Attached files
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 March 31, 2011
[ ] 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)
Indicate by check mark whether the registrant (1) has 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 (ss.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, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (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
66,850,030 as of May 13, 2011.
Chancellor Group, Inc.
Table of Contents
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements......................................... 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk... 14
Item 4. Controls and Procedures...................................... 14
PART II
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds... 15
Item 6. Exhibits...................................................... 15
ii
ITEM 1. FINANCIAL STATEMENTS
Chancellor Group, Inc.
INDEX
Page No.
--------
Consolidated Balance Sheets as of March 31, 2011 and
December 31, 2010 (Unaudited).......................................... 2
Consolidated Statements of Operations
For the Three Months Ended March 31, 2011 and 2010 (Unaudited)....... 3
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2011 and 2010 (Unaudited)....... 4
Notes to Unaudited Consolidated Financial Statements .................. 5
1
Chancellor Group, Inc.
CONSOLIDATED BALANCE SHEETS
March 31, 2011 December 31, 2010
-------------- -----------------
(Unaudited)
ASSETS
Current Assets:
Cash in Bank $ 416,056 $ 560,098
Restricted Cash 250,000 250,000
Revenue Receivable 90,342 91,053
Prepaid Insurance 14,943 21,479
------------ ------------
Total Current Assets 771,341 922,630
------------ ------------
Property and Equipment:
Leasehold Costs - Developed 1,773,749 1,773,749
Office Building & Equipment 134,630 134,630
Fleet - Road 178,929 178,929
Heavy Field Equipment & Tools 455,128 455,128
Accumulated Depreciation and Amortization (840,876) (773,487)
------------ ------------
Total Property and Equipment, Net 1,701,506 1,768,949
------------ ------------
Other Assets:
Investment in Unconsolidated Subsidiary 29,998 50,000
Unamortized Letter of Credit 838 2,095
Deposits 250 250
------------ ------------
Total Other Assets 31,086 52,345
------------ ------------
Total Assets $ 2,503,987 $ 2,743,924
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 132,262 $ 88,415
Accrued Expenses 20,567 59,806
------------ ------------
Total Current Liabilities 152,829 148,221
------------ ------------
Stockholders' Equity:
Series B Preferred Stock: $1,000 Par Value 250,000 shares
authorized, non outstanding -- --
Common Stock: $.001 par value, 250,000,000 shares
authorized 66,850,030 and 66,640,030 shares issued and
outstanding, respectively 66,850 66,640
Paid in Capital 3,472,763 3,458,273
Retained Earnings (Deficit) (1,188,455) (929,210)
------------ ------------
Total Stockholders' Equity 2,351,158 2,595,703
------------ ------------
Total Liabilities and Stockholders' Equity $ 2,503,987 $ 2,743,924
============ ============
See Notes to Unaudited Consolidated Financial Statements
2
Chancellor Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND MARCH 31, 2010
(Unaudited)
March 31, 2011 March 31, 2010
-------------- --------------
Sales - Net of Royalties Paid:
Oil $ 185,194 $ 168,767
Natural Gas 9,465 19,000
------------ ------------
Gross Revenues 194,659 187,767
------------ ------------
Severance Taxes 9,302 9,178
------------ ------------
Net Revenue 185,357 178,589
------------ ------------
Operating Expenses:
Lease Operating Expense 49,675 48,634
Other Operating Expense 118,690 162,622
General & Administrative Expense 185,687 181,698
Depreciation, Depletion & Amortization 67,388 66,931
------------ ------------
Total Operating Expense 421,440 459,885
------------ ------------
Income (loss) From Operations (236,083) (281,296)
------------ ------------
Other Income (Expenses):
Interest 620 3,514
Loss from Unconsolidated Subsidiary (20,002) --
------------ ------------
Total Other Income (Expense) (19,382) 3,514
------------ ------------
Financing Charges:
Interest 709 --
Bank Fees Amortization 3,070 1,520
------------ ------------
Total Financing Charges 3,779 1,520
------------ ------------
Income (Loss) before provision for Income Taxes (259,244) (279,302)
Provision for Income Taxes(Benefits) -- --
------------ ------------
Net Income (Loss) $ (259,244) $ (279,302)
============ ============
Net Per Share (*) (*)
Weighted Average Number of Common Shares Outstanding 66,712,363 65,111,869
----------
* Less than $.01 per Share
See Notes to Unaudited Consolidated Financial Statements
3
Chancellor Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND MARCH 31, 2010
(Unaudited)
March 31, 2011 March 31, 2010
-------------- --------------
Cash Flows From Operating Activities:
Net (Loss) $ (259,244) $ (279,302)
Adjustments to Reconcile Net (Loss) to Net
Cash (Used for) Operating Activities:
Depreciation and Amortization 67,388 66,932
Non-Cash Stock Compensation 14,700 41,800
Loss from Unconsolidated Subsidiary 20,002 --
Change in Assets and Liabilities
Decrease in Operating Assets 8,504 37,150
Increase in Operating Liabilities 4,608 27,723
----------- -----------
Net Cash (Used for) Operating Activities (144,042) (105,697)
----------- -----------
Cash Flows From Investing Activities:
Net Cash Provided by (used for) Investing Activities -- --
----------- -----------
Cash Flows From Financing Activities:
Net Cash Provided by (used for) Financing Activities -- --
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (144,042) (105,697)
Cash and Cash Equivalents at the Beginning of the Period 810,098 1,404,695
----------- -----------
Cash and Cash Equivalents at the End of the Period $ 666,056 $ 1,298,998
=========== ===========
Supplemental Disclosures of Cash Flows Information
Interest Paid $ 709 $ --
Income Taxes Paid $ -- $ --
See Notes to Unaudited Consolidated Financial Statements
4
CHANCELLOR GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
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 and its wholly-owned subsidiaries, Gryphon Production Company, LLC
and Gryphon Field Services, LLC, own 138 wells, of which 29 are water disposal
wells and 2 are gas wells, although "associated" gas is also produced from some
oil wells. As of March 31, 2011, approximately 67 oil wells and 2 gas wells
located in Gray and Hutchinson counties in the Texas panhandle 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 4,830 gross and net acres of production rights
on six leases, which includes 4,300 acres of developed acreage and 500 acres of
undeveloped acreage, approximately 300 acres of which was previously owned by
Mobil and approximately 200 acres of which are 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 2,058 barrels of oil and 1,275 mcf of gas in the three
months ended March 31, 2011. The oil is light sweet crude and the natural gas
has very high heat content, 1600 to 2600 btu/scf.
BASIS OF PRESENTATION
The consolidated financial statements of Chancellor Group, Inc. have been
prepared pursuant to the rules and regulations of the SEC for Quarterly Reports
on Form 10-Q and in accordance with GAAP. Accordingly, these consolidated
financial statements do not include all of the information and footnotes
required by GAAP for annual financial statements. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes in the Chancellor Group, Inc. Annual Report on Form 10-K
for the year ended December 31, 2010.
The consolidated financial statements are unaudited, but, in management's
opinion, include all adjustments (which, unless otherwise noted, include only
normal recurring adjustments) necessary for a fair presentation of such
financial statements. Financial results for this interim period are not
necessarily indicative of results that may be expected for any other interim
period or for the year ending December 31, 2010.
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 in the United States of America.
5
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 and Hutchinson counties in the Texas panhandle, 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.
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.
Concentration of Credit Risk
Some of the Company's operating cash balances are maintained in accounts that
currently exceed federally insured limits. The Company believes that the
financial strength of depositing institutions mitigates the underlying risk of
loss. To date, these concentrations of credit risk have not had a significant
impact on the Company's financial position or results of operations.
RESTRICTED CASH
Included in cash in bank at March 31, 2011 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. An allowance for doubtful accounts was not considered
necessary or recorded at March 31, 2011.
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.
6
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.
FAIR VALUE MEASUREMENTS AND DISCLOSURES
The Company estimates fair values of assets and liabilities which require either
recognition or disclosure in the financial statements in accordance with FASB
ASC Topic 820 "FAIR VALUE MEASUREMENTS". There is no material impact on the
consolidated financial statements related to fair value measurements and
disclosures. Fair value measurements include the following levels:
Level 1: Quoted market prices in active markets for identical assets or
liabilities. Valuations for assets and liabilities traded in active
exchange markets, such as the New York Stock Exchange. Level 1 also
includes U.S. Treasury and federal agency securities and federal
agency mortgage-backed securities, which are traded by dealers or
brokers in active markets. Valuations are obtained from readily
available pricing sources for market transactions involving identical
assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are
corroborated by market data. Valuations for assets and liabilities
traded in less active dealer or broker markets. Valuations are
obtained from third party pricing services for identical or similar
assets or liabilities.
Level 3: Unobservable inputs that are not corroborated by market data.
Valuations for assets and liabilities that are derived from other
valuation methodologies, including option pricing models, discounted
cash flow models and similar techniques, and not based on market
exchange, dealer, or broker traded transactions. Level 3 valuations
incorporate certain assumptions and projections in determining the
fair value assigned to such assets or liabilities.
FAIR VALUE OF 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 consolidated balance sheet, approximates fair
values.
EMPLOYEE STOCK-BASED COMPENSATION
Compensation expense is recognized for performance-based stock awards if
management deems it probable that the performance conditions are or will be met.
Determining the amount of stock-based compensation expense requires us to
develop estimates that are used in calculating the fair value of stock-based
compensation, and also requires us to make estimates of assumptions including
expected stock price volatility which is derived based upon our historical stock
prices.
BUSINESS COMBINATIONS
The Company accounts for business combinations in accordance with FASB ASC Topic
805 "BUSINESS COMBINATIONS". 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. The
Company did not enter into any business combinations during the quarter ending
March 31, 2011.
The Company complies with the accounting guidance related to consolidation of
variable interest entities ("VIEs") that requires a reporting entity to
determine if a primary beneficiary that would consolidate the VIE from a
quantitative risk and rewards approach, to a qualitative approach based on which
variable interest holder has the power to direct the economic performance
related activities of the VIE as well as the obligation to absorb losses or
right to receive benefits that could potentially be significant to the VIE. This
guidance requires the primary beneficiary assessment to be performed on an
ongoing basis and also requires enhanced disclosures that will provide more
transparency about a company's involvement in a VIE. The Company did not have
any VIEs that required consolidation in these financial statements during the
quarter ending March 31, 2011.
7
SUBSEQUENT EVENTS
Events occurring after March 31, 2011, were evaluated through the date this
Quarterly Report was issued, in compliance FASB ASC Topic 855 "SUBSEQUENT
EVENTS", to ensure that any subsequent events that met the criteria for
recognition and/or disclosure in this report have been included.
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2010, the FASB issued Accounting Standards Update ("ASU") 2010-03 to
align the oil and gas reserve estimation and disclosure requirements of
Extractive Industries -- Oil and Gas Topic of the Accounting Standards
Codification with the requirements in the SEC's final rule, "MODERNIZATION OF
THE OIL AND GAS REPORTING REQUIREMENTs." We implemented ASU 2010-03 as of
December 31, 2009. Key items in the new rules include changes to the pricing
used to estimate reserves and calculate the full cost ceiling limitation,
whereby a 12-month average price is used rather than a single day spot price,
the use of new technology for determining reserves, the ability to include
nontraditional resources in reserves and the ability to disclose probable and
possible reserves. Management has elected not to include probable and possible
reserves in its reserve studies and related disclosures.
In January 2010, the FASB issued ASU 2010-6, "IMPROVING DISCLOSURES ABOUT FAIR
VALUE MEASUREMENTS.". This update requires additional disclosure within the roll
forward of activity for assets and liabilities measured at fair value on a
recurring basis, including transfers of assets and liabilities between Level 1
and Level 2 of the fair value hierarchy and the separate presentation of
purchases, sales, issuances and settlements of assets and liabilities within
Level 3 of the fair value hierarchy. In addition, the update requires enhanced
disclosures of the valuation techniques and inputs used in the fair value
measurements within Levels 2 and 3. The new disclosure requirements are
effective for interim and annual periods beginning after December 15, 2009,
except for the disclosure of purchases, sales, issuances and settlements of
Level 3 measurements. Those disclosures are effective for fiscal years beginning
after December 15, 2010. As ASU 2010-6 only requires enhanced disclosures, the
adoption of this update did not have a material effect on its financial
position, cash flows and results of operations.
There were various other updates recently issued, most of which represented
technical corrections to the accounting literature or application to specific
industries, and are not expected to have a material impact on the Company's
financial position, results of operations or cash flows.
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
At March 31, 2011, the Company had a federal net operating loss carry-forward of
approximately $2,375,000. A deferred tax asset of approximately $475,000 has
been partially offset by a valuation allowance of approximately $297,000 due to
federal net operating loss carry-back and carry-forward limitations.
At March 31, 2011, the Company also had approximately $178,000 in deferred
income tax liability attributable to timing differences between federal income
tax depreciation, depletion and book depreciation, which has been offset against
the deferred tax asset related to the net operating loss carry-forward.
Management evaluated the Company's tax positions under FASB ASC No. 740
"UNCERTAIN TAX POSITIONS," and concluded that the Company had taken no uncertain
tax positions that require adjustment to the consolidated financial statements
to comply with the provisions of this guidance. With few exceptions, the Company
is no longer subject to income tax examinations by the U.S. federal, state or
local tax authorities for years before 2008.
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 66,850,030 shares issued and outstanding as of March 31, 2011.
8
STOCK BASED COMPENSATION
For the three months ending March 31, 2011, the Company recognized $14,700 in
professional and consulting fees expense related to stock issued, which is
recorded in general and administrative expenses.
STOCK OPTIONS AND WARRANTS
NON-EMPLOYEE STOCK OPTIONS AND WARRANTS
The Company accounts for non-employee stock options under FASB ASC Topic 505
"EQUITY-BASED PAYMENTS TO NON-EMPLOYEES", 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. For the
quarter ending March 31, 2011, 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 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. In 2010, the Company issued additional
warrants expiring in 2015 to purchase an aggregate of 336,000 shares of common
stock at an exercise price of $0.125 per share. During 2011, the Company issued
additional warrants expiring in 2016 to purchase an aggregate of 84,000 shares
of common stock at an exercise price of $0.125 per share.
On March 31, 2011, the Company had the following outstanding warrants:
Weighted
Remaining Exercise Price Average
Exercise Number of Contractual Life Times Number Exercise
Price Shares (in years) of Shares Price
----- ------ ---------- --------- -----
$0.025 2,000,000 4 $ 50,000
$0.020 4,000,000 4 $ 80,000
$0.125 500,000 3.5 $ 62,500
$0.125 420,000 4.5 $ 52,500
---------- ---------
6,920,000 $ 245,000 $ 0.033
========== =========
Weighted
Average Remaining
Number of Exercise Contractual Life
Warrants Shares Price (in years)
-------- ------ ----- ----------
Outstanding at January 1, 2011 6,836,000 $ 0.044
--------- -------
Issued 84,000 0.125
Exercised -- --
Expired/Cancelled -- --
--------- -------
Outstanding at March 31, 2011 6,920,000 $ 0.033 4.0
--------- ------- -----
Exercisable at March 31, 2011 6,920,000 $ 0.033 4.0
--------- ------- -----
EMPLOYEE STOCK OPTIONS
The Company accounts for employee stock options under FASB ASC Topic 718
"COMPENSATION-STOCK COMPENSATION". The Company issued no employee stock options
and had none outstanding as of March 31, 2011.
9
NOTE 4. PROPERTY AND EQUIPMENT
A summary of fixed assets at:
Balance Balance
December 31, March 31,
2010 Additions Deletions 2011
---------- --------- --------- ----------
Auto/Transportation Equipment $ 178,929 $ -- $ -- $ 178,929
Buildings & Improvements 125,280 125,280
Leasehold Costs - Developed 1,773,749 1,773,749
Furniture, Fixtures & Office Equipment 9,350 9,350
Machinery & Equipment 455,128 455,128
---------- ---------- ---------- ----------
$2,542,436 $ -- $ -- $2,542,436
========== ========== ========== ==========
Less: Accumulated Depreciation 773,487 67,388 -- 840,875
---------- ---------- ---------- ----------
$1,768,949 $ 67,388 $ -- $1,701,561
========== ========== ========== ==========
NOTE 5. LONG-TERM DEBT
The Company had no long-term debt at March 31, 2011.
At March 31, 2011, 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. The Company has recognized approximately $1,500 in amortization
expense related to bank fees associated with this letter of credit in the three
months ending March 31, 2011, and currently has approximately $800 in
unamortized bank fees as of March 31, 2011.
NOTE 6. 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.
NOTE 7. RELATED PARTY TRANSACTIONS
The Company has used the services of a consulting company owned by the Chairman
of the Board. The Company has paid $24,000 for those services during the quarter
ending March 31, 2011.
NOTE 8. SUBSEQUENT EVENTS
Events occurring after March 31, 2011 were evaluated through the date this
Quarterly Report was issued, in compliance FASB ASC Topic 855 "Subsequent
Events", to ensure that any subsequent events that met the criteria for
recognition and/or disclosure in this report have been included. There were no
such subsequent events.
10
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
The Company is an independent oil and gas exploration and development company
focused on building and revitalizing our oil and gas properties located in the
State of Texas. The Company is organized as a producing oil and gas company and
licensed as an operator by the Texas Railroad Commission. We are in the business
of acquisition, exploration, and development of oil and natural gas properties.
Our common stock is quoted on the Over-The-Counter market and trades under the
symbol CHAG.OB. As of May 13, 2011, there are 66,850,030 shares of our common
stock issued and outstanding.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
PRODUCTION: During the three months ended March 31, 2011, we produced and sold
2,058 barrels of oil and produced and sold 1,275 mcf of gas, generating $194,659
in gross revenues net of royalties paid, with a one month lag in receipt of
revenues for the prior months sales, as compared with 2,243 barrels of oil and
1,933 mcf of gas, generating $187,767 in gross revenues net of royalties paid
during the three months ended March 31, 2010. We had 67 wells actually producing
oil and 2 producing gas at March 31, 2011, and had 70 wells actually producing
oil and 2 producing gas at March 31, 2010.
The Company and its wholly-owned subsidiaries, Gryphon Production Company, LLC
and Gryphon Field Services, LLC, own 138 wells, of which 29 are water disposal
wells and 2 are gas wells, although "associated" gas is also produced from some
oil wells. As of March 31, 2011, approximately 67 wells were 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 4,830 gross and net
acres of production rights on six leases, which includes 500 gross and net acres
of undeveloped 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 production rights for oil, casing-head gas and natural gas.
The following table summarizes our production volumes and average sales prices
for the three months ended March 31:
2011 2010
------- -------
Oil and Gas Sales:
Oil Sales (Bbl) 2,058 2,243
Natural Gas Sales (Mcf) 1,275 1,933
Average Sales Price:
Oil, per Bbl $ 89.99 $ 75.23
Gas, per McF $ 7.56 $ 9.83
11
During the first quarter of 2011 our main gas purchaser closed lines for
maintenance of their plant. In addition 2 new gas meters had to be installed to
comply with Texas Railroad Commission regulations, causing a noticeable loss of
natural gas production during the quarter ending March 31, 2011 compared to the
same period in 2010. Bad weather in our area of the Panhandle coupled with the
need for major parts replacement on rigs resulted in slightly lower oil
production during the first quarter of 2011 compared to the same period in 2010.
The reduction in our production was offset in part by the increased production
resulting from our acquisition of 15 oil wells in Hutchinson County in May of
2010 and management believes that the wells acquired in this transaction will
continue to increase our production and reserves in our 2011 fiscal year.
DEPRECIATION AND AMORTIZATION: Expense recognized for depreciation and
amortization of property and equipment increased $500, or approximately 1% in
the three months ended March 31, 2011 from the three months ended March 31,
2010. This increase was primarily attributable to the additional depreciation
related to the oil and gas properties and equipment acquired during May 2010.
GENERAL AND ADMINISTRATIVE EXPENSES: During the three months ended March 31, our
general and administrative expenses increased $3,989, or approximately 2% in
2011 from 2010. Significant components of these expenses include salaries,
professional fees, and insurance. Salaries (included in both administrative
expenses and operating costs) decreased approximately 10% during 2011, primarily
the result of staff reductions. Professional fees increased $55,016, or
approximately 225%, during 2011, primarily the result of a change in auditors,
as previously disclosed in our Form 8-K filing dated January 25, 2011. Insurance
decreased $9,965, or approximately 36%, during 2011.
OVERALL: The majority of the past two years we have continued with the ongoing
production, maintenance and enhancements of our 63 currently producing wells in
Gray county, as well as bringing into production our 4 new wells in Hutchinson
county during the third quarter of 2010. As a result of these efforts, along
with continued increases in oil prices during most of 2010 and 2011, our gross
revenues increased by approximately $9,000, or 4% during the three months ended
March 31, 2011 compared to the three months ended March 31, 2010. At the same
time we were also able to reduce our direct lease and operating costs by
$42,891, or 20%, compared to the same period last year. The Company also
recognized a loss of approximately $20,000 related to its investment in an
unconsolidated subsidiary (Munda We) in the three months ended March 31, 2011.
The Company expects this to be a discrete event, as the Company has terminated
this agreement, effective March 22, 2011. However, with our administrative
expenses and depreciation remaining stable, we again reported a net loss of
$259,244 during the three months ended March 31, 2011, compared to a net loss of
$279,302 reported for the same period last year. Management anticipates that
both oil and gas production volumes and prices will continue to increase during
2011, as well as continuing to look for opportunities to reduce general and
administrative expenses, in an effort to continue to improve profitability of
the Company.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW: The following table highlights certain information relation to our
liquidity and capital resources at:
March 31, 2011 December 31, 2010
-------------- -----------------
Working Capital $ 618,512 $ 774,409
Current Assets $ 771,341 $ 922,630
Current Liabilities $ 152,829 $ 148,221
Stockholders' Equity $2,351,158 $2,595,703
Our working capital at March 31, 2011 decreased by $155,897, or approximately
20%, from December 31, 2010. Current assets decreased by $151,289 or
approximately 16%, while current liabilities increased $4,608, or approximately
3%. Decrease in current assets were attributable to several factors, including a
decrease in cash in bank and prepaid insurance.
Our capital resources consist primarily of cash from operations and permanent
financing, in the form of capital contributions from our stockholders. As of
March 31, 2011 the Company had $666,056 of cash on hand, which includes
restricted cash of $250,000 held as collateral for a letter of credit issued to
the Railroad Commission of Texas as required for its oil and gas activities.
Other than financing continuing operations, additional capital would be
12
necessary should we decide to further expand our operations or pursue
acquisitions of additional property or significant production equipment.
CASH FLOW: Net cash used during three months ended March 31, 2011 was $144,042,
compared to net cash used of $105,697 during same period in 2010. The most
significant factors causing the decrease in net cash flow during the quarter
ending March 31, 2011 were professional fees of $78,000 and our net loss of
$259,244.
Cash used for operations increased by $38,345, or approximately 36% during the
first quarter of 2011, compared to 2010. This increase is primarily related to
increase in professional fees related to the change in auditors, as previously
disclosed in our Form 8-K filing dated January 25, 2011.
EQUITY FINANCING: As of March 31, 2011, our stockholders have contributed
$3,539,613 in equity financing. We do not anticipate that significant equity
financing will take place in the foreseeable future.
CONTRACTUAL OBLIGATIONS
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. In accordance with this
agreement, during each month in the period of 18 months beginning on January 1,
2010, until the consulting agreement is terminated, the Company is 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 PK.
Additional cash consideration would be payable to PK for any future investment
transactions for which PK provides assistance. The Company recorded professional
fees expense of $8,400 related to this agreement in the quarter ending March 31,
2011.
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. In
accordance with this agreement, during each month in the period of 18 months
beginning on January 1, 2010, until the consulting agreement is terminated, the
Company is 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. Additional cash consideration would be payable to ESP for
any future investment transactions for which ESP provides assistance. The
Company recorded professional fees expense of $6,300 related to this agreement
in the quarter ending March 31, 2011.
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 its business and financial reporting requirements. FRR 60
considers an accounting policy to be 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.
NATURAL GAS AND OIL PROPERTIES
In January 2010, the Financial Accounting Standards Board issued ASU 2010-03 to
align the oil and gas reserve estimation and disclosure requirements of
Extractive Industries -- Oil and Gas Topic of the Accounting Standards
Codification with the requirements in the SEC's final rule, "MODERNIZATION OF
THE OIL AND GAS REPORTING REQUIREMENTS". We implemented ASU 2010-03 as of
December 31, 2009. Key items in the new rules include changes to the pricing
used to estimate reserves and calculate the full cost ceiling limitation,
whereby a 12-month average price is used rather than a single day spot price,
the use of new technology for determining reserves, the ability to include
nontraditional resources in reserves and the ability to disclose probable and
possible reserves. Management has elected not to include probable and possible
reserves in its reserve studies and related disclosures.
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.
13
INCOME TAXES
As part of the process of preparing the consolidated financial statements, we
are required to estimate federal and state income taxes in each of the
jurisdictions in which Chancellor operates. This process involves estimating the
actual current tax exposure together with assessing temporary differences
resulting from differing treatment of items, such as derivative instruments,
depreciation, depletion and amortization, and certain accrued liabilities for
tax and accounting purposes. These differences and our net operating loss
carry-forwards result in deferred tax assets and liabilities, which are included
in our consolidated balance sheet. We must then assess, using all available
positive and negative evidence, the likelihood that the deferred tax assets will
be recovered from future taxable income. If we believe that recovery is not
likely, we must establish a valuation allowance. Generally, to the extent
Chancellor establishes a valuation allowance or increases or decreases this
allowance in a period, we must include an expense or reduction of expense within
the tax provision in the consolidated statement of operations.
Under accounting guidance for income taxes, an enterprise must use judgment in
considering the relative impact of negative and positive evidence. The weight
given to the potential effect of negative and positive evidence should be
commensurate with the extent to which it can be objectively verified. The more
negative evidence that exists (i) the more positive evidence is necessary and
(ii) the more difficult it is to support a conclusion that a valuation allowance
is not needed for some portion or all of the deferred tax asset. Among the more
significant types of evidence that we consider are:
* taxable income projections in future years;
* whether the carry-forward period is so brief that it would limit
realization of tax benefit;
* future sales and operating cost projections that will produce more
than enough taxable income to realize the deferred tax asset based on
existing sales prices and cost structures; and
* our earnings history exclusive of the loss that created the future
deductible amount coupled with evidence indicating that the loss is an
aberration rather than a continuing condition.
If (i) oil and natural gas prices were to decrease significantly below present
levels (and if such decreases were considered other than temporary), (ii)
exploration, drilling and operating costs were to increase significantly beyond
current levels, or (iii) we were confronted with any other significantly
negative evidence pertaining to our ability to realize our NOL carry-forwards
prior to their expiration, we may be required to provide a valuation allowance
against our deferred tax assets. As of March 31, 2011, a deferred tax asset of
$475,000 has been recognized but partially offset by a valuation allowance of
approximately $297,000 due to federal NOL carry-back and carry-forward
limitations
OFF-BALANCE SHEET ARRANGEMENTS:
There are no off-balance sheet transactions, arrangements, obligations
(including contingent obligations), or other relationships of the Company with
unconsolidated entities or other persons that have, or may have, a material
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources.
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 4T. 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 on Form 10-Q, 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
14
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.
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.
Total
Principal Offering Price/
Date Title and Amount (1) Purchaser Consideration
---- ---------------- --- --------- -------------
April 15, 2011 90,000 shares of common stock. Advisor $ 0 (1)
April 15, 2011 120,000 shares of common stock. Advisor $ 0 (1)
----------
(1) Securities issued in consideration for advisory services. See the
disclosure provided in ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTRACTUAL OBLIGATIONS for
a description of these services. The Company recorded professional fees
expense of $14,700 related to the issuance of these securities in the
quarter ending March 31, 2011.
The Company did not engage an underwriter with respect to any of the issuances
of securities described in the foregoing table, and none of these issuances gave
rise to any underwriting discount or commission.
All of the issuances described above are exempt from registration under the
Securities Act of 1933, as amended, pursuant to Rule 505 promulgated thereunder.
Alternatively, none of the issuances described above constituted a "public
offering" of securities under Section 4(2) of the Securities Act, and,
accordingly, all of such issuances are exempt from registration under the
Securities Act.
ITEM 6. EXHIBITS
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.
3.5 Amendments to the Articles of Incorporation of Nighthawk Capital, Inc.,
dated as of March 26, 1996. (incorporated by reference to Exhibit 3.5
to the Company's Annual Report on Form 10-K, filed with the Securities
and Exchange Commission on March 25, 2011.
3.6 Certificate of Amendment of Articles of Incorporation of Chancellor
Group, Inc., dated as of February 25, 2000. (incorporated by reference
to Exhibit 3.6 to the Company's Annual Report on Form 10-K, filed with
the Securities and Exchange Commission on March 25, 2011.
4.1 Form of Warrant issuable to PK and ESP. (incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q, filed with
the Securities and Exchange Commission on November 15, 2010).
10.1 Agreement and Plan of Reorganization, dated October 19, 2000, between
Chancellor 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).
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.
15
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: May 13, 2011
16
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
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.
3.5 Amendments to the Articles of Incorporation of Nighthawk Capital, Inc.,
dated as of March 26, 1996. (incorporated by reference to Exhibit 3.5
to the Company's Annual Report on Form 10-K, filed with the Securities
and Exchange Commission on March 25, 2011.
3.6 Certificate of Amendment of Articles of Incorporation of Chancellor
Group, Inc., dated as of February 25, 2000. (incorporated by reference
to Exhibit 3.6 to the Company's Annual Report on Form 10-K, filed with
the Securities and Exchange Commission on March 25, 2011.
4.1 Form of Warrant issuable to PK and ESP. (incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q, filed with
the Securities and Exchange Commission on November 15, 2010).
10.1 Agreement and Plan of Reorganization, dated October 19, 2000, between
Chancellor 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).
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
