UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 33-55254-32
CHANCELLOR GROUP, INC.
(Formerly Nighthawk Capital, Inc.)
(Exact name of registrant as specified in its charter)
NEVADA 87-0438647
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
1204 THIRD AVENUE, SUITE 172
NEW YORK, NY 10021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 988-0394
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of May 28, 1996
- - ------------------------------------- ---------------------------------------
$0.001 PAR VALUE 2,100,000 SHARES
CLASS A COMMON STOCK
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Financial Statements Page
Consolidated Balance Sheets as at
July 31, 1995 and April 30, 1996 F-1
Consolidated Statements of Operations for
the quarter ending April 30, 1996 F-2
Consolidated Statements of Shareholders'
Equity for the period from May 2, 1986 to April 30, 1996 F-3
Consolidated Statements of Cash Flows
for the quarter ending April 30, 1996 F-4
Selected Notes to Consolidated Financial Statements F-5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company was originally incorporated in Utah in 1986 and reincorporated in
Nevada in 1993. In July 1995, the Company acquired all of the issued capital of
All Capital Funds Pty Limited, an Australian investment banking firm. At the
same time, the Company acquired all of the issued capital of two Kentucky based
gas operations, Delstar Gas Systems, Inc. and Northstar Gas Systems, Inc.,
covering gas reserves and gas transmission facilities, respectively.
During the current quarter, the Company changed its name to Chancellor
Group, Inc. (formerly Nighthawk Capital, Inc.) and changed the name of its
Australian operating subsidiary to Chancellor Australia Pty Limited.
Today, these two acquisitions comprise the backbone of the Company's operations.
The investment banking and financial services are provided through Chancellor
Australia Pty Limited, which services have been expanded through the creation of
other subsidiaries. Chancellor Securities Limited, with a Securities Dealers'
license pending, is responsible for the investment banking services in
Australia. Passport Travel and Phonesafe Pty Limited are both inactive shells
with rights to several insurance products. The Company has installed experienced
insurance people with a mandate to create a small to medium sized insurance
company servicing niche markets. All of the insurance risk has been laid off to
Sun Alliance Insurance and BCH Marine Insurance, two substantial underwriters.
CGI Financial Services Pty Limited was created to provide specialized foreign
exchange services, in cooperation with Hong Kong and Shanghai Banking
Corporation affiliates worldwide. CGI Automated Systems specializes in the
development of mobile, PC, and telephone based debit and credit card
transactions. Together, these companies comprise the financial services
division. The Company has also completed the acquisition of several small gold
mining tenements in North Queensland, Australia, within its 80% owned
subsidiary, Cascade Gems Pty Limited. The result is that the Company is left
with an 80% interest, and will look to an Australian stock exchange listing of
its securities later this year.
2
<PAGE>
Results of Operations
The results for the quarter ended April 30, 1996 are significant for the
Company. Not merely for the fact that they show a substantial profit for both
the quarter and year to date; not merely for the fact that the Net Profit after
tax of $1,602,782 (79 cents per share) for the quarter and $2,134,632 ($1.13 per
share) for the nine months exceeds estimates; but also for the fact that both of
the Company's operating divisions are now producing income. A comparison with
figures for the corresponding period last year is meaningless, as the Company
had not yet commenced trading.
Coincident with a name change during the quarter, to Chancellor Group, Inc.,
which is reflected in the operating businesses, the operations of the Australian
investment banking and financial services operations were restructured to
assimilate new subsidiaries. The nature of the reconstruction is such that the
individual operations have been converted to profit centers, with responsibility
for their own success.
(i) Gas Division
This division comprises three separate companies which control the
wells, transmission pipelines and minerals in Eastern Kentucky. During
the quarter this division acquired an additional 7,200 acres of fee
minerals, increasing its assets by more than $5,425,000. The
acquisition was achieved by the payment of $125,000 in cash to Gas
Busters, Inc., $250,000 paid as to 50% in cash and 50% by Promissory
Note payable by June 30, 1996 to Cadle II, Inc., in full satisfaction
of their judgement as mortgage holder over Gas Busters; and acquisition
of a $5,000,000 second mortgage over the property from S. Howes Johnson
as trustee for Gas Buster Limited Partnership, paid by the issuance of
100,000 shares of Chancellor Common Stock. In addition, the Company's
first 12 wells were brought into production with an initial contract
with Columbia Energy for 500 decatherm per day. This was amended later
in the quarter to allow for increased supply. An additional 10 wells
are expected to be brought on line within the next month.
(ii) Investment Banking and Financial Services Division
This division is controlled by Chancellor Australia Pty Limited
(formerly All Capital Funds Pty Limited) which has, in essence become a
holding company for the Australian interests.
(a) Through Chancellor Securities Limited, a wholly owned investment
banking subsidiary, the Company has entered into several
transactions which are already paying regular monthly income by
way of fees, and which will achieve large profits on the listing
of client's securities by means of IPO's, ADR listings or
restructuring of existing securities. This company's main focus
continues to be Pacific Basin based, and with a new CEO and staff,
will contribute to cash flow during the fourth quarter. Revenues
and expenses cannot be forecast at this time due to the embryonic
nature of the business.
(b) Through Chancellor Investments (Aruba) AVV, the Company will
undertake some promotion and restructuring of companies for which
it will receive equities for fees. It is anticipated that the
Company will earn profits on the listing of the client companies.
(c) CGI Financial Services Pty Limited is a new subsidiary
incorporated during the quarter which will provide foreign
exchange and banking services to a wide client base. It is still
early in this company's development, however, revenues are
anticipated to commence by the end of the fourth quarter of fiscal
1996, with substantial revenues during fiscal 1997. The nature of
this business is
3
<PAGE>
such that turnover is expected to be high, but margins low, with
profits expected once critical mass is achieved. The technology,
operating software, and customer base were acquired from Apollo
Automated Systems Pty Limited at no up-front cost, but subject to
a 50% net profits interest. This NPI is itself subject to a buy
back by Chancellor for cash or shares under a purchase formula
within 12 months of profits being achieved.
(d) CGI Automated Services Pty Limited was also incorporated
during the current quarter. Through this company, the Group is
looking to exploit several niches in the financial services
market, particularly in the area of PC, cellular, and telephone
based transactional banking. This area also lends itself to the
marketing and control of all aspects of transaction based loyalty
programs, which are currently being developed. It is unlikely
that this company will contribute to profits over the next 9-12
months. This may change, or be enhanced, subject to negotiations
currently proceeding. The technology and intellectual property
has been acquired from Apollo Automated Systems, subject to the
same conditions as in item (c).
(e) Phonesafe Pty Limited and Passport Travel Insurance Pty
Limited are two new subsidiaries acquired at an all up cost of
$20,000 during the quarter from Apollo, and are subject to the
same buy back option as in (c) and (d) above. Both companies
provide insurance products to a niche market in Australia, whose
clients include those clients who will benefit from the services
of both CGI Financial Services and CGI Automated Services. It was
originally envisaged that Phonesafe and Passport would simply
complement the other two companies in the range of products
offered, however both have the potential for growth in their own
right. Key staff appointments within the next month are expected
to further enhance the future prospects for the companies.
(f) Cascade Gems Pty Limited is now 80% owned by the Group, having
acquired an interest in several small gold tenements in North
Queensland, Australia. The remaining 20% is owned by a company
associated with Dr. Rodney Beattie, Chancellor's Vice President of
Mineral Resources. The Company has retained the right to buy back
the 20% interest subject to a purchase contract based on results.
The first of these tenements is currently in production, expected
to produce profits during the fourth quarter. It is anticipated
that other areas will be acquired during fiscal 1997, with a view
to a listing on the Australian Stock Exchange late in that year.
(g) Generally, several projects of the group are close to listing. The
Group has a position in three companies into which businesses have
been vended or negotiated, which will be listed on either NASDAQ
or the OTC Bulletin Board over the next two quarters. A prospectus
has been prepared and issued in Canada for a fourth company which
has been restructured in preparation for its relisting on the
Vancouver Stock Exchange as an alluvial diamond exploration
company. A fifth company is being readied for a listing on the
Australian Stock Exchange as a Telecommunication and value added
service provider.
As each company lists in its respective jurisdiction, the Company
will profit through cash fees and equity positions. Although
on-off in nature, it is management's opinion that there are
sufficient of these clients around to ensure that a minimum of
four to six can be transacted each year.
Liquidity and Capital Resources
The consolidated Balance Sheet as at April 30, 1996 reports an increase in
Current Assets for the nine months from $69,000 to $3,147,000, including an
amount receivable from related parties of $2,204,000.
4
<PAGE>
The receivable represents amounts owing by clients of the investment banking
division for whom listings are currently being arranged, and in whom typically
the Company holds a 20% to 30% interest.
Total Assets have recorded a corresponding increase to $28,947,000, an increase
of more than 48% for the year to date, incorporating acquisitions in the oil and
gas division, and investments in associated companies.
Current Liabilities have increased by $1,130,000 during the year to date,
comprising an income tax provision of $234,750, a Promissory Note payable June
30, 1996 of $125,000 in connection with the acquisition of 7,200 acres of fee
minerals in Eastern Kentucky and loans payable to related parties. During the
last quarter, an existing funding facility of nearly $800,000 was extinguished
by the issuance of restricted common stock at $7.37 per share. Creditors
totaling $793,435 have already agreed to convert their facilities to restricted
common stock at the same price, which will be effected during the July quarter.
Subsequent to the end of the quarter, the Company's cash balances have increased
by more than $400,000 by realizing a portion of certain investments, which funds
are to be used to complete the listing of several companies, and to meet
operational requirements. Existing cash fee earning contracts in Australia,
including those entered into subsequent to the end of the quarter, more than
cover the Australian overheads each month. In the United States, it is estimated
that the injection of a further $90,000 will be required to cover overheads
until the receipt of cash flow from gas income sufficient to ensure that these
operation are self sufficient. Future revenues in the short term in the US will
be used in the rehabilitation of further wells, resulting in an increase in cash
flow.
Impact of Inflation
The Company believes that its activities are not materially affected by
inflation.
Foreign Currency Exposure
Income from Chancellor Australia will be in the form of fees and retainers,
listed Australian shares and listed US shares. To the extent that income is
Australian Dollar based, it can be affected by fluctuations in the AUD/USD
exchange rate. Any adverse fluctuations are offset by similar movements in
expenses, leaving only the profit element subject to exposure.
Exchange Rate
The Exchange Rate at April 30, 1996 was:
$US1.00 = $AU1.28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
5
<PAGE>
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On March 26, 1996, the Company solicited the consent of the majority of the
security holders representing 70.8% of the total issued and outstanding shares
of the Company who all voted in favor of a change of name of the Company to
Chancellor Group, Inc. and that the Company's Articles of Incorporation be
amended to reflect such change.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
99-1 Financial Statements as of April 30, 1996
(b) Reports on Form 8-K
On February 29, 1996, the Company filed a Form 8-K advising of the acquisition
by wholly owned Subsidiary, Delstar Resources, Inc. of 7,200 acres of fee
minerals in Eastern Kentucky, valued at $5,425,000.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of 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.
CHANCELLOR GROUP, INC.
Dated: May 28, 1996 /S/ Neil Alan Green
--------------------------
Neil Alan Green, President
7
<PAGE>
<TABLE>
<CAPTION>
CHANCELLOR GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
April 30, 1996 and July 31, 1995
ASSETS
4/30/96
(Unaudited) 7/31/95
--------------------- ---------------------
<S>
<C> <C>
CURRENT ASSETS
Cash
$ 23,517 $ 46,215
Accounts receivable
345,204 - 0 -
Prepaid expenses
417,486 - 0 -
Marketable securities
156,500 - 0 -
Receivable - related parties
2,204,375 23,013
--------------------- --------------------
TOTAL CURRENT
ASSETS 3,147,082 69,228
PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties, successful
efforts method
20,519,992 15,093,992
Other
5,720,555 4,945,150
Accumulated depreciation, depletion
and amortization
(756,153) (649,685)
--------------------- --------------------
NET PROPERTY, PLANT AND
EQUIPMENT 25,484,394 19,389,457
OTHER ASSETS
Investments
299,057 5,315
Goodwill
17,137 - 0 -
Other
148 184
--------------------- --------------------
316,342 5,499
--------------------- --------------------
$ 28,947,818 $ 19,464,184
===================== ====================
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable
$ 3,919 $ 19,530
Accounts and loans payable - related parties
793,435 6,840
Note payable
125,000 - 0 -
Income taxes payable
234,750 - 0 -
--------------------- --------------------
TOTAL CURRENT
LIABILITIES 1,157,104 26,370
LONG-TERM LIABILITIES
Loans payable - related parties
73,638 664,608
Production mortgages payable
6,300,000 6,300,000
--------------------- --------------------
6,373,638 6,964,608
--------------------- --------------------
TOTAL
LIABILITIES 7,530,742 6,990,978
Minority interest in subsidiary
95,465 - 0 -
SHAREHOLDERS' EQUITY
Common stock par value $.001:
100,000,000 shares authorized;
2,100,000 shares issued (1,800,000 at 7/31/95)
2,100 1,800
Additional paid-in capital
19,797,007 13,340,239
Earnings accumulated during
development stage
1,265,799 (868,833)
Cumulative foreign currency translation adjustment
256,705 - 0 -
TOTAL SHAREHOLDERS'
EQUITY 21,321,611 12,473,206
--------------------- --------------------
$ 28,947,818 $ 19,464,184
===================== ====================
</TABLE>
See Selected Notes to Consolidated Financial Statements
F-1
<PAGE>
<TABLE>
<CAPTION>
CHANCELLOR GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Period from
5/2/86 (date
Three months ended
Nine months ended of inception)
4/30/96 4/30/95
4/30/96 4/30/95 to 4/30/96
--------------
- - -------------- -------------- -------------- -----------------
<S> <C> <C>
<C> <C> <C>
Income $ 2,086,213 $ - 0
- - - $ 2,783,207 $ - 0 - $ 2,783,207
Expenses:
Amortization and depreciation 35,604 - 0
- - - 106,504 - 0 - 106,554
General and Administrative 313,077 - 0
- - - 718,071 - 0 - 720,021
--------------
- - -------------- -------------- --------------- ----------------
348,681 - 0
- - - 824,575 - 0 - 826,575
--------------
- - -------------- -------------- --------------- ----------------
INCOME (LOSS) BEFORE OTHER 1,737,532 - 0
- - - 1,958,632 - 0 - 1,956,632
Forgiveness of debt - related party - 0 - - 0
- - - 410,750 - 0 - 410,750
--------------
- - -------------- -------------- --------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES 1,737,532 - 0
- - - 2,369,382 - 0 - 2,367,382
PROVISION FOR INCOME TAXES 134,750 - 0
- - - 234,750 - 0 - 234,750
--------------
- - -------------- -------------- --------------- ----------------
NET INCOME (LOSS) $ 1,602,782 $ - 0
- - - $ 2,134,632 $ - 0 - $ 2,132,632
==============
============== ============== =============== ================
INCOME PER COMMON SHARE
Net income per weighted average
common share outstanding:
Net income before other $ .86 $
.00 $ 1.04 $ .00
Net income on debt forgiveness .00
.00 .22 .00
--------------
- - -------------- -------------- ---------------
Net income per weighted average
common share outstanding $ .79 $
.00 $ 1.13 $ .00
==============
============== ============== ===============
Weighted average number of common
shares outstanding 2,027,895
1,000,000 1,883,948 1,000,000
==============
============== ============== ===============
</TABLE>
See Selected Notes to Consolidated Financial Statements
F-2
<PAGE>
<TABLE>
<CAPTION>
CHANCELLOR GROUP INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Period from May 2, 1986 (date of inception) to April 31, 1996
(UNAUDITED)
Earnings
(Deficit) Cumulative
Accumulated Foreign
Additional During Currency
Common Stock
Paid-in Development Translation
Shares Amount
Capital Stage Adjustment
---------------
- - ---------------- --------------- ---------------- ---------------
<S> <C> <C>
<C> <C> <C>
Balances at 5/2/86 (date of
inception) - 0 - $ - 0
- - - $ - 0 - $ - 0 - $ - 0 -
Issuance of common stock
(restricted) at $.002 per
share at 8/26/86 1,000,000
1,000 1,000
Net loss for period
(1,950)
---------------
- - ---------------- --------------- ---------------- ---------------
Balances at 12/31/86 1,000,000
1,000 1,000 (1,950) - 0 -
Net loss for year
(10)
---------------
- - ---------------- --------------- ---------------- ---------------
Balances at 12/31/87 1,000,000
1,000 1,000 (1,960) - 0 -
Net loss for year
(10)
---------------
- - ---------------- --------------- ---------------- ---------------
Balances at 12/31/88 1,000,000
1,000 1,000 (1,970) - 0 -
Net loss for year
(10)
---------------
- - ---------------- --------------- ---------------- ---------------
Balances at 12/31/89 1,000,000
1,000 1,000 (1,980) - 0 -
Net loss for year
(10)
---------------
- - ---------------- --------------- ---------------- ---------------
Balances at 12/31/90 1,000,000
1,000 1,000 (1,990) - 0 -
Net loss for year
(10)
---------------
- - ---------------- --------------- ---------------- ---------------
Balances at 12/31/91 1,000,000
1,000 1,000 (2,000) - 0 -
Net income for year
- 0 -
---------------
- - ---------------- --------------- ---------------- ---------------
Balances at 12/31/92 1,000,000
1,000 1,000 (2,000) - 0 -
Net income for year
- 0 -
---------------
- - ---------------- --------------- ---------------- ---------------
Balances at 12/31/93 1,000,000
1,000 1,000 (2,000) - 0 -
Net income for year
- 0 -
---------------
- - ---------------- --------------- ---------------- ---------------
Balances at 12/31/94 1,000,000
1,000 1,000 (2,000) - 0 -
Issuance of common stock (restricted)
at $.50 per share at 6/2/95
for cash 100,000
100 49,900
Issuance of common stock (restricted)
at $.001 per share at 7/26/95 for
subsidiary (All Capital Funds Pty
Limited) 100,000
100 - 0 - (4,559)
Issuance of common stock (restricted)
at $.001 per share at 7/29/95
for subsidiaries (Northstar and
Delstar)(1) 600,000
600 13,289,339 (862,274)
Net income for period
- 0 -
---------------
- - ---------------- --------------- ---------------- ---------------
Balances at 7/31/95 1,800,000
1,800 13,340,239 (868,833) - 0 -
Issuance of common stock (restricted)
at $7.13 per share at 12/21/95 for
debt cancellation 71,842
72 511,813
Issuance of common stock (Regulation
"S") at $7.40 per share at 1/31/96
for asset 20,000
20 147,980
Issuance of common stock (restricted)
at $50.00 per share to retire debt
at 2/2/96 100,000
100 4,999,900
Issuance of common stock (restricted)
at $7.37 per share to retire debt
at 3/26/96 108,158
108 797,075
Foreign currency translation adjustment
256,705
Net income for period
2,134,632
---------------
- - ---------------- --------------- ---------------- ---------------
Balances at 4/30/96 2,100,000 $
2,100 $ 19,797,007 $ 1,265,799 $ 256,705
===============
================ =============== ================ ==============
</TABLE>
(1)Value based on assets received
See Selected Notes to Consolidated Financial Statements
F-3
<PAGE>
<TABLE>
<CAPTION>
CHANCELLOR GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Period from
5/2/86 (date
Three months ended
Nine months ended of inception)
4/30/96 4/30/95
4/30/96 4/30/95 to 4/30/96
--------------
- - -------------- -------------- -------------- -----------------
<S> <C> <C>
<C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 1,602,782 $ - 0
- - - $ 2,134,632 $ - 0 - $ 2,132,632
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization and depreciation 35,604 - 0
- - - 106,504 - 0 - 106,554
Minority interest items 95,465 - 0
- - - 95,465 - 0 - 95,465
Foreign currency adjustments 247,685 - 0
- - - 247,685 - 0 - 247,685
Debt forgiveness - 0 - - 0
- - - (410,750) - 0 - (410,750)
Decline in investments - 0 - - 0
- - - 520 - 0 - 520
Stock issued for subsidiary's debt - 0 - - 0
- - - (112,795) - 0 - (112,795)
--------------
- - -------------- -------------- --------------- -----------------
378,754 - 0
- - - (73,371) - 0 - (73,321)
--------------
- - -------------- -------------- --------------- -----------------
Changes in:
Accounts receivable 206,795 - 0
- - - (345,204) - 0 - (345,204)
Prepaid expenses (131,327) - 0
- - - (417,486) - 0 - (417,486)
Accounts payable 71 - 0
- - - (15,611) - 0 - (15,611)
Accounts payable - related parties 297,874 - 0
- - - 794,640 - 0 - 794,640
Income taxes payable 134,750 - 0
- - - 234,750 - 0 - 234,750
--------------
- - -------------- -------------- --------------- -----------------
508,163 - 0
- - - 251,089 - 0 - 251,089
NET CASH PROVIDED
BY OPERATING ACTIVITIES 2,489,699 - 0
- - - 2,312,350 - 0 - 2,310,400
CASH FLOWS FROM INVESTING
ACTIVITIES
Cash acquired from subsidiaries - 0 - - 0
- - - - 0 - - 0 - 26,215
Loans to subsidiaries (311,933) - 0
- - - (652,023) - 0 - (752,023)
Purchase of property and equipment (1,010,646) - 0
- - - (1,076,405) - 0 - (1,076,405)
Goodwill (17,137) - 0
- - - (17,137) - 0 - (17,137)
Purchase of investments (204,610) - 0
- - - (293,742) - 0 - (293,742)
Receivables from related parties (2,035,613) - 0
- - - (2,068,567) - 0 - (2,068,567)
Organization costs - 0 - - 0
- - - - 0 - - 0 - (50)
--------------
- - -------------- -------------- --------------- -----------------
NET CASH USED BY
FINANCING ACTIVITIES (3,579,939) - 0
- - - (4,107,874) - 0 - (4,181,709)
CASH FLOWS FROM FINANCING
ACTIVITIES
Stock sold - 0 - - 0
- - - - 0 - - 0 - 52,000
Loan proceeds 1,072,244 - 0
- - - 1,814,826 - 0 - 1,884,826
Loan repayments - 0 - - 0
- - - (42,000) - 0 - (42,000)
--------------
- - -------------- -------------- --------------- -----------------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 1,072,244 - 0
- - - 1,772,826 - 0 - 1,894,826
--------------
- - -------------- -------------- --------------- -----------------
NET INCREASE (DECREASE) IN CASH (17,996) - 0
- - - (22,698) - 0 - 23,517
CASH AT BEGINNING OF PERIOD 41,513 - 0
- - - 46,215 - 0 - - 0 -
--------------
- - -------------- -------------- --------------- -----------------
CASH AT END OF PERIOD $ 23,517 $ - 0
- - - $ 23,517 $ - 0 - $ 23,517
==============
============== ============== =============== =================
CASH PAID FOR INTEREST $ 884 $ - 0
- - - $ 2,311 $ - 0 - $ 2,311
==============
============== ============== =============== =================
</TABLE>
SUPPLEMENTAL FINANCING ACTIVITIES
During the quarter ended April 30, 1996, the Company issued 208,158 shares
of its restricted common stock to retire $5,797,183 of debt.
During the nine months ended April 30, 1996, the Company issued 280,000
shares of its restricted common stock to retire $6,309,068 of debt. It also
issued 20,000 shares of Regulation "S" stock to acquire an investment with a
value of $148,000.
See Selected Notes to Consolidated Financial Statements
F-4
<PAGE>
CHANCELLOR GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996
NOTE 1: ORGANIZATION AND HISTORY
Nature of Operations
The Company was incorporated in the State of Utah on May 2, 1986 as Nighthawk
Capital, Inc. On December 30, 1993 the Company was dissolved as a Utah
corporation and reincorporated as a Nevada Corporation. On April 8, 1996 the
Company changed its name to Chancellor Group, Inc.
Development Stage Company
The financial statements present the Company as a development stage company
because of its short operating history. The Company intends to operate in the
oil and gas industry through two of its subsidiaries, Delstar Gas Systems, Inc.
and Northstar Gas Systems, Inc. which are both Kentucky corporations. It will
operate in the mineral industry through its subsidiary, Delstar Resources, Inc.,
a Kentucky corporation. It also operates in the investment banking industry
through its Australian subsidiary Chancellor Australia Pty Limited, formerly All
Capital Funds Pty Limited.
NOTE 2: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principals for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principals for complete
financial statements. In the opinion of the Company's management, all
adjustments (consisting of normal accruals) considered necessary for a fair
presentation of these financial statements have been included. Operating results
for the nine months ended April 30, 1996 are not necessarily indicative of the
results that can be expected for the year ending July 31, 1996.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements as of April 30, 1996 include the accounts
of the Company and its wholly-owned subsidiaries, Chancellor Australia Pty
Limited, Delstar Gas Systems, Inc., Northstar Gas Systems, Inc., and Delstar
Resources, Inc. The accounts of Chancellor Australia Pty Limited include the
accounts of its subsidiaries, Chancellor Securities Limited (100%), Cascade Gems
Pty Limited (80%), CGI Financial Services Pty Limited (100%), CGI Automated
Services Pty Limited (100%), Phonesafe Pty Limited (100%), and Passport Travel
Insurance Pty Limited (100%). All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
All short term investments purchased with an original maturity of three months
or less are considered to be cash equivalents. Cash and cash equivalents
primarily include cash on hand and amounts on deposit with financial
institutions.
Trading Securities
The Company has adopted the reporting requirements of Statement of Financial
Accounting Standards No. 115 whereby trading securities are reported at market
value.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated to US
dollars at the exchange rate at the balance sheet date. Income statement items
are translated at an average currency exchange rate. The resulting translation
adjustment is recorded as a separate component of stockholders' equity.
NOTE 4: RELATED PARTY TRANSACTIONS
During the nine months ended April 30, 1996, the Company paid $86,141 to various
related entities as consulting fees. The amounts are shown as general and
administrative expenses. Also, at April 30, 1996, $350,409 has been paid to
related parties and is shown on the balance sheet as prepaid expenses.
F-5
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Chancellor Group, Inc. and Subsidiaries April 30, 1996 financial statements and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000894544
<NAME> CHANCELLOR GROUP INC/
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> APR-30-1996
<CASH> 23,517
<SECURITIES> 156,500
<RECEIVABLES> 2,549,579
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,147,082
<PP&E> 26,240,547
<DEPRECIATION> (756,153)
<TOTAL-ASSETS> 28,947,818
<CURRENT-LIABILITIES> 1,157,104
<BONDS> 0
0
0
<COMMON> 2,100
<OTHER-SE> 21,319,511
<TOTAL-LIABILITY-AND-EQUITY> 28,947,818
<SALES> 2,783,207
<TOTAL-REVENUES> 2,783,207
<CGS> 0
<TOTAL-COSTS> 822,264
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,311
<INCOME-PRETAX> 2,369,382
<INCOME-TAX> 234,750
<INCOME-CONTINUING> 1,723,882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,134,632
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
</TABLE>
