SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2003
OR
[ ] TRANSITION REPORT UNDER SECTION 12(g)
OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission File No. 33-55254-32
CHANCELLOR GROUP, INC.
__________________________________________________________
(Exact name of small business issuer as specified in its
charter)
Nevada 87-0438647
________ ____________
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1800 E. Sahara, Suite 107, Las Vegas, Nevada 89104
_____________________________________________________________
(Address of principal executive offices, including zip code)
Issuer's Telephone Number: (702) 938-0261
______________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the Issuer (1) filed all
reports required to be filed by Section 12(g)
of the Exchange Act during the past 12
months (or for such shorter period that the
registrant was required to file such
reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
____ ____
As of June 30, 2003, 51,837,461 shares of common stock
were outstanding.
Transitional Small Business Disclosure Format:
Yes X No
____ ____
TABLE OF CONTENTS
Form 10-QSB
2nd Quarter Ended June 30, 2003
Chancellor Group, Inc.
Page
PART I: FINANCIAL INFORMATION
Item 1.
Consolidated Balance Sheet 2
Consolidated Statement Of Operations 3
Consolidated Statement Of Cash Flows 4
Notes To Consolidated Financial Statements 5
Item 2.
Management's Discussion And
Analysis Or Plan Of Operation 8
PART II: OTHER INFORMATION 9
SIGNATURES 10
PART I. FINANCIAL INFORMATION
1
ITEM 1. CHANCELLOR GROUP, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 2003
(UNAUDITED)
ASSETS
Total Assets $ -
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 270,315
Stock subscription payable 7,915
____________
Total current liabilities 278,230
____________
Total Liabilities 278,230
____________
Stockholders' equity
Common stock: $.001 par
value, 250,000,000 shares
authorized, 51,837,461
shares issued
& outstanding 51,837
Preferred Series B stock:
$1,000 par value,
250,000 shares authorized,
none issued and outstanding -
Paid in capital 3,071,825
Accumulated deficit (3,401,892)
____________
Total Stockholders' Equity (278,230)
____________
Total Liabilities And
Stockholders' Equity $ -
============
See Notes to Consolidated Financial Statements
2
CHANCELLOR GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2003 2002 2003
____ ____ ____ ____
Sales $ - $ - $ - $ -
Operating expenses 24,565 1,500 74,283 15,302
_________ _________ _________ _________
Income (loss) from
operations (24,565) (1,500) (25,595) (15,302)
Extraordinary item:
Assessed court costs
(net of tax) (48,688)
_________ _________ _________ _________
Income (loss) before provision
for income taxes (24,565) (1,500) (74,283) (15,302)
Provision for income tax - - - -
_________ _________ _________ _________
Net income (loss) $ (24,565) $ (1,500) $ (74,283) $ (15,302)
========= ========= ========= =========
Net income (loss) per share:
from operations $( *) $( *) $( *) $( *)
from extraordinary items - - $( *) -
--------- --------- --------- ---------
Net income (loss) per share
(Basic and fully diluted) $( *) $( *) $( *) $( *)
========= ========= ========= =========
Weighted average number of
common shares outstanding 47,311,094 51,837,461 47,164,178 48,844,994
========== ========== ========== ==========
*less than $.01 per share
See Notes to Consolidated Financial Statements
3
CHANCELLOR GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
2002 2003
____ ____
Cash Flows From Operating Activities:
Net income (loss) $ (74,283) $ (15,302)
Adjustments to reconcile net
income (loss) to net cash
provided by (used for)
operating activities:
Other receivables 18,750
Compensatory stock issuances 500
Accounts pay. and accrued expenses 49,588
_________ _________
Net cash provided
by (used for)
operating activities (5,945) (14,802)
_________ _________
Cash Flows from Financing Activities:
Stock subscriptions payable 7,915
Sales of common stock 5,815 6,887
_________ _________
Net cash provided
by (used for)
financing activities 5,815 14,802
_________ _________
Net Increase (Decrease) In Cash (130) -
Cash At The Beginning Of The Period 130 -
_________ _________
Cash At The End Of The Period $ - $ -
========= =========
See Notes to Consolidated Financial Statements
4
CHANCELLOR GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements have been
prepared in accordance with the instructions to
Form 10-QSB and do not include all of the information and
disclosures required by generally accepted accounting
principles for complete financial statements. All
adjustments which are, in the opinion of management,
necessary for a fair presentation of the results of
operations for the interim periods have been made and are
of a recurring nature unless otherwise disclosed herein.
The results of operations for such interim periods are not
necessarily indicative of operations for a full year.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
Chancellor Group, Inc., and its wholly owned subsidiaries Radly Petroleum, Inc.
("Radly"), Lichfield Petroleum America, Inc. ("Lichfield"), and Getty
Petroleum, Inc. ("Getty"). These entities are collectively hereinafter
referred to as "the Company". All intercompany accounts and transactions
have been eliminated.
Net income (loss) per share
The net income (loss) per share is computed by dividing the net income (loss)
by the weighted average number of shares of common outstanding. Warrants,
stock options, and common stock issuable upon the conversion of the Company's
preferred stock (if any), are not included in the computation if the effect
would be anti-dilutive and would increase the earnings or decrease loss per
share.
Note 2. Legal Proceedings
In October, 2001 pursuant to a civil legal action against the Company's
management filed by a shareholder group in the Federal District Court of
Clark County, Nevada (the "Court"), the assets and operations of the Company
were placed by court order into receivership. In April, 2002 the Court
ordered the Company's President removed from his offices as President and
Director, finding in a civil judgement that the President had in a number of
matters breached his fiduciary duty to the Company. A new temporary Board of
Directors was appointed by the Court until shareholder election of new
Directors.
In September, 2001 a civil legal action was filed against the Company and
other parties in the Federal District Court of Taylor County, Texas with
the Plaintiffs alleging fraud by the Company's President involving a stock
for oil and gas property transaction. The leases underlying the properties
in dispute have been allowed to lapse by the Company, giving the Company
no further rights in them. The action was settled in 2002 with no adverse
effects to the Company.
5
CHANCELLOR GROUP, INC.
Supplemental Information (Unaudited)
Period Ended June 30, 2003
Capitalized Costs Relating to Oil and Gas
Producing Activities at June 30, 2003
------------------------------------------
Unproved oil and gas properties $ -
Proved oil and gas properties -
Support equipment and facilities -
-----------
-
Less accumulated depreciation,
depletion, amortization, and
impairment ( -)
-----------
Net capitalized costs $ -
===========
Costs Incurred in Oil and Gas Producing
Activities for the Period
Ended June 30, 2003
---------------------------------------
Property acquisition costs
Proved $ -
Unproved -
Exploration costs -
Development costs -
Results of Operations for Oil and Gas Producing
Activities for the Period Ended June 30, 2003
-------------------------------------------------
Oil and gas sales $ -
Gain on sale of oil and gas properties -
Gain on sale of oil and gas leases -
Production costs -
Exploration expenses -
Depreciation, depletion,
and amortization -
-----------
-
Income tax expense -
-----------
Results of operations for oil and gas
producing activities (excluding
corporate overhead and financing
costs) $ -
===========
Reserve Information
The following estimates of proved and proved developed reserve
quantities and related standardized measure of discounted net cash flow
are estimates only, and do not purport to reflect realizable values or
fair market values of the Company's reserves. The Company emphasizes that
reserve estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil and gas
properties. Accordingly, these estimates are expected to change as future
information becomes available. All of the Company's reserves are located
in the United States.
Proved reserves are estimated reserves of crude oil (including
condensate and natural gas liquids) 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 (based on year end statutory tax rates, with consideration of
future tax rates already legislated) to be incurred on pretax net cash flows
less tax basis of the properties and available credit, and assuming
continuation of existing economic conditions. The estimated future net cash
flows are then discounted using a rate of 10 percent a year to reflect
the estimated timing of the future cash flows.
6
CHANCELLOR GROUP, INC.
Supplemental Information (Unaudited) - Continued
Period Ended June 30, 2003
Reserve Information
-------------------
Oil Gas
(Bbls) (Bcf)
------ ------
Proved developed and undeveloped reserves
Beginning of period - -
Revisions of previous estimates - -
Improved recovery - -
Purchases of minerals in place - -
Extensions and discoveries - -
Production - -
Sales of minerals in place - -
------- -------
End of period - -
======= =======
Proved developed reserves
Beginning of period - -
End of period - -
Standardized Measure of Discounted Future
Net Cash Flows at June 30, 2003
Future cash inflows $
Future production costs
Future development costs
Future income tax expenses
-------------
Future net cash flows (10% annual discount for
estimated timing of cash flows)
-------------
Standardized measures of discounted future net cash
flows relating to proved oil and gas reserves $
=============
The following reconciles the change in the standardized measure of
discounted future net cash flow during the six months
ended June 30, 2003.
Beginning of period $
Sales of oil and gas produced, net of production costs ( xx)
Net changes in prices and production costs ( xx)
Extensions, discoveries, and improved recovery,
less related costs xx
Development costs incurred during the period which
were previously estimated xx
Net change in estimated future development costs xx
Revisions of previous quantity estimates ( xx)
Net change from purchases and sales of minerals in place ( xx)
Accretion of discount xx
Net change in income taxes ( xx)
Other ( xx)
-------------
End of period $
=============
7
CHANCELLOR GROUP, INC.
ITEM 2. Management's Discussion and Analysis or Plan of
Operation
Chancellor Group, Inc. (formerly Nighthawk Capital, Inc.)("Nighthawk",
the "Company", the "Registrant") was organized under the laws of the state
of Utah in 1986 and subsequently reorganized under the laws of Nevada in 1993.
In September, 1997 the Company acquired 100% ownership of Radly Petroleum, Inc.
("Radly"), a Texas corporation, in exchange for approximately 80% of the
Company's outstanding common stock. In July, 1998 the Company acquired 100%
ownership in Lichfield Petroleum America, Inc., ("Lichfield") a Texas
corporation. In October of 2000, the Company acquired 100% ownership of Getty
Petroleum, Inc. ("Getty") in exchange for 4,500,000 shares of restricted
common stock. Chancellor Group,Inc., Getty, Radly, Lichfield, DGS, NGS,
and DRI remain as separate legal entities and and operate as separate legal
entities.
Results of Operations
The Company's new Board of Directors is currently seeking viable opportunities
in the oil and gas business, primarily in the areas of acquisition and
development of producing properties. The Company's activities in the first
six months of 2003 were limited, resulting in an operating deficit of
$15,302 for normal and recurring expenditures.
8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A shareholder derivative action brought against the Company because of
its then CEO, Shane Xavier Gabriel Rodgers resulted in the District Court of
Clark County, Nevada placing the Company into receivership in October, 2001.
The receivership was subsequently lifted and on April 5, 2002 Rodgers was
fired from the Board of Directors for breaching his fiduciary duty and a new,
interim Board appointed until a shareholder meeting is held.
Chancellor Group, Inc. shareholders Lichfield Petroleum, Ltd. and Graham
Energy, Inc. also brought a legal action against Rodgers, Chancellor
Group, Inc. and Chancellor Group Inc.'s wholly owned subsidiary Getty
Petroleum, Inc. in Texas, which was subsequently settled in 2002 with no
adverse effects on the Company.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters To A Vote of Securities Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
Item 7. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
John C.Y. Lee, who serves as the Company's Chief Executive Officer, after
evaluating the effectiveness of the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) as of
a date within 90 days of the filing date of the quarterly report (the
"Evaluation Date") concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were adequate and effective to ensure
that material information relating to the Company and its consolidated
subsidiaries would be made known to them by individuals within those
entities, particularly during the period in which this quarterly report was
being prepared.
(b) Changes in internal controls.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect the Company's disclosure
controls and procedures subsequent to the Evaluation Date, nor any
significant deficiencies or material weaknesses in such disclosure controls
and procedures requiring corrective actions. As a result, no corrective
actions were taken.
9
SIGNATURES
Pursuant to the requirements of Section 12(g) the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized,
on July 31, 2003.
CHANCELLOR GROUP, INC.
By: /s/John C.Y. Lee
John C.Y. Lee
Chief Executive Officer
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 in the capacities indicated, on July 31, 2003.
Director:
/s/John C.Y. Lee
John C.Y. Lee
Director:
/s/Robert Gordon
Robert Gordon
Director:
/s/Dudley Muth
Dudley Muth
10
CERTIFICATIONS
I, John C.Y. Lee, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Chancellor Group,
Inc.(the "Registrant" or the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Registrant and have;
a. designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to me/us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within ninety (90) days of the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report my/our conclusions about the
effectiveness of the disclosure controls and procedures based on my/our
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the Registrant's
auditor and the Audit Committee of the Registrant's Board of Directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditor any material weakness in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of
my most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: July 31, 2003
/s/John C.Y. Lee
---------------------------------------
John C.Y. Lee, Chief Executive Officer