SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission File No. 33-55254-32
CHANCELLOR GROUP, INC.
___________________________________________________________
(Exact name of small business issuer as specified in its
charter)
Nevada 87-0438647
________ ____________
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1800 E. Sahara, Suite 107, Las Vegas, Nevada 89104
_____________________________________________________________
(Address of principal executive offices, including zip code)
Issuer's Telephone Number: (702) 938-0261
______________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the Issuer (1) filed all
reports required to be filed by Section 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.
Yes X No
____ ____
As of September 30, 2000, 25,870,361 shares of common stock
were outstanding.
Transitional Small Business Disclosure Format:
Yes X No
____ ____
<PAGE>
TABLE OF CONTENTS
Form 10-QSB
3rd Quarter Ended September 30, 2000
Chancellor Group, Inc.
Page
PART I: FINANCIAL INFORMATION
Item 1.
Consolidated Balance Sheet 2
Consolidated Statement Of Operations 3
Consolidated Statement Of Cash Flows 4
Notes To Consolidated Financial Statements 5
Item 2.
Management's Discussion And
Analysis Or Plan Of Operation 8
PART II: OTHER INFORMATION 9
SIGNATURES 10
<PAGE>
PART I. FINANCIAL INFORMATION
<PAGE> 1
ITEM 1. CHANCELLOR GROUP, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
ASSETS
Cash $ 34,205
_____________
Total current assets 34,205
Oil and gas properties 414,030
_____________
Total Assets $ 448,235
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 436,377
____________
Total current liabilities 436,377
____________
Total Liabilities 436,377
____________
Stockholders' equity
Common stock: $.001 par
value, 250,000,000 shares
authorized, 25,870,361
shares issued
& outstanding 25,870
Preferred Series B stock:
$1,000 par value,
250,000 shares authorized,
48,000 issued and outstanding 48,000,000
Paid in capital (46,475,515)
Accumulated deficit ( 1,538,497)
____________
Total Stockholders' Equity 11,858
____________
Total Liabilities And
Stockholders' Equity $ 448,235
============
See Notes to Consolidated Financial Statements
<PAGE> 2
CHANCELLOR GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
____ ____ ____ ____
Sales $ - $ - $ - $ -
Operating expenses 302,475 46,550 577,114 208,988
_________ _________ _________ _________
Income (loss) from
operations (302,475) ( 46,550) (577,114) (208,988)
_________ _________ _________ _________
Income (loss) before provision
for income taxes (302,475) ( 46,550) (577,114) (208,988)
Provision for income tax - - - -
_________ _________ _________ _________
Net income (loss) $(302,475) $( 46,550) $(577,114) $(208,988)
========= ========= ========= =========
Net income (loss) per share
(Basic and fully diluted) $( .01) $( *) $( .03) $( .01)
========= ========= ========= =========
Weighted average number of
common shares outstanding 22,602,028 18,760,361 21,130,917 18,097,028
========== ========== ========== ==========
*less than $.01 per share
See Notes to Consolidated Financial Statements
<PAGE> 3
CHANCELLOR GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
2000 1999
____ ____
Cash Flows From Operating Activities:
Net income (loss) $(577,114) $(208,988)
Adjustments to reconcile net
income (loss) to net cash
provided by (used for)
operating activities:
Compensatory stock issuances 181,383 186,000
Accounts pay. and accrued expenses 168,171 ( 4,722)
_________ _________
Net cash provided
by (used for)
operating activities 349,554 ( 27,710)
_________ _________
Cash Flows from Financing Activities:
Sales of common stock 241,350
Contributed capital 20,415 27,710
_________ _________
Net cash provided
by (used for)
financing activites 261,765 27,710
_________ _________
Net Increase (Decrease) In Cash 34,205 -
Cash At The Beginning Of The Period - -
_________ _________
Cash At The End Of The Period $ 34,205 $ -
========= =========
In September, 2000 the Company issued 4,500,000 common shares to
acquire Getty Petroleum, Inc., with net assets of $378,125
consisting of oil and gas leases.
See Notes to Consolidated Financial Statements
<PAGE> 4
CHANCELLOR GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited financial statements have been
prepared in accordance with the instructions to
Form 10-QSB and do not include all of the information and
disclosures required by generally accepted accounting
principles for complete financial statements. All
adjustments which are, in the opinion of management,
necessary for a fair presentation of the results of
operations for the interim periods have been made and are
of a recurring nature unless otherwise disclosed herein.
The results of operations for such interim periods are not
necessarily indicative of operations for a full year.
<PAGE> 5
CHANCELLOR GROUP, INC.
Supplemental Information (Unaudited)
Period Ended September 30, 2000
Capitalized Costs Relating to Oil and Gas
Producing Activities at September 30, 2000
------------------------------------------
Unproved oil and gas properties $ -
Proved oil and gas properties 414,030
Support equipment and facilities -
-----------
414,030
Less accumulated depreciation,
depletion, amortization, and
impairment ( -)
-----------
Net capitalized costs $ 414,030
===========
Costs Incurred in Oil and Gas Producing
Activities for the Period
Ended September 30, 2000
---------------------------------------
Property acquisition costs
Proved $ 378,125
Unproved -
Exploration costs -
Development costs -
Results of Operations for Oil and Gas Producing
Actvities for the Period Ended September 30, 2000
-------------------------------------------------
Oil and gas sales $ -
Gain on sale of oil and gas properties -
Gain on sale of oil and gas leases -
Production costs -
Exploration expenses -
Depreciation, depletion,
and amortization -
-----------
-
Income tax expense -
-----------
Results of operations for oil and gas
producing activities (excluding
corporate overhead and financing
costs) $ -
===========
Reserve Information
The following estimates of proved and proved developed reserve
quantities and related standardized measure of discounted net cash flow
are estimates only, and do not purport to reflect realizable values or
fair market values of the Company's reserves. The Company emphasizes that
reserve estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil and gas
properties. Accordingly, these estimates are expected to change as future
information becomes available. All of the Company's reserves are located
in the United States.
Proved reserves are estimated reserves of crude oil (including
condensate and natural gas liquids) and natural gas that geological and
engineering data demonstrate with reasonable certainty to be recoverable
in future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are those expected to be recovered
through existing wells, equipment, and operating methods.
The standardized measure of discounted future net cash flows is
computed by applying year end prices of oil and gas (with consideration of
price changes only to the extent provided by contractual arrangements)
to the estimated future production of proved oil and gas reserves, less
estimated future expenditures (based on year end costs) to be incurred in
developing and producing the proved reserves, less estimated future income
tax expenses (based on year end statutory tax rates, with consideration of
future tax rates already legislated) to be incurred on pretax net cash flows
less tax basis of the properties and available credit, and assuming
continuation of existing economic conditions. The estimated future net cash
flows are then discounted using a rate of 10 percent a year to reflect
the estimated timing of the future cash flows.
<PAGE> 6
CHANCELLOR GROUP, INC.
Supplemental Information (Unaudited) - Continued
Period Ended September 30, 2000
Reserve Information
-------------------
Oil Gas
(Bbls) (Bcf)
------ ------
Proved developed and undeveloped reserves
Beginning of period - 249.50
Revisions of previous estimates - -
Improved recovery - -
Purchases of minerals in place - 99.00
Extensions and discoveries - -
Production - -
Sales of minerals in place - -
------- -------
End of period - 348.50
======= =======
Proved developed reserves
Beginning of period - -
End of period - -
Standardized Measure of Discounted Future
Net Cash Flows at September 30, 2000
Future cash inflows $ 1,477,550,041
Future production costs ( 245,054,769)
Future development costs ( 32,535,000)
Future income tax expenses ( 407,986,493)
---------------
791,973,779
Future net cash flows (10% annual discount for
estimated timing of cash flows) 489,051,180
---------------
Standardized measures of discounted future net cash
flows relating to proved oil and gas reserves $ 489,051,180
===============
The following reconciles the change in the standardized measure of
discounted future net cash flow during the three months
ended September 30, 2000.
Beginning of period $ 120,536,224
Sales of oil and gas produced, net of production costs ( xx)
Net changes in prices and production costs 91,523,155
Extensions, discoveries, and improved recovery,
less related costs xx
Development costs incurred during the period which
were previously estimated xx
Net change in estimated future development costs xx
Revisions of previous quantity estimates ( xx)
Net change from purchases and sales of minerals in place 276,991,801
Accretion of discount xx
Net change in income taxes ( xx)
Other ( xx)
---------------
End of period $ 489,051,180
<PAGE> 7
CHANCELLOR GROUP, INC.
ITEM 2. Management's Discussion and Analysis or Plan of
Operation
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 two Kentucky based gas operations, Delstar Gas Systems, Inc. ("DGS") and
Northstar Gas Systems, Inc. ("NGS"), covering gas reserves and gas
transmission systems respectively. In December 1995, the Company formed a
wholly owned subsidiary in the state of Kentucky, Delstar Resources, Inc.
("DRI"). This subsidiary acquired additional freehold real estate and gas
reserves for $5,425,000. In September, 1997, the Company acquired 100%
ownership of Radly Petroleum, Inc. ("Radly"), a Texas corporation, in exchange
for approximately 80% of the Company's outstanding common stock. In July 1998
the Company acquired 100% ownership of Lichfield Petroleum America, Inc.,
("Lichfield"), a Texas corporation. In September 2000, the Company acquired
all of the share capital of Getty Petroleum, Inc. ("Getty"), a Texas
corporation controlling additional strategic acreage and reserves of gas in
Pecos County, Texas. Chancellor Group, Inc., Radly, Lichfield, Getty,
DGS, NGS, and DRI operate and remain as separate legal entities. The Company
has taken an impairment writedown of the assets of DGS, NGS, and DRI until
such time as certain disputes relating to the original acquisition agreements
for DGS and NGS by and between the Company and the former owners of those
subsidiaires are resolved. Management expects that such dispute will be
resolved in its favour in 2001. On September 9, 2000, the Company entered
into a preliminary accord with Santa Barbara, California based Energy Transfer
Corporation ("ETC"), in which the Company and ETC agreed to enter into a
definitive agreement for the creation of a new jointly owned corporation to
exploit and commercialize certain alternative energy technology developed
by ETC.
The Company's officers and directors are now proceeding with the 2000/2001
implementation of a comprehensive business plan, through which the Company
will raise new equity capital to finance the initial development work of its
existing Texas gas assets, recover operating control of and finance the
redevelopment of the extensive Kentucky gas assets, and acquire interests in
several important new oil and gas drilling and development projects in the
continental United States of America, and elsewhere. The Company will also
provide funding to its new joint venture with Energy Transfer Corporation.
Results of Operations
The results for the quarter ended Sept. 30, 2000 show a net increase of
$170,000 in current liabilities to $436,377 compared to current liabilities
of $266,377 for the previous quarterly period ending June 30, 2000. The
Company generated no revenue during the period covered by this report,
other than from sales of securities.
The primary activity of the Company during the quarter was the completion of
restoration to full regulatory compliance and the continued preparation for
the growth, acquisition, financing, and development of the Company's business
and assets. The Company acquired all of the capital of Getty Petroleum, Inc.
of Texas, and entered into a preliminary joint venture accord with Energy
Transfer Corporation of Santa Barbara, California.
During the quarter, the Company issued 5,065,000 shares of restricted common
stock.
Liquidity and Capital Resources
The consolidated Balance Sheet as of Sept. 30, 2000 reports an increase in
current assets during the quarter to $34,574, compared to $10,069 in the
previous quarter. Non current assets increased during the quarter to $414,030
compared to $35,905 in the previous quarter, due to the acquisition by the
Company of Getty Petroleum, Inc. Current liabilities have increased to
$436,377 during the year to date, (compared to $266,377 in the previous
quarter) comprising net increases in outstanding and unpaid executive
compensation due to officers and directors of the Company, and general
operating expenses.
Day to day general operating expenses are from time to time paid out of
pocket by officers of the Company, and from time to time these expenses are
invoiced to the Company for payment. Additionally during the quarter the
Company continued a series of restricted common stock placements to raise
additional working capital. During the quarter the Company received
$95,000 in cash proceeds from such placements and an additional $60,000
in non cash proceeds, and as of September 30, 2000 had a net cash balance
of $34,574. In addition, the Company issued 4,500,000 shares of restricted
common stock, valued at $378,125, to acquire all of the capital of Getty
Petroleum, Inc.
At a meeting of the Board of Directors held on July 24, 2000, the Board
recognized and approved back-entitlements dating back to May 1999
accumulating at the rate of $10,000 per month, to Mr. Rodgers, the Company's
Vice Chairman and acting President. The accumulated and unpaid compensation
payments due Mr. Rodgers have accordingly since been adjusted, as reflected
in the third quarter accounts of the Company, less amounts paid to
Mr. Rodgers or on his behalf, during the quarter. Compensation due to
Mr. Rodgers shall continue to accrue at $10,000 per month, less any payments
made, until the Company enters into a new employment contract with
Mr. Rodgers, likely in the first quarter of 2001. Consequently, as of
September 30, 2000, the Company owed Mr. Rodgers $176,800 in accumulated
and unpaid compensation.
The Company continues to undertake a series of small private placements of
securities to raise working capital funds. The Company believes it will raise
all its capital needs on a timely basis. These funds are used to pay all
current indebtedness of the Company, and enable it to meet its day to day
operating expenses, including the preparation of a prospectus or private
placement memorandum for the raising of $27 million in new equity capital
following readmission of the Company's securities for trading on the OTC
Bulletin Board.
Impact of inflation
The Company believes that its activities are not, at this time,
materially affected by inflation.
<PAGE> 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters To A Vote of Securities Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
<PAGE> 9
SIGNATURES
Pursuant to the requirements Section 12(g) of the Securities and Exchange
Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized,
on November 1, 2000.
CHANCELLOR GROUP, INC.
By: /s/Ashraf Khan
Ashraf Khan, Chairman
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf on the
Registrant in the capacities indicated, on November 1, 2000.
/s/Ashraf Khan
Ashraf Khan
Chairman, Chief Executive Officer, and Director
/s/Shane X.G. Rodgers
Shane X.G. Rodgers
Vice Chairman, President, and Director
/s/William Stinson
William Stinson
Director
/s/Bassam Abu-Ghazaleh
Bassam Abu-Ghazaleh
Director
<PAGE>
