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: March 31, 2006 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 March 31, 2006, 57,155,030 shares of common stock were outstanding. Transitional Small Business Disclosure Format: Yes X No ____ ____ TABLE OF CONTENTS Form 10-QSB 1st Quarter Ended March 31, 2006 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 MARCH 31, 2006 (UNAUDITED) ASSETS Total Assets $ 0 ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 94,828 Stock subscription payable 1,602 ____________ Total current liabilities 96,430 ____________ Total Liabilities 96,430 ____________ Stockholders' equity Common stock: $.001 par value, 250,000,000 shares authorized, 57,155,030 shares issued & outstanding 57,155 Preferred Series B stock: $1,000 par value, 250,000 shares authorized, -0- issued and outstanding Paid in capital 3,119,683 Accumulated deficit ( 3,273,268) ____________ Total Stockholders' Equity ( 96,430) ____________ Total Liabilities And Stockholders' Equity $ 0 ============ See Notes to Consolidated Financial Statements 2 CHANCELLOR GROUP, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) Three Months Ended March 31, 2006 2005 ____ ____ Sales $ - $ - Operating expenses 16,033 5,050 _________ _________ Income (loss) from operations ( 16,033) (5,050) _________ _________ Other income (expenses) - - _________ _________ Income (loss) before provision for income taxes ( 16,033) (5,050) Provision for income tax - - _________ _________ Net income (loss) $( 16,033) $ (5,050) ========= ========= Net income (loss) per share (Basic and fully diluted) $( *) $( *) ========= ========= Weighted average number of common shares outstanding 56,281,184 54,890,461 ========== ========== *less than $.01 per share See Notes to Consolidated Financial Statements 3 CHANCELLOR GROUP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Three Months Ended March 31, 2006 2005 ____ ____ Cash Flows From Operating Activities: Net income (loss) $ ( 16,033) $ ( 5,050) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Accounts pay. and accrued expenses 6,000 Stock subscriptions payable 5,050 Compensatory stock issuances 4,558 Other ( 25) _________ _________ Net cash provided by (used for) operating activities ( 5,500) - _________ _________ Cash Flows From Financing Activities: Sales of common stock 5,500 _________ _________ Net cash provided by (used for) financing activities 5,500 _________ _________ Net Increase (Decrease) In Cash 0 0 Cash At The Beginning Of The Period 0 0 _________ _________ Cash At The End Of The Period $ 0 $ 0 ========= ========= 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. Related Party Transactions In August, 2004 the Chancellor Group, Inc. signed an agreement with a company controlled by a major shareholder to pay the company an overriding royalty success fee for oil and gas projects brought to Chancellor Group, Inc. by the company. In June, 2005 the Company issued 50,000 common shares to a related party for services valued at $500. In October, 2005 a related party advanced the Company $1,550 for accounting expenses, which resulted in a 155,000 stock subscription payable. In March, 2006 the Company issued 305,000 shares common stock to related parties in fullfill of stock subscription payables, and 255,769 shares of common stock to related parties for services. 5 CHANCELLOR GROUP, INC. Supplemental Information (Unaudited) Period Ended March 31, 2006 Capitalized Costs Relating to Oil and Gas Producing Activities at March 31, 2006 ------------------------------------------ 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 March 31, 2006 --------------------------------------- Property acquisition costs Proved $ - Unproved - Exploration costs - Development costs - Results of Operations for Oil and Gas Producing Activities for the Period Ended March 31, 2006 ------------------------------------------------- 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 March 31, 2006 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 March 31, 2006 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 three months ended March 31, 2006. 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 three months of 2006 were limited, resulting in an operating deficit of $16,033 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. Robert Gordon, 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 May 8, 2006. CHANCELLOR GROUP, INC. By: /s/Robert Gordon Robert Gordon 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 May 8, 2005. Director: /s/Robert Gordon Robert Gordon Director: /s/Peter A.L. Reid Peter A.L. Reid Director: /s/Dudley Muth Dudley Muth 10 EX-31.1 CERTIFICATIONS OF CEO AND CFO PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 31.1 CERTIFICATIONS I, Robert Gordon, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Chancellor Group,Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 8, 2006 /s/Robert Gordon Robert Gordon Chief Financial Officer & Chief Executive Officer 11 EX-32 CERTIFICATIONS OF CEO AND CFO PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT Exhibit 32 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Quarterly Report of Chancellor Group, Inc., a Nevada corporation (the "Company"), on Form 10-QSB for the Quarter ending March 31, 2005, as filed with the Securities and Exchange Commission (the "Report"), Robert Gordon, Chief Executive Officer and Chief Financial Officer of the Company, does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to his knowledge: 1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: May 8, 2006 /s/Robert Gordon Robert Gordon Chief Financial Officer & Chief Executive Officer [A signed original of this written statement required by Section 906 has been provided Chancellor Group, Inc. and will be retained by Chancellor Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.] 12