  Limited are
treated as long term loans to the Company and bear interest at the rate of LIBOR
plus  1%.  The  Agreement  requires  installment  payments  on  the  loan  to be
calculated and paid on a quarterly basis and to be equal to 65% of gross revenue
after  deduction of royalties due to the Republic of  Kazakhstan.  No production
occurred  in 1997 and  therefore,  no payments on the loan have been made or are
due as of December 31, 1997. Management believe that no net repayment will occur
in 1998 and hence the entire  loan is  treated  as falling  due in more than one
year.

The loan is made up as follows (US dollars):

                                                            1997            1996
                                                       ----------     ----------

Cash Funding                                           $6,474,783     $2,340,000
Management Services Fee                                 2,295,000      1,275,000
Other Expenditures                                        520,143        268,148
Accrued Interest Payable                                  529,571        139,947
                                                       ----------     ----------
Total Interest and Loan Payable to Partner             $9,819,497     $4,023,095
                                                       ==========     ==========

Management  services are provided by Road Runner Services Company,  a subsidiary
of Chaparral  Resources,  Inc.  the parent  company of Central  Asian  Petroleum
(Guernsey) Limited.  The services are provided for a fixed fee of US$106,250 per
month.  Management  services were provided to the Company for 1997  amounting to
US$1,275,000.


                                       42

<PAGE>

                              Karakuduk-Munay Inc.
                       Notes to the Financial Statements
                               December 31, 1997
                             In terms of US Dollars

12. Tax

Under Kazakh  legislation,  the Company is permitted to carryforward  tax losses
arising in each year. These can be applied against future tax profits arising in
the subsequent five years; however, certain uncertainties exist as to the amount
of the carryforward due to the issues discussed in Note 14 related to the method
of calculation of tax losses for Kazakh purposes.

The Agreement specifies profits taxes and other taxes applicable to the Company.
As discussed in Note 9, the Signature  Bonus is not recoverable or deductible in
calculating income tax expense.

The following is a summary of the provision for income taxes:

                                                   Year ended December 31
                                             1997          1996          1995
                                          -------------------------------------

Income taxes (benefit) computed
  at statutory rate                       $(499,494)    $(582,652)    $(122,563)
Change in asset valuation
  allowance                                 499,494       582,652       122,563
                                          -------------------------------------
Income taxes                              $    --       $    --       $    --
                                          =====================================

The components of the Company's  deferred tax assets and liabilities  under FASB
No. 109 are as follows:

                                                   Year ended December 31
                                          1997           1996           1995
                                      -----------------------------------------

Deferred tax assets:
  Net operating loss carryforwards    $ 1,204,709    $   705,215    $   122,563
  Valuation allowance                  (1,204,709)      (705,215)      (122,563)
                                      -----------------------------------------
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 December 31, 1997, the Company has tax loss  carryforwards  of  approximately
US$4,016,000 available to offset future taxable income. These carryforwards will
expire at various times between 2000 and 2002. The loss carryforward at December
31, 1997 for financial reporting purposes is approximately US$4,016,000.


                                       43
<PAGE>

                              Karakuduk-Munay Inc.
                       Notes to the Financial Statements
                               December 31, 1997
                             In terms of US Dollars


13. Charter Capital

The total Charter Fund contribution  specified in the new Founders  Agreement of
Karakuduk-Munay  (dated June 12,  1997) is $200,000.  Each of the  shareholder's
portion of the Charter Fund and their respective  participating  interest in the
Company is:

<TABLE>
<CAPTION>


                                                                      1997                           1996
                                                            -----------------------------------------------------
                                                              Charter                        Charter      
Shareholder:                                                Contribution     Percent       Contribution   Percent
------------                                                ------------     -------       ------------   -------

<S>                                                           <C>             <C>            <C>              <C> 
"Munaygaz" State Holding Company                              $   --            --           $ 40,000         20 %

"Aksay" Company                                                   --            --             40,000         20 %

KazakhOil                                                       80,000         40 %              --            --

Korporatsiya Mangistau Terra International                      20,000         10 %            20,000         10 %
Central Asian Petroleum (Guernsey) Limited - CAP(G)            100,000         50 %           100,000         50 %
                                                              --------         -----         --------         -----
Total Charter Capital                                         $200,000         100 %         $200,000         100 %

</TABLE>


During 1997,  KazakhOil  as the  successor to Munaygaz  state  holding  company,
contributed US $ 40,000 as Munaygaz's  initial charter  contribution  obligation
that was previously  settled by CAP(G).  The CAP(G) 1996  contribution  has been
reclassified as additional funding of the Company's operations in 1997.

14. Contingencies

Taxation
--------

The existing  legislation  with regard to taxation in the Republic of Kazakhstan
is constantly  evolving as the Government  manages the transition from a command
to a market economy. Tax and other laws applicable to the Company are not always
clearly written and their interpretation is often subject to the opinions of the
local or main State Tax Service.  Instances  of  inconsistent  opinions  between
local, regional and national tax authorities are not unusual.

Management  believes  that it has paid or accrued all taxes that are  applicable
for current and prior years.  Two tax audits in 1997  resulted in no  additional
tax or penalties levied against the Company.

Basis of Accounting
-------------------

The Company maintains its statutory books and records and calculates its taxable
loss in accordance with International Accounting Standards, which it believes it
may do under  the  terms of its  accounting  procedures  in the  Agreement.  The
Republic  of  Kazakhstan  currently  requires  companies  to comply  with Kazakh
accounting regulations and to calculate tax profits or losses in accordance with
these regulations as well as prevailing tax law.  Therefore,  there is currently
uncertainty as to the extent of tax losses available to the Company.

                                       44

<PAGE>

                              Karakuduk-Munay Inc.
                       Notes to the Financial Statements
                               December 31, 1997
                             In terms of US Dollars



15. Current Kazakhstan Environment

The  ability  of the  Company  to realize  the  carrying  value of its assets is
dependent  on being  able to  transport  hydrocarbons  and  finding  appropriate
markets for their sale. The Company has various options available to it in terms
of possible  exportation  routes to potential  markets,  based on  experience of
other  joint  venture  operations  in the  vicinity of the  Company's  activity.
Domestic  markets in the  Republic of  Kazakhstan  currently do not permit world
market prices to be obtained.


16. Capital Commitments and Operating Lease Commitment

As specified in Note 1, under the terms of the license the Company has committed
to minimum  capital  expenditure of US$34.5  million for the year ended December
31, 1998 (US$2 million already  incurred in 1997) and US$12 million for the year
ended December 31, 1999.

Minimum lease payments  under  non-cancelable  operating  leases are due for the
year ended  December 31, 1998  amounting to  US$24,929.  On  expiration  of this
lease,  the  Company  may  obtain  legal  title to the  office  building  should
negotiations  with the  landlord  prove  successful.  At this stage  there is no
certainty that title will transfer,  therefore all rental  obligations have been
expensed.

17. Subsequent Events

Subsequent to December 31, 1997, the Kazakh  Government  Tax Authority  began an
audit of KKM.  The Company  believes  KKM has  provided  for all  potential  tax
contingencies which may exist.



                                       45









<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    EXHIBITS

                                       TO

                                    FORM 10-K

                                          CHAPARRAL RESOURCES, INC.


<PAGE>
<TABLE>
<CAPTION>

                                  EXHIBIT INDEX

Exhibit       Description                                                                  Page No.
-------       -----------                                                                  --------
<S>           <C>                                                                           <C>   

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.

2.3            Amendment   to   Stock   Acquisition   Agreement   and   Plan  of              N/A
               Reorganization  dated March 10, 1996 between Chaparral Resources,
               Inc.,  and the  Shareholders  of Central Asian  Petroleum,  Inc.,
               incorporated by reference to the Company's Registration Statement
               No. 333-7779.

3.1            Restated  Articles of  Incorporation + Amendments dated September              N/A
               25,  1976,  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 +              N/A
               Amendments  dated April 21,  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            Articles of Amendment to the Restated Articles of Incorporation +               *
               Amendments dated April 12, 1994.

3.4            Articles of Amendment to the Restated Articles of Incorporation +              N/A
               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.

3.5            Articles of Amendment to the Restated Articles of Incorporation +              N/A
               Amendments dated July 17, 1996,  incorporated by reference to the
               Company's Registration Statement No. 333-7779.

3.6            Articles of Amendment to the Restated Articles of Incorporation +              N/A
               Amendments dated November 25, 1997,  incorporated by reference to
               Exhibit  3.1 to the  Company's  Current  Report on Form 8-K dated
               October 31, 1997.

3.7            Bylaws,  as amended  through  October 31, 1997,  incorporated  by              N/A
               reference to Exhibit 3(ii) to the Company's  Quarterly  Report on
               Form 10-Q for the quarter ended September 30, 1997.

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.

<PAGE>

Exhibit No.           Description and Method of Filing                                     Page No.
-----------           --------------------------------                                     --------

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.

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.

10.10          Consulting  Agreement  dated May 14, 1996 with M-D  International              N/A
               Petroleum,  Inc.,  incorporated  by  reference  to the  Company's
               Registration Statement No. 333-7779. 1

10.11          Promissory Notes and Modifications of Promissory  incorporated by              N/A
               reference to Exhibit (3) to the Company's  Current Report on Form
               8-K dated November 22, 1996.

10.12          Amendment  effective December 6, 1996 to Purchase Agreement dated              N/A
               effective  January  12, 1996  between  the  Company and  Guntekin
               Koksal,  incorporated  by  reference  to  Exhibit  10.12  to  the
               Company's  Annual  Report on Form 10-K for the fiscal  year ended
               November 30, 1996.

10.13          Severance  Agreement  dated February 12, 1997 between the Company              N/A
               and Paul V. Hoovler,  incorporated  by reference to Exhibit 10.13
               to the  Company's  Annual Report on Form 10-K for the fiscal year
               ended November 30, 1996.

10.14          Severance  Agreement  dated February 12, 1997 between the Company              N/A
               and Matthew R.  Hoovler,  incorporated  by  reference  to Exhibit
               10.14 to the Company's  Annual Report on Form 10-K for the fiscal
               year ended November 30, 1996.

10.15          Purchase and Sale Agreement effective January 1, 1997 between the              N/A
               Company and Conoco  Inc.,  incorporated  by  reference to Exhibit
               10.15 to the Company's  Annual Report on Form 10-K for the fiscal
               year ended  November  30,  1996.  

10.16          Amendments  to Chaparral  Resources,  Inc.  Stock  Warrant  Plan,              N/A
               incorporated  by  reference  to  Exhibit  10.16 to the  Company's
               Annual Report on Form 10-K for the fiscal year ended November 30,
               1996.

<PAGE>

Exhibit No.           Description and Method of Filing                                     Page No.
-----------           --------------------------------                                     --------

10.17          Agreement dated August 30, 1995 for  Exploration  Development and              N/A
               Production of Oil in Karakuduk  Oil Field in Mangistan  Oblast of
               the  Republic  of  Kazakhstan  between  Ministry  of Oil  and Gas
               Industries of the Republic of Kazakhstan for and on Behalf of the
               Government of the Republic of Kazakhstan  and Joint Stock Company
               of Closed Type  Karakuduk  Munay Joint Venture,  incorporated  by
               reference to Exhibit 10.17 to the Company's Annual Report on Form
               10-K for the fiscal year ended  November 30, 1996. 

10.18          License for the Right to Use the  Subsurface  in the  Republic of              N/A
               Kazakhstan,  incorporated  by reference  to Exhibit  10.18 to the
               Company's  Annual  Report on Form 10-K for the fiscal  year ended
               November 30, 1996.

10.19          Amendment  dated  April  14,  1997 to  Purchase  Agreement  dated              N/A
               effective  January 12,  1996,  between  the Company and  Guntekin
               Koksal,   incorporated  by  reference  to  Exhibit  10.1  to  the
               Company's  Quarterly  Report on Form 10-Q for the  quarter  ended
               February 28, 1997.

10.20          Subscription  Agreement  dated April 22, 1997  between  Chaparral              N/A
               Resources,   Inc.  and  Victory  Ventures  LLC,  incorporated  by
               reference to Exhibit 10.1 to the  Company's  Quarterly  Report on
               Form 10-Q for the quarter ended June 30, 1997.

10.21          Warrant  Certificate  dated December 31, 1997  entitling  Victory              N/A
               Ventures LLC to purchase up to  4,615,385  shares of Common Stock
               of  Chaparral  Resources,  Inc.,  incorporated  by  reference  to
               Exhibit 10.2 to the Company's  Quarterly  Report on Form 10-Q for
               the quarter ended June 30, 1997.

10.22          Form of Warrant  issued to Black  Diamond  Partners  LP, Clint D.              N/A
               Carlson, John A. Schneider, Victory Ventures LLC, Whittier Energy
               Company and Whittier  Ventures LLC in connection  with loans made
               by them to  Chaparral  Resources,  Inc. in November  and December
               1996 and to Black Diamond Partners LP, Clint D. Carlson,  Wittier
               Energy  Company  and  Whittier  Ventures  LLC  in  July  1997  in
               connection  with the same loans,  incorporated  by  reference  to
               Exhibit 10.3 to the Company's  Quarterly  Report on Form 10-Q for
               the quarter ended June 30, 1997.

10.23          Chaparral Resources, Inc. 1997 Incentive Stock Plan, incorporated              N/A
               by reference to Exhibit 10.4 to the Company's Quarterly Report on
               Form 10-Q for the quarter ended June 30, 1997.

10.24          Chaparral  Resources,  Inc.  1997  Nonemployee  Directors'  Stock              N/A
               Option,   incorporated  by  reference  to  Exhibit  10.5  to  the
               Company's  Quarterly  Report on Form 10-Q for the  quarter  ended
               June 30, 1997.  

10.25          Amendment to Common Stock  Purchase  Warrant  dated  December 31,              N/A
               1997 entitling  Victory  Ventures LLC to purchase up to 4,615,385
               shares of Common Stock of Chaparral Resources, Inc., incorporated
               by reference to Exhibit 10.1 to the Company's Quarterly Report on
               Form 10-Q for the quarter ended September 30, 1997.

10.26          Amendment  dated  September 11, 1997, to License for Right to Use              N/A
               the  Subsurface in the Republic of  Kazakhstan,  incorporated  by
               reference to Exhibit 10.2 to the  Company's  Quarterly  Report on
               Form 10-Q for the quarter ended September 30, 1997.

<PAGE>


Exhibit No.           Description and Method of Filing                                     Page No.
-----------           --------------------------------                                     --------

10.27          Warrant  Certificate  entitling  Allen & Company  Incorporated to              N/A
               purchase  up to  900,000  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/A dated  October 31, 1997.

10.28          Form  of   Subscription   Agreement   dated  November  21,  1997,              N/A
               incorporated  by  reference  to  Exhibit  10.19 to the  Company's
               Current Report on Form 8-K dated October 31, 1997.

10.29          Letter  dated  February  4, 1998,  from the Company to Michael B.               *
               Young.

10.30          Release and Understanding with H. Guntekin Koksal                               *

10.31          Termination  Agreement  dated March 6, 1998 with  Exeter  Finance               *
               Group

10.32          Agreement dated March 7, 1998, with Munay-Impex                                 *

10.33          Agreement dated March 31, 1998, effective as of November 4, 1997                *
               between the Company and Allen & Company Incorprated

16             Letter dated July 23, 1996 from Grant Thornton LLP confirming the              N/A
               circumstances pursuant  to  which Grant Thornton LLP resigned  as
               Registrant's principal independent  accountants,  incorporated by
               reference to Exhibit 16 to the Company's  Current  Report on Form
               8-K dated July 23, 1996.

21             Subsidiaries of the Registrant.                                                 *

23.1           Consent of Grant Thornton LLP                                                   *

23.2           Consent of Ernst & Young LLP

23.3           Consent of Ernst & Young Kazakhstan

27             Financial Data Schedule                                                         *

27.1           Financial Data Schedule Restated for 1996
 
----------------
*              Filed Herewith


</TABLE>