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EX-32 - CHANCELLOR GROUP INC.v164872_ex32.htm
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EX-10.29 - CHANCELLOR GROUP INC.v164872_ex10-29.htm
EX-10.25 - CHANCELLOR GROUP INC.v164872_ex10-25.htm
EX-10.23 - CHANCELLOR GROUP INC.v164872_ex10-23.htm
EX-10.27 - CHANCELLOR GROUP INC.v164872_ex10-27.htm
 
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
 


 
Form 10-Q

x           QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

¨           TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from      to     

Commission file number 000-30219ame
 

Chancellor Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Nevada
87-0438647
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 

216 South Price Road, Pampa, TX  79065
79065
(Address of Principal Executive Offices)
(Zip Code)

(806-688-9697)
(Registrant's Telephone Number, Including Area Code)

Check  whether the issuer (1) filed all reports  required to be filed by Section 13 or 15(d) 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. x Yes ¨ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ¨    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company.  (Check One):

Large accelerated filer  ¨
Accelerated filer  ¨
   
Non-accelerated filer ¨
Smaller reporting company  x
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ¨ Yes x No

APPLICABLE ONLY TO CORPORATE ISSUERS
 
The number of shares outstanding the issuer's common stock, $.001 par value, was 65,125,030 as of November 4, 2009.

 
 

 

Chancellor Group, Inc.

Table of Contents

   
Page No.
PART I
FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements
1
     
Item 2.
Management's Discussion and Analysis or Plan of Operation
12
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
14
     
Item 4.
Controls and Procedures
14
     
PART II
   
     
Item 2.
Unreported Sales of Equity Securities and Use of Proceeds
15
     
Item 6.
Exhibits
16
     
EXHIBIT INDEX
17

 
ii

 

Item 1.  Financial Statements

Chancellor Group, Inc.

INDEX

 
Page No.
   
Consolidated Balance Sheets as at September 30, 2009 and December 31, 2008 (Unaudited)
2
   
Consolidated Statements of Operations For the Three and Nine and Months Ended September 30, 2009 and 2008 (Unaudited)
3
   
Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2009 and 2008 (Unaudited)
4
   
Notes to Unaudited Consolidated Financial Statements
5-11

 
1

 

Chancellor Group, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
September 30, 2009
   
December 31, 2008
 
ASSETS
           
Current Assets:
           
Cash in Bank
  $ 1,500,646     $ 2,531,525  
Revenue Receivable
    67,670       201,455  
Prepaid Insurance
    68,962       23,665  
Deferred Tax Asset
    49,502       0  
Total Current Assets
    1,686,780       2,756,645  
                 
Fixed Assets:
               
Leases and Lease Equipment
    1,570,584       1,396,252  
Office Building & Equipment
    134,630       132,065  
Auto / Transportation Equipment
    202,723       218,661  
Machinery & Equipment
    450,179       442,746  
Accumulated Depreciation
    (455,745 )     ( 262,478 )
Total Fixed Assets
    1,902,371       1,927,246  
                 
Other Assets:
               
Unamortized Letter of Credit
    0       833  
Prepaid Long Term Hedge
    0       11,100  
Deposits
    250       4,975  
Total Other Assets
    250       16,908  
                 
Total Assets
  $ 3,589,401     $ 4,700,799  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current Liabilities:
               
Due to Related Party
  $ 0     $ 36,500  
Accounts Payable – Gryphon Production
    46,598       224,598  
Miscellaneous Accounts Payable & Suspense
    5,174       5,949  
Federal Income Tax Payable
    0       52,229  
State Income Tax Payable
    0       64,674  
Stock Subscription Payable
    1,602       1,602  
Total Current Liabilities
    53,374       385,552  
                 
Long Term Liabilities:
               
Deferred Tax Liability
    39,722       126,802  
Total Long Term Liabilities
    39,722       126,802  
                 
Stockholders’ Equity:
               
                 
Common Stock:  $.001 par value, 250,000,000 shares authorized, 65,125,030 shares issued and outstanding
    65,125       65,233  
Paid in Capital
    3,308,713       3,229,905  
Retained Earnings
    929,807       (4,045,659 )
Treasury Stock
    0       (36,500 )
Net Income (Loss)
    (807,340 )     4,975,466  
Total Stockholders’ Equity
    3,496,305       4,188,445  
Total Liabilities and Stockholders’ Equity
  $ 3,589,401     $ 4,700,799  

See Notes to Unaudited Consolidated Financial Statements

 
2

 
 

Chancellor Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008
(Unaudited)

  
 
For the three months 
ended September 30,
   
For the nine months 
ended September 30,
 
   
2009
   
2008
   
2009
   
2008
 
Sales - Net of Royalties Paid:
                       
Oil
  $ 169,600     $ 331,665     $ 424,441     $ 1,852,948  
Natural Gas
    22,682       43,552       60,296       335,648  
Hedge
    250       0       71,160       0  
Other Income
    0       38,960       23,905       38,960  
Gross Revenue
    192,532       414,177       579,802       2,227,556  
                                 
Severance Taxes
    10,552       9,620       25,914       99,764  
Marketing Fees
    0       0       0       13,213  
Royalties Paid
    0       0       0       14  
Net Revenue
    181,980       404,557       553,888       2,114,565  
                                 
Operating Expenses:
                               
Lease Operating Expense
    64,745       245,539       248,761       893,692  
Other Operating Expense
    150,389       30,216       678,560       617,797  
General & Administrative Expense
    152,332       149,458       378,350       214,256  
Depreciation, Depletion & Amortization
    64,980       71,989       197,830       302,664  
Total Operating Expense
    432,446       497,202       1,503,501       2,028,409  
                                 
Income (loss) From Operations
    (250,466     (92,645 )        (949,613 )     86,156  
                                 
Other Income (Expenses):
                               
Interest
    6,260       1,836       14,320       1,836  
Sale of Assets
    0       6,409,927       (6,557 )     6,409,927  
Organization Costs
    0       0       0       0  
Hedge Costs Amortization
    0       (14,800 )     0       (33,300 )
Total Other Income (Expense)
    6,260       6,396,963       7,763       6,458,081  
                                 
Financing Charges:
                               
Interest
    0       340,574       375       588,521  
Bank Fees Amortization
    402       48,899       1,696       73,764  
Total Financing Charges
    402       389,473       2,071       662,285  
                                 
Income (Loss) before provision for
                               
Income Taxes
    (244,608 )     5,914,845       (943,921 )     5,881,952  
Provision for Income Taxes(Benefits)
    (37,617     465,000       (136,581 )     465,000  
Net Income (Loss)
  $ (206,991 )   $ 5,449,845     $ (807,340 )   $ 5,416,952  
    Net Income (Loss) per Share (Basic and
    Fully Diluted)
  $ ( *)   $ 0.0841     $ ( *)   $ 0.0836  
    Weighted Average Number of Common Shares Outstanding
    64,873,508       64,802,781       65,145,492       64,802,781  
* Less than $.01 per Share
See Notes to Unaudited Consolidated Financial Statements

 
3

 


  
Chancellor Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008
(Unaudited)

   
September 30, 2009
   
September 30, 2008
 
Cash Flows From Operating Activities:
           
Net Income (loss)
  $ (807,340 )   $ 87,992  
                 
Adjustments to reconcile net income
               
(loss) to net cash provided by
               
(used for) operating activities:
               
Depreciation, Depletion & Amortization
    197,830       (185,142 )
Deferred Income Taxes
    (136,581 )     0  
Non-Cash Stock Compensation
    78,700       0  
(Increase) Decrease in Operating Assets
    88,649       171,871  
Increase (Decrease) in Operating Liabilities
    (295,678 )     195,217  
Net Cash Provided by (used for) Operating Activities
    (874,420 )     269,938  
                 
Cash Flows From Investing Activities:
               
Sale of Assets Proceeds
    28,000       9,824,890  
Other Capital Expenditures
    (184,459 )     (594,636 )
Net Cash Provided by (used for)
               
Investing Activities
    (156,459 )     9,230,254  
                 
Cash Flows From Financing Activities:
               
Notes Payable Redemptions
    0       (5,974,414 )
Issuances of Common Stock
    0       200  
Net Cash Provided by (used for)
               
Financing Activities
    0       (5,974,214 )
                 
Net Increase (Decrease) in Cash
    (1,030,879 )     3,525,978  
Cash at the Beginning of the Period
    2,531,525       218,118  
                 
Cash at the End of the Period
  $ 1,500,646     $ 3,744,096  
                 
Supplemental Disclosures of Cash Flows Information
               
                 
Interest Paid
  $ 375     $ 588,521  
                 
Income Taxes Paid
  $ 0     $ 0  

See Notes to Unaudited Consolidated Financial Statements

 
4

 

CHANCELLOR GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

NOTE 1.  ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization

Chancellor Group, Inc. (the "Company", “our”, “we”, “Chancellor” or the “Company” ) was incorporated in the state of Utah on May 2, 1986, and then, on December 30, 1993, dissolved as a Utah corporation and reincorporated as a Nevada corporation. The Company's primary business purpose is to engage in the exploration and production of oil and gas. On March 26, 1996 the Company's corporate name was changed from Nighthawk Capital, Inc. to Chancellor Group, Inc.  The Company’s headquarters is in Pampa, Texas.

Operations

The Company is licensed by the Texas Railroad Commission as oil and gas producers and operators. The Company and its wholly-owned subsidiaries, Gryphon Production Company, LLC and Gryphon Field Services, LLC, own 127 wells, of which 19 are water disposal wells and 2 are gas wells, although “associated” gas is also produced from some oil wells.  As of September 30, 2009, approximately 70 oil wells are actively producing.  We also own and operate our 15.9 acre property, with its shop, yard and office complex. Company equipment includes two work-over rigs as well as other oil field related equipment.

In addition, we own approximately 4,200 acres of production rights on six leases, which includes 500 acres of undrilled acreage, approximately 300 acres of which was previously owned by Mobil, and the balance of approximately 200 acres on the Worley Combs lease.  The six leases have the production rights for oil, casing-head gas and natural gas.

We produced a total of 9,116 barrels of oil and 10,273 mcf of gas in the nine months ended September 30, 2009. The oil is light sweet crude and the natural gas has very high heat content, 1600 to 2600 btu/scf.

Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Chancellor Group, Inc.; and its wholly owned subsidiaries: Gryphon Production Company, LLC, and Gryphon Field Services, LLC. These entities are collectively hereinafter referred to as "the Company". Any inter-company accounts and transactions have been eliminated.

Accounting Year

The Company employs a calendar accounting year. The Company recognizes income and expenses based on the accrual method of accounting under generally accepted accounting standards.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and 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.

Products and Services, Geographic Areas and Major Customers

The Company plans to develop its domestic oil and gas properties, located in Gray county, Texas, and possibly to acquire additional producing oil and gas properties. The Company’s major customers, to which the majority of its oil and gas production is sold, are Plains Marketing and DCP Midstream.

 
5

 

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.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents.

Included in cash in bank at September 30, 2009 are deposits totaling $250,000 which are assigned and held as collateral for a letter of credit issued to the Railroad Commission of Texas as required for its oil and gas activities.

Accounts Receivable

The Company reviews accounts receivable periodically for collectibles and establishes an allowance for doubtful accounts and records bad debt expense when deemed necessary.

Property and Equipment

Property and equipment are recorded at cost and depreciated under the straight line method over the estimated useful life of the equipment. The estimated useful life of leasehold costs, equipment and tools ranges from five to seven years.  The useful life of the office building and warehouse is estimated to be twenty years.

Oil and Gas Properties

The Company follows the successful efforts method of accounting for its oil and gas activities. Under this accounting method, costs associated with the acquisition, drilling and equipping of successful exploratory and development wells are capitalized. Geological and geophysical costs, delay rentals and drilling costs of unsuccessful exploratory wells are charged to expense as incurred. The carrying value of mineral leases is depleted over the minimum estimated productive life of the leases, or ten years. Undeveloped properties are periodically assessed for possible impairment due to un-recoverability of costs invested.  Cash received for partial conveyances of property interests is treated as a recovery of cost and no gain or loss is recognized.

Depletion

The carrying value of the mineral leases is depleted over the minimum estimated productive life of the leases, or ten years.

Income Tax

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Revenue Recognition

The Company recognizes revenue when a product is sold to a customer, either for cash or as evidenced by an obligation on the part of the customer to pay.

Financial Instruments

The carrying value of the Company's financial instruments, including cash and cash equivalents, accounts receivable and accounts payable and long term debt, as reported in the accompanying balance sheet, approximates fair value.

Employee Stock-Based Compensation

The Company uses the intrinsic value method of accounting for employee stock-based compensation.

 
6

 

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements”, as amended in February 2008 by FASB Staff Position FAS 157-2, which was primarily codified into Topic 820 “Fair Value Measurements” of the FASB Accounting Standards Codification (“ASC”).  The guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  FSP FAS 157-2 defers the effective date of SFAS 157 for all nonfinancial assets and liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until January 1, 2009. As such, management partially adopted the provisions of SFAS 157 effective January 1, 2008. The partial adoption of this statement did not have a material impact on the financial statements. Management adopted the remaining provisions of SFAS 157 beginning in 2009.  The adoption of the remaining provisions did not have a material impact on the consolidated financial statements.

Effective for the period ended September 30, 2009, the Company implemented Financial Accounting Standards Board (“FASB”) Staff Position FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”), which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” and Accounting Principles Board Opinion 28, “Interim Financial Reporting,”, which was primarily codified into Topic 820 “Fair Value Measurements” of the ASC.  This guidance requires disclosures about fair value of financial instruments effective for annual and interim reporting periods of publicly traded companies. This adoption did not have an impact on the Company’s financial position or results of operations.

In December 2007, the FASB issued SFAS 141R, “Business Combinations”, which was primarily codified into Topic 805 “Business Combinations” in the ASC.  This standard modifies certain aspects of how the acquiring entity recognizes and measures the identifiable assets, the liabilities assumed and the goodwill acquired in a business combination.  This guidance is effective for fiscal years beginning after December 15, 2008.  Although this guidance will impact the Company’s accounting for business combinations completed on or after January 1, 2009, it did not impact the Company’s financial statements, as the Company did not enter into any business combinations during the nine months ended September 30, 2009.

In December 2007, the FASB issued SFAS 160, “Non-controlling Interests in Consolidated Financial Statements”, which was primarily codified into Topic 810 “Consolidations” in the ASC.  This guidance established new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.  It clarifies that a non-controlling interest in a subsidiary (minority interest) is an ownership interest in the consolidated entity that should be reported as equity in the Consolidated Financial Statement and separate from the parent company’s equity. Among other requirements, this guidance requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the Consolidated Statement of Operations, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. This guidance became effective for us on January 1, 2009. The adoption did not have a material impact on the consolidated financial statements

In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 161, “Disclosures about Derivative Instruments and Hedging Activities” –an amendment of SFAS 133, which was primarily codified into Topic 815 “Derivatives and Hedging” in the ASC.  This guidance expands the disclosure requirements for derivative instruments, how derivative instruments and related hedged items are accounted for, and how derivative instruments and related hedged items affect the entity’s financial position, financial performance, and cash flows.  This guidance is effective for fiscal years beginning after November 15, 2008.  This guidance became effective for the Company on January 1, 2009.  The adoption did not have a material impact on the consolidated financial statements.

In June 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”, which was primarily codified into Topic 105 “Generally Accepted Accounting Standards” in the ASC.  This standard will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles ("GAAP"), superseding existing FASB, American Institute of Certified Public Accountants ("AICPA"), Emerging Issues Task Force ("EITF"), and related accounting literature.  This guidance reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections.  This guidance is effective for financial statements issued for reporting periods that end after September 15, 2009. Beginning in the third quarter of the Company’s 2009 fiscal year, this guidance impacts the Company’s financial statements and related disclosures as all references to authoritative accounting literature reflect the newly adopted codification.
 
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” which was primarily codified into Topic 855 “Subsequent Events” in the ASC.  This guidance establishes principles and requirements for subsequent events.  Specifically, it sets forth guidance pertaining to the period after the balance sheet date during which management should consider events or transactions for potential recognition or disclosure, circumstances under which an event or transaction would be recognized after the balance sheet date and the required disclosures that should be made about events or transactions that occurred after the balance sheet date.  This guidance is effective for interim or annual financial periods ending after September 15, 2009, and as such became effective for the Company on September 30, 2009.  The Company’s adoption of the standard resulted in additional disclosures surrounding the Company’s subsequent events (See Note 10 below).

 
7

 

NOTE 2. INCOME TAXES

Deferred income taxes arise from temporary differences in recognition of certain revenues and expenses between financial statement and income tax basis of accounting, and also net operating loss carry-forwards and other tax credit carry-forwards.  Under IRC Section 382, net operating loss carryovers may be limited should a significant change in ownership occur. The Company accounts for income taxes pursuant to SFAS 109.

At September 30, 2009, the Company had a federal net operating loss of approximately $1,095,000.  A deferred tax asset of approximately $170,000 has been partially offset by a valuation allowance of approximately $52,000 due to federal NOL carry-back and carry-forward limitations.

At September 30, 2009, the Company had approximately $156,000 in deferred income tax liability attributable to timing differences between federal income tax depreciation, depletion and book depreciation.

NOTE 3. STOCKHOLDERS' EQUITY

Preferred Stock

The Company has provided for the issuance of 250,000 shares, par value $1,000 per share, of convertible Preferred Series B stock ("Series B"). Each Series B share is convertible into 166.667 shares of the Company's common stock upon election by the shareholder of the Series B Share, with dates and terms set by the Board. No shares of Series B preferred stock are outstanding.

Common Stock

The Company has 250,000,000 authorized shares of common stock, par value $.001, with 65,125,030 shares issued and outstanding as of September 30, 2009 (see footnotes regarding Treasury Stock, Sale of Assets and Related Party Transactions for additional information).

Treasury Stock

In early 2008, in the context of our prior bankruptcy proceeding, Koala Pictures Proprietary Ltd. ("Koala"), controlled by our Chairman and Chief Executive Officer, Maxwell Grant, had transferred 1,000,000 shares of our common stock to New Concept Energy, Inc. (“NCE”), which had entered into discussions with us.  Following dismissal of the bankruptcy proceeding in August 2008, we settled all matters with NCE for $110,000 pursuant to a Settlement Agreement and Release of All Claims, dated September 4, 2008, and repurchased the 1,000,000 shares of our common stock.  In May 2009, our Board of Directors authorized retransfer of the 1,000,000 shares of our common stock back to Koala,  to replace the shares that Koala had originally transferred to NCE for the benefit of the Company in connection with the Company's discussions with NCE.

Stock Options and Warrants

Non-employee Stock Options and Warrants

The Company accounts for non-employee stock options under SFAS 123 (as amended by SFAS 148), which was primarily codified into Topic 718 “Compensation-Stock Compensation” in the ASC, whereby options costs are recorded based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. During all quarters for the years ended December 31, 2007 and 2008, no options were issued, exercised or cancelled.  For the quarter ending September 30, 2009, no options were issued, exercised or cancelled.

The Company currently has outstanding warrants expiring December 31, 2014 to purchase an aggregate of 6,000,000 shares of common stock; these warrants consist of warrants to purchase 2,000,000 shares are at an exercise price of $.025 per share, and warrants to purchase 4,000,000 shares at an exercise price of $0.02 per share.  In July 2009, the Company issued additional warrants expiring June 30, 2014 to purchase an aggregate of 500,000 shares of common stock at an exercise price of $0.125 per share.

Employee Stock Options

The Company accounts for employee stock options under SFAS 123 (as amended by SFAS 148) which was primarily codified into Topic 718 “Compensation-Stock Compensation” in the ASC. The Company issued no employee stock options and had none outstanding as of the close of the year ending December 31, 2008. There were no stock options issued in the first three quarters of the Company’s 2009 fiscal year.

 
8

 

NOTE 4. FIXED ASSETS
 
A summary of fixed assets at September 30, 2009 follows:

   
Balance
               
Balance
 
   
December 31,
2008
   
Additions
   
Deletions
   
September 30,
2009
 
                                 
Auto/Transportation Equipment
  $ 218,661     $ 23,183     $ 39,121     $ 202,723  
                                 
Buildings & Improvements
    125,280       0       0       125,280  
                                 
Leases & Lease Equipment
    1,396,252       174,333       0       1,570,585  
Furniture, Fixtures & Office Equipment
    6,785       2,565       0       9,350  
                                 
Machinery & Equipment
    442,747       9,932       2,500       450,179  
                                 
    $ 2,189,725     $ 210,013     $ 41,621     $ 2,358,117  
                                 
Less: Accumulated Depreciation
                            455,745  
                            $ 1,902,372  

NOTE 5. CONTINGENT LIABILITY

On August 4, 2007, the Company received a letter from David L. Kagel, a former attorney for the Company, indicating his intention to initiate an arbitration proceeding or to file a lawsuit for recovery of $50,489 (including interest) for services rendered over several years under prior management. The Company believes the claim is without merit and that it has a number of counterclaims against Mr. Kagel. No further action has occurred regarding this issue.

NOTE 6. LONG-TERM DEBT

To finance the acquisition of the assets purchased from Caldwell Production Company, Inc., on April 13, 2007, we closed on a Loan Agreement with Western National Bank of Midland, Texas (“WNB”) for a senior loan facility (the “WNB Loan Agreement”).  At the closing of the purchase of these assets, we drew down $2.3 million under the WNB Loan Agreement. The interest rate under the WNB Loan Agreement was a variable rate equal to the prime rate, as defined in the WNB Loan Agreement, plus 2%, but in no event to be less than 9.25%.
On April 13, 2007, we had also entered into a Loan Agreement with CapWest Resources, Inc. of Midland, Texas (“CapWest”) for an advancing line of credit/term loan facility (the “CapWest Loan Agreement”), under which we drew down at the closing of the purchase of the assets from Caldwell Production Company, Inc. $2,700,000 for the balance of the purchase price of the leases, $291,500 for the equipment, $111,000 for bank fees, legal expenses and associated costs, and $130,000 for initial working capital. The interest rate under the CapWest Loan Agreement was a variable rate equal to the prime rate, as defined in the CapWest Loan Agreement, plus 4%. Under the CapWest loan agreement, CapWest had a 2% overriding royalty interest in the leases purchased from Caldwell Production Company, Inc.

At the August 29, 2008 closing of the sale of certain assets of the Company (as described below in Note 8), the notes held by our lenders, WNB and Capwest, plus interest thereon to the date of closing, were paid in full with payments of $2,063,549.53 and $4,220,617.47, respectively.

The Company had no long-term debt at September 30, 2009.

At September 30, 2009, the Company has an irrevocable blanket letter of credit totaling $250,000 issued to the Railroad Commission of Texas as required for its oil and gas activities, which is secured by certain bank deposits totaling $250,000.

NOTE 7. ACCUMULATED COMPENSATED ABSENCES

It is the Company’s policy to permit employees to accumulate a limited amount of earned but unused vacation, which will be paid to employees upon separation from the Company’s service. The cost of vacation and sick leave is recognized when payments are made to employees. These amounts are immaterial and not accrued.

 
9

 

NOTE 8. SALE OF ASSETS

On April 16, 2007, the Company closed the acquisition of assets from Caldwell Production Company, Inc., consisting of 48 mineral leases with 631 wells, of which approximately 100 were producing wells, 531 inactive well bores equipped with necessary production equipment, and related operating facilities and equipment including an office warehouse facility, ten pickup trucks, two pulling rigs, a backhoe, a winch truck and a water truck. The purchase price for such oil field equipment was $291,500.  The purchase price for the mineral leases and an existing office building, including an attached warehouse/shop building valued at $81,630, was $5,000,000.  The oil and natural gas leases purchased are on approximately 14,000 acres in Gray and Carson Counties, Texas, with a well spacing of 10 acres, and are in the Panhandle Field, discovered in 1920. After closing this acquisition, the Company opened corporate offices for our production and oil field service subsidiaries at the purchased facilities in Pampa, Texas.

To finance the acquisition of the assets purchased from Caldwell Production Company, Inc., on April 13, 2007, we entered ito the WNB Loan Agreement.  At the closing of the purchase of these assets, we drew down $2.3 million under the WNB Loan Agreement. On April 13, 2007, we also entered into the CapWest Loan Agreement, under which we drew down at closing of the purchase of these assets $2,700,000 for the balance of the purchase price of the leases, $291,500 for the equipment, $111,000 for bank fees, legal expenses and associated costs, and $130,000 for initial working capital.

On October 30, 2007, we filed for reorganization under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court, Northern District of Texas.  We operated the Company in the bankruptcy proceeding until August 15, 2008, when the Court issued an order dismissing the bankruptcy cases of the Company and of its two operating subsidiaries, Gryphon Production Company, LLC and Gryphon Field Services, LLC.

On July 22, 2008, we entered into a Purchase and Sale Agreement, effective as of June 1, 2008 (the “Agreement”), by and among the Company, Gryphon Production Company, LLC and Gryphon Field Services, LLC, collectively acting as sellers, Legacy Reserves Operating LP, acting as buyer (“Legacy”), and WNB and CapWest, collectively acting as sellers’ lenders.  The Agreement provided for the sale of oil and gas wells accounting for approximately 80% of the Company’s oil and gas production (the “Oil and Gas Assets”) to Legacy for a purchase price of $13,250,000. At the August 29, 2008 closing under the Agreement, the notes held by our lenders, WNB and CapWest, plus interest thereon to the date of such closing, were paid in full.

The financial statements reflect the sale of the Oil and Gas Assets, effective retroactively as of June 1, 2008.  The following is a detailed list of the sale proceeds and the closing costs incurred with respect to such sale.

Sales Price
        $ 13,250,000  
Adjustments to Sales Price
             
Estimated Liability for Well Plugging Expense
  $ (160,000 )        
Retention of HH Merten Lease
    ( 9,642 )        
      (169,642 )        
            $ (169,642 )
                 
Closing Costs and Other Related Expenditures
               
Acquisition of Warrants
  $ 850,000          
Acquisition of 2% ORRI
    700,000          
Acquisition of 6.25% ORRI
    232,500          
Acquisition of NCE Stock
    110,000          
Commissions
    232,500          
Legal
    350,494          
Other
    1,599          
Notes payable (including accrued interest)
    6,284,167          
Total Closing Costs
    8,761,260          
            $ (8,761,260 )
                 
Net Proceeds Received from Sale
          $ 4,319,098  

NOTE 9. RELATED PARTY TRANSACTIONS

Until April 2009, the Company used the services of a local accounting firm in Pampa, Texas to provide the disbursing of the payroll with related expense and accounts payable while maintaining the general ledger.  The Company’s former President was a 50% owner of that accounting firm, which was paid $11,512 for accounting services through April 2009.  Effective in late April 2009, the Company disengaged this firm and has engaged an unrelated accounting firm in Amarillo, Texas to provide these services.

 
10

 

Axis Network Pty. Ltd. (“Axis”), a company controlled by the Chairman of the Company’s Board, through a prior arrangement had the rights to receive a 6.25% Overriding Royalty Interest (“ORRI”) in the leases owned by the Company.  Axis was to begin receiving the ORRI at the time the acquisition debt of the Company was retired.  The purchaser of the leases would not accept the sale with the burden of a 6.25% ORRI being implemented at the time of its taking control of the subject leases.  In lieu of receiving a 6.25% ORRI, Axis agreed to accept $232,500 and the 2% ORRI that was purchased from CapWest Resources, Inc.

The Company has used the services of a consulting company owned by the Chairman of the Board.  The Company has paid $72,000 for those services during the Company’s 2009 fiscal year.

In early 2008 in the context of our prior bankruptcy proceeding, Koala, controlled by our Chairman and Chief Executive Officer, Maxwell Grant, had transferred 1,000,000 shares of our common stock to NCE, which had entered into discussions with us.  Following dismissal of the bankruptcy proceeding in August 2008, we settled all matters with NCE for $110,000 pursuant to a Settlement Agreement and Release of All Claims, dated September 4, 2008, and repurchased the 1,000,000 shares of common stock.  In May 2009, our Board of Directors authorized issuance of 1,000,000 shares of common stock to Koala, which shares were issued on July 13, 2009, since Koala had originally transferred 1,000,000 shares to NCE for the benefit of the Company in the context of the Company's discussions with NCE.  On July 17, 2009, the 1,000,000 share certificate representing the shares repurchased from NCE and held as treasury stock was cancelled.

On July 13, 2009, the Company issued 150,000 shares of common stock to Koala on behalf of Maxwell Grant, our Chairman and Chief Executive Officer, 300,000 shares of common stock to Robert Gordon and 300,000 shares of common stock to Dudley Muth, both also members of our Board of Directors.  Such shares were issued to our directors for services rendered as directors over long periods of time, in some cases dating back to March 2006.  The Company recorded an expense for Director’s Fees in the amount of $30,000 in the third quarter of 2009 related to these stock issuances.

On August 10, 2009, the Company issued to Koala a warrant expiring December 31, 2014 to purchase 2,500,000 shares of common stock, at a purchase price of $.02 per share; the Company issued this warrant in replacement of a warrant held by Koala to purchase the same number of shares at the same per share exercise price, expiring December 31, 2009, which was originally issued for services rendered in a shareholder derivative action in Nevada some years ago.

On August 10, 2009, the Company issued to Dudley Muth, a member of our Board of Directors, a Warrant expiring December 31, 2014 to purchase 1,000,000 shares of common stock, at a purchase price of $.025 per share, issued in replacement of a warrant held by Mr. Muth to purchase the same number of shares at the same per share exercise price, expiring December 31, 2009, which was originally issued for services rendered in a shareholder derivative action in Nevada some years ago.

NOTE 10. SUBSEQUENT EVENTS
 
Events occurring after September 30, 2009 were evaluated as of November 4, 2009, the date this Quarterly Report was issued, in compliance with SFAS No. 165, which was primarily codified into Topic 855 “Subsequent Events” in the ASC, to ensure that any subsequent events that met the criteria for recognition and/or disclosure in this report have been included. No such events were noted.
 
 
11

 

 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
 
Throughout this report, we make statements that may be deemed "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, that address activities, events, outcomes and other matters that Chancellor plans, expects, intends, assumes, believes, budgets, predicts, forecasts, projects, estimates or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. These forward-looking statements are based on management's current belief, based on currently available information, as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, many of which are beyond our control, incident to the exploration for and development, production and sale of oil and gas. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of goods and services, environmental risks,  operating risks, regulatory changes, the uncertainty inherent in estimating proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures and other risks described herein, the effects of existing or continued deterioration in economic conditions in the United States or the markets in which we operate; and acts of war or terrorism inside the United States or abroad.

 
BACKGROUND

We are in the business of acquisition, exploration, and development of natural gas and oil properties, and have completed an initial acquisition of oil and gas leases and related facilities and equipment as described below under “Plan of Operation.” This acquisition was financed with debt provided by two Texas financial institutions. On October 30, 2007, we filed for reorganization under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court, Northern District of Texas. We operated the Company in the bankruptcy proceeding until August 15, 2008, when the Court issued an order dismissing the bankruptcy cases of the Company and its two operating subsidiaries, Gryphon Production Company, LLC and Gryphon Field Services, LLC.

On July 22, 2008, we had entered into the Agreement, effective as of June 1, 2008 with Legacy for the sale of oil and gas wells accounting for approximately 84% of our oil and gas production to Legacy for a purchase price of $13,250,000. At the August 29, 2008 closing under this Agreement with Legacy, the notes held by the lenders that provided the financing for our initial acquisition of oil and gas leases, plus interest thereon to the date of closing, were paid in full.

Our common stock is quoted on the Over-The-Counter market and trades under the symbol CHAG.OB.  As of November 4, 2009, there were 65,125,030 shares of our common stock issued and outstanding.

Nine Months Ended September 30, 2009

Our oil production operations began April 16th, 2007 with an effective date of April 1st, 2007.  During the period ending December 31, 2007, we produced and sold 23,120 barrels of oil and produced and sold 55,831 mcf gas, generating $2,075,956 revenues after royalties, with a one month lag in receipt of revenues for the prior month’s sales, as compared with 24,114 barrels of oil and 48,759 mcf of gas, generating $2,351,433 in gross revenues, in 2008.  Effective June 1, 2008, we sold producing properties with 173 producing wells to Legacy Reserves Operating LP.  We had 84 wells actually producing oil and gas on December 31, 2008. In the nine month period ended September 30, 2009, we produced and sold 9,116 net barrels of oil and 11,223 mcf of gas, attributable to our net revenue interest in our producing properties, while generating revenues of $484,737, as compared with 18,565 net barrels of oil and 43,058 net mcf of gas, generating revenues of $2,188,597, in the comparable period of 2008. At September 30, 2009, we had approximately 70 oil wells and 2 gas wells producing with additional “associated” gas coming from some oil wells.

Three Months Ended September 30, 2009

In the three month period ended September 30, 2009, we produced a total of 2,644 barrels of oil and 3,853 mcf of gas, while generating revenues of $192,282. The oil is light sweet crude and the natural gas has very high heat content, 1600 to 2600 btu/scf.

RESULTS OF OPERATIONS

On April 16, 2007, we closed the acquisition of assets from Caldwell Production Company, Inc., consisting of 48 mineral leases with 621 wells, of which approximately 100 were considered to be producing wells, 531 inactive well bores equipped with necessary production equipment, and related operating facilities and equipment including an office warehouse facility, ten pickup trucks, two pulling rigs, a backhoe, a winch truck and a water truck. The purchase price for the mineral leases and an existing office building, including an attached warehouse/shop building valued at $81,630, was $5,000,000, and the purchase price for the equipment was $291,500.  The oil and natural gas leases purchased are on approximately 8,000 acres in Gray County, Texas, with a well spacing of 10 acres, and are in the Panhandle Field, discovered in 1920. After closing this acquisition, we have opened corporate offices for our production and oil field service subsidiaries at the purchased facilities in Pampa, Texas. After the initial acquisition, the Gryphon Production Company subsidiary acquired additional trucks, including an electrical repair “bucket” truck, which were needed to restore electric power to several previously non-producing wells.

Our near-term plans include continued maintenance of existing wells, our primary focus being to operate our properties and to enhance production by ongoing treatment.  Additionally, production is expected to increase by remedial repairs that improve and prolong the production life of existing wells.  The Company also has plans to reenter certain abandoned wells, which were taken out of production due to extremely low oil and gas prices, bringing oil and gas from these wells into the market.  Several of the leases need to studied and reviewed for the possibility of drilling the wells deeper to reach additional producing strata.  Feasibility studies are planned to consider drilling replacement wells in the locations of wells that were previously plugged and abandoned due to either low prices or integrity issues with the well bore casing.  There is approximately 500 acres of undeveloped leased property that needs to be reviewed and studied for the possibility of drilling for new production.

 
12

 

The following table shows the approximate volumes and average sales prices for oil and gas we produced in the three months ended September 30, 2009, as compared with sales and price information for the comparable period in 2008:
 
   
Nine Months Ended
 
   
September 30,
2009
   
September 30,
2008
 
Oil and Gas Sales(1)
           
Oil Sales(Bbl)
    2,644       2,521  
Natural Gas Sales (Mcf)
    3,853       1,539  
                 
Average Sales Price:
               
Oil, per Bbl:
  $ 64.15     $ 131.57  
Gas, per MMCF:
  $ 5.88     $ 15.87  
 

 
(1)
Sales oil and gas are those attributable to our respective net revenue interests in our producing properties, and do not take account of severance taxes or other operating expenses.

There is no assurance that management will be able to continue to increase production, or to maintain current production levels.

Generally, in managing our business we must deal with many factors inherent to our industry. First and foremost is wide fluctuation of oil and gas prices. Oil and gas markets are cyclical and volatile, with future price movements difficult to predict. While our revenues are a function of both production and prices, wide swings in prices often have the greatest impact on our results of operations.

Our operations entail significant complexities. Advanced technologies requiring highly trained personnel are utilized in restoration of wells and production. The oil and gas industry is highly competitive. We compete with major and diversified energy companies, independent oil and gas companies, and individual operators. In addition, the industry as a whole competes with other businesses that supply energy to industrial, commercial, and residential end users. Our ability to recruit and retain experienced personnel is vital to the success of our endeavors.

LIQUIDITY & CAPTIAL RESOURCES

As of September 30, 2009 the Company had $1,500,646 of cash on hand.   We have retained earnings of $122,467 and have a stockholders' equity balance of $3,496,305 at September 30, 2009.

CONTRACTUAL OBLIGATIONS

In September 2009, the Company terminated its existing contract with Pacific Stock Transfer, effective immediately, and engaged Quicksilver Stock Transfer as Transfer Agent.

On July 1, 2009, the Company entered into a 24-month non-exclusive consultant agreement with PK Advisors, LLC (“PK”) in connection with the Company’s interest in creating a strategy for growing the core business, creating market awareness and providing general strategic corporate advice.  425,000 shares of unregistered common stock and five year warrants to purchase 250,000 shares of our common stock with a strike price of $.125, subject to adjustment in certain circumstances as set forth in the warrant, were issued to Patrick Kolenik (“Kolenik”) on behalf of PK upon execution of this agreement.  Kolenik may exercise the warrants either by paying the Company the aggregate exercise price for the shares of common stock underlying the warrant being exercised or by electing to exercise the warrant through cashless exercise as set forth in the warrant.  The Company recorded Professional Fees Expense of $17,000 related to the execution of this agreement in the quarter ending September 30, 2009.  The Company is further obligated to issue 40,000 shares of unregistered common stock and five year warrants to purchase 14,000 shares of our common stock with a strike price of $.125 to Kolenik on behalf of PK per month for the next 18 months beginning January 1, 2009, until the consulting agreement is terminated.  Additional cash consideration would be payable to PK for any future investment transactions for which PK provides assistance.

On July 1, 2009, the Company entered into a 24-month non-exclusive consultant agreement with Equity Source Partners, LLC (“ESP”) in connection with the Company’s interest in creating a strategy for growing the core business, creating market awareness and providing general strategic corporate advice. 292,500 shares of unregistered common stock and five year warrants to purchase 225,000 shares of our common stock with a strike price of $.125, subject to adjustment in certain circumstances as set forth in the warrant, were issued to Cary Sucoff (“Sucoff”) on behalf of ESP upon execution of this agreement.  Sucoff may exercise these warrants either by paying the Company the aggregate exercise price for the shares of common stock underlying the warrant being exercised or by electing to exercise the warrant through cashless exercise as set forth in the warrant.  32,500 shares of unregistered common stock and five year warrants to purchase 25,000 shares of our common stock with a strike price of $.125, subject to adjustment in certain circumstances as set forth in the warrant, were issued to Francis Anderson (“Anderson”) on behalf of ESP upon execution of this agreement.  Anderson may exercise these warrants either by paying the Company the aggregate exercise price for the shares of common stock underlying the warrant being exercised or by electing to exercise the warrant through cashless exercise as set forth in the warrant.  The Company recorded Professional Fees Expense of $13,000 related to the execution of this agreement in the quarter ending September 30, 2009. The Company is further obligated to issue 30,000 shares of unregistered common stock and five year warrants to purchase 14,000 shares of our common stock with a strike price of $.125 to ESP per month for the next 18 months beginning January 1, 2009, until this consulting agreement is terminated.  Additional cash consideration would be payable to ESP for any future investment transactions for which ESP provides assistance.

 
13

 

On August 28, 2009, the Company engaged 2S Partners as a non-exclusive consultant and finder to assist the Company in identifying properties of interest for potential future acquisitions.  Consideration for the engagement is contingent upon contract closing for such services.

CRITICAL ACCOUNTING POLICIES

The Securities and Exchange Commission (the “SEC”) recently issued "Financial Reporting Release No.  60 Cautionary Advice Regarding Disclosure About Critical Accounting Policies" ("FRR 60"), suggesting companies provide additional disclosures, discussion and commentary on those accounting policies considered most critical to their business and financial reporting requirements.  The SEC suggests in FRR 60 that an accounting policy is critical if it is important to the Company's financial condition and results of operations, and requires significant judgment and estimates on the part of management in the application of the policy.  For a summary of the Company's significant accounting policies, including the critical accounting policies discussed below, please refer to the accompanying notes to the financial statements provided in this quarterly report on Form 10-Q.

The Company assesses potential impairment of its long-lived assets, which include its property and equipment and its identifiable intangibles such as deferred charges, under the guidance of SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets", which was primarily codified into Topic 360 “Property, Plant and Equipment” in the ASC.  The Company must continually determine if a permanent impairment of its long-lived assets has occurred and write down the assets to their fair values and charge current operations for the measured impairment.

The process of estimating quantities of oil and gas reserves is complex, requiring significant decisions in the evaluation of all available geological, geophysical, engineering and economic data. The data for a given field may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, material revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various fields make these estimates generally less precise than other estimates included in the financial statement disclosures.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2009, the Company had not entered into any off-balance sheet arrangements or third-party guarantees, nor does our business ordinarily require us to do so.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk - Interest rate risk refers to fluctuations in the value of a security resulting from changes in the general level of interest rates. Investments that are classified as cash and cash equivalents have original maturities of six months or less. Our interest income is sensitive to changes in the general level of U.S. interest rates.

Credit Risk - Our accounts receivables are subject, in the normal course of business, to collection risks. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of collection risks. As a result, we do not anticipate any material losses in this area.

Commodity Price Risk – We are exposed to market risks related to price volatility of crude oil and natural gas. The prices of crude oil and natural gas affect our revenues, since sales of crude oil and natural gas comprise all of the components of our revenues.  A decline in crude oil and natural gas prices will likely reduce our revenues, unless we implement offsetting production increases. We do not use derivative commodity instruments for trading purposes.

ITEM 4.  CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Principal Financial Officer is primarily responsible for the accuracy of the financial information that is presented in this quarterly Report.  This officer has, as of the close of the period covered by this Quarterly Report, evaluated the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based upon that evaluation, this officer concluded that our disclosure controls and procedures were effective as of that date to ensure that information required to be disclosed by us in our reports filed or submitted under the Exchange Act is (a) accumulated and communicated to our management, including our principal executive and financial officer, as appropriate to allow timely discussions regarding required disclosure and (b) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  There were no changes to the Company's internal controls in this period identified in connection with this evaluation that have materially affected, or are reasonably likely materially to affect, the Company’s internal control over financial reporting.

 
14

 

PART II—OTHER INFORMATION

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth the sales of unregistered securities since the Company’s last report filed under this item.
   
Principal   Total Offering Price/
       
Date
 
Title and Amount  (1)
 
Purchaser
 
Underwriter
 
Underwriting Discounts
                 
July 13, 2009
 
425,000 shares of common stock.
 
Advisor
 
NA
 
$17,000/NA
July 13, 2009
 
292,500 shares of common stock.
 
Advisor
 
NA
 
$13,000/NA
July 13, 2009
 
 32,500 shares of common stock.
 
Advisor
 
NA
 
$1,400/NA
July 13, 2009
 
280,000 shares of common stock.
 
Former Officer
 
NA
 
$11,200/NA
July 13, 2009
 
300,000 shares of common stock
 
Director
 
NA
 
$12,000/NA
July 13, 2009
 
300,000 shares of common stock
 
Director
 
NA
 
$12,000/NA
July 13, 2009
 
150,000 shares of common stock
 
Koala Pictures Proprietary Ltd.(2)
 
NA
 
$6,000/NA
July 13, 2009
 
Warrants expiring June 30, 2014 to purchase 25,000 shares of common stock at the purchase prices of $.125 per share.(3)
 
Advisor
 
 
NA
 
$0/NA
July 13, 2009
 
Warrants expiring June 30, 2014 to purchase 225,000 shares of common stock at the purchase prices of $.125 per share.(3)
 
Advisor
 
 
NA
 
$0/NA
July 13, 2009
 
Warrants expiring June 30, 2014 to purchase 250,000 shares of common stock at the purchase prices of $.125 per share.(3)
 
Advisor
 
 
NA
 
$0/NA
August 10, 2009
 
Warrant expiring December 31, 2014 to purchase 2,500,000 shares of common stock, at a purchase price of $.02 per share, issued in replacement of a warrant to purchase the same number of shares at the same per share exercise price expiring December 31, 2009.
 
Koala Pictures Proprietary Ltd.(2)
 
NA
 
$0/NA
August 10, 2009
 
Warrants expiring December 31, 2014 to purchase 1,000,000 shares and 1,500,000 shares of common stock, respectively, at the respective purchase prices of $.025 and $.02 per share, issued in replacement of two warrants to purchase the same numbers of shares at the same per share exercise prices expiring December 31, 2009.
 
Private Investor
 
 
NA
 
$0/NA
August 10, 2009
 
Warrant expiring December 31, 2014 to purchase 1,000,000 shares of common stock, at a purchase price of $.025 per share, issued in replacement of a warrant to purchase the same number of shares at the same per share exercise price expiring December 31, 2009.
 
Director.
 
NA
 
$0/NA

 
15

 

(1)
The issuances to five private investors and to three directors, one of whom is also an officer of the Company, are viewed by the Company as exempt from registration under the Securities Act of 1933, as amended (“Securities Act”), alternatively as transactions not involving any public offering or exempt under the provisions of Regulation D promulgated by the SEC under the Securities Act.
(2)
Koala Pictures Proprietary Ltd is controlled by our Chairman and Chief Executive Officer, Maxwell Grant.
(3)
See the disclosure provided in ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—CONTRACTUAL OBLIGATIONS for a description of additional terms of conversion and exercise of these warrants.

ITEM 6.  Exhibits.

2.1
Plan of Reorganization dated March 1, 2008, filed with the United States Bankruptcy Court for the Northern District of Texas, Amarillo Division, filed herewith.

2.2
Order dated August 15, 2008, of United States Bankruptcy Court, Northern District of Texas,  Dismissing the Company’s and its Subsidiaries’ Chapter 11 Cases (incorporated by reference to Exhibit No.2.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 19, 2008).

3.1
Certificate of Incorporation of Nighthawk Capital, Inc. (Utah) (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000).

3.2
Articles on Incorporation on Nighthawk Capital, Inc. (Nevada) (incorporated by reference to Exhibit 2.2 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000).

3.3
Articles of Merger of Nighthawk Capital, Inc. (Utah) into Nighthawk Capital, Inc. (Nevada) (incorporated by reference to Exhibit 2.3 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000).

3.4
By-Laws (incorporated by reference to Exhibit 2.4 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000.

10.1
Agreement and Plan of Reorganization, dated October 19, 2000, between Chacellor Group, Inc. and Southwin financial, Ltd. (incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 21, 2000).

10.23
Warrant issued August 10, 2009 to Koala Pictures Proprietary Ltd. To purchase and aggregate of 2,500,000 shares of common stock on or before December 31, 2014.

10.24
Warrant issued August 10, 2009, to Dudley Muth to purchase an aggregate of 1,000,000 shares of common stock on or before December 31, 2014.

10.25
Warrant issued July 13, 2009, to Cary Sucoff to purchase an aggregate of 225,000 shares of common stock on or before June 30, 2014.

10.26
Warrant issued August 10, 2009, to Ernest P. Andrews to purchase an aggregate of 1,000,000 shares of common stock on or before December 31, 2014.

10.27
Warrant issued August 10, 2009, to Ernest P. Andrews to purchase an aggregate of 1,500,000 shares of common stock on or before December 31, 2014.

10.28
Warrant issued July 13, 2009, to Francis Anderson to purchase an aggregate of 25,000 shares of common stock on or before June 30, 2014.

10.29
Warrant issued July 13, 2009, to Patrick Kolenik to purchase an aggregate of 250,000 shares of common stock on or before June 30, 2014.

31
Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of The Sarbanes Oxley Act of 2002.

32
Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
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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.

   
Chancellor Group, Inc.
   
(Registrant)
       
 
By:
/s/  Maxwell Grant
 
   
Chief Executive Officer and
   
Principal Financial Officer

Dated: November 4, 2009

EXHIBIT INDEX
 
Exhibit Number
 
Description
     
2.1
 
Plan of Reorganization dated March 1, 2008, filed with the United States Bankruptcy Court for the Northern District of Texas, Amarillo Division, filed herewith.
     
2.2
 
Order dated August 15, 2008, of United States Bankruptcy Court, Northern District of Texas,  Dismissing the Company’s and its Subsidiaries’ Chapter 11 Cases (incorporated by reference to Exhibit No.2.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 19, 2008).
     
3.1
 
Certificate of Incorporation of Nighthawk Capital, Inc. (Utah) (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000).
     
3.2
 
Articles on Incorporation on Nighthawk Capital, Inc. (Nevada) (incorporated by reference to Exhibit 2.2 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000).
     
3.3
 
Articles of Merger of Nighthawk Capital, Inc. (Utah) into Nighthawk Capital, Inc. (Nevada) (incorporated by reference to Exhibit 2.3 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000).
     
3.4
 
By-Laws (incorporated by reference to Exhibit 2.4 to the Company’s Registration Statement on Form 10-SB12G, filed with the Securities and Exchange Commission on April 5, 2000.
     
10.1
 
Agreement and Plan of Reorganization, dated October 19, 2000, between Chacellor Group, Inc. and Southwin financial, Ltd. (incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 21, 2000).
     
10.23
 
Warrant issued August 10, 2009 to Koala Pictures Proprietary Ltd. to purchase an aggregate of 2,500,000 shares of common stock on or before December 31, 2014.
     
10.24
 
Warrant issued August 10, 2009, to Dudley Muth to purchase an aggregate of 1,000,000 shares of common stock on or before December 31, 2014.
     
10.25
 
Warrant issued July 13, 2009, to Cary Sucoff to purchase an aggregate of 225,000 shares of common stock on or before June 30, 2014.
     
10.26
 
Warrant issued August 10, 2009, to Ernest P. Andrews to purchase an aggregate of 1,000,000 shares of common stock on or before December 31, 2014.
     
10.27
 
Warrant issued August 10, 2009, to Ernest P. Andrews to purchase an aggregate of 1,500,000 shares of common stock on or before December 31, 2014.
     
10.28
 
Warrant issued July 13, 2009, to Francis Anderson to purchase an aggregate of 25,000 shares of common stock on or before June 30, 2014.
     
10.29
 
Warrant issued July 13, 2009, to Patrick Kolenik to purchase an aggregate of 250,000 shares of common stock on or before June 30, 2014.
     
31
 
Certification of Principal Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes  Oxley Act of 2002.
     
32
 
Certification of Principal Executive Officer and Chief Financial Officer Pursuant to 18  U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.

 
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