<html>
  <head>
    <title>
      Unassociated Document
</title><!-- Licensed to: vf-->
<!-- Document Created using EDGARizer HTML 3.0.4.0 -->
<!-- Copyright 2006 EDGARfilings, Ltd., an IEC company.-->
<!-- All rights reserved EDGARfilings.com -->
</head>
  <body bgcolor="#ffffff"><br>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">UNITED
      STATES</font></div>
    <div>&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">SECURITIES
      AND EXCHANGE COMMISSION</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">WASHINGTON,
      D.C. 20549</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">_________________________________________</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
      10-Q</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td align="left" valign="top" width="6%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-FAMILY: Wingdings">x</font></font></div>
            </td>
            <td valign="top" width="80%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES</font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">EXCHANGE
                ACT OF 1934</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">For
      the
      quarterly period ended March 31, 2008</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div align="left">
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td align="left" valign="top" width="6%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-FAMILY: Wingdings">o</font></font></div>
            </td>
            <td valign="top" width="80%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES</font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">EXCHANGE
                ACT OF 1934</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td align="left" valign="top" width="45%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">For
                the transition period from&#160;</font><u><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;</font></u></div>
            </td>
            <td align="left" valign="top" width="43%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">To&#160;</font><u><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;</font></u></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Commission
      file number 000-30219 </font>
      <div>
        <hr style="COLOR: black" align="center" noshade size="2" width="40%">
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Chancellor
      Group, Inc.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">
      <hr style="COLOR: black" align="center" noshade size="2" width="40%">&#160;<font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Name
      of
      small business issuer in its charter)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td align="left" valign="top" width="43%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Nevada</font></div>
            </td>
            <td align="left" valign="top" width="43%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">87-0438647</font></div>
            </td>
          </tr>
          <tr>
            <td align="left" valign="top" width="43%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(State
                or other jurisdiction of</font></div>
            </td>
            <td align="left" valign="top" width="43%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(I.R.S.
                Employer Identification No.) </font></div>
            </td>
          </tr>
          <tr>
            <td align="left" valign="top" width="43%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">incorporation
                or organization)</font></div>
            </td>
            <td align="left" valign="top" width="43%">
              <div>&#160;</div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">216
      South
      Price Road, Pampa, TX 79065</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">
      <hr style="COLOR: black" align="center" noshade size="2" width="40%">
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Address
      of principal executive offices)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(806-688-9697)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">
      <hr style="COLOR: black" align="center" noshade size="2" width="40%">&#160;<font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Issuer's
      telephone number)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">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.&#160;<font style="DISPLAY: inline; FONT-FAMILY: Wingdings">x</font> Yes&#160;<font style="DISPLAY: inline; FONT-FAMILY: Wingdings">o</font>
      No </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).&#160;<font style="DISPLAY: inline; FONT-FAMILY: Wingdings">o</font> Yes&#160; <font style="DISPLAY: inline; FONT-FAMILY: Wingdings">x</font></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">No</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a smaller reporting company. (Check One):</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td align="left" valign="top" width="43%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Large
                accelerated filer &#160;<font style="DISPLAY: inline; FONT-FAMILY: Wingdings">o</font></font></div>
            </td>
            <td align="left" valign="top" width="43%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Accelerated
                filer&#160; <font style="FONT-FAMILY: Wingdings">o</font></font></div>
            </td>
          </tr>
          <tr>
            <td align="left" valign="top" width="43%">&#160;</td>
            <td align="left" valign="top" width="43%">&#160;</td>
          </tr>
          <tr>
            <td align="left" valign="top" width="43%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Non-accelerated
                filer&#160; <font style="FONT-FAMILY: Wingdings">o</font></font></div>
            </td>
            <td align="left" valign="top" width="43%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Smaller
                reporting company <font style="DISPLAY: inline; FONT-FAMILY: Wingdings">x</font></font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">(Do
      not check if a smaller reporting company)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">APPLICABLE
      ONLY TO CORPORATE ISSUERS</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      number of shares outstanding the issuer's common stock, $.001 par value, was
      64,802,781 as of May 13, 2008.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
        </div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div><br>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Table
      of
      Contents</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
    <div align="left">
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr bgcolor="#d0ffd0">
            <td align="left" valign="top" width="10%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PART
                I</font></div>
            </td>
            <td align="left" valign="top" width="85%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">FINANCIAL
                INFORMATION</font></div>
            </td>
            <td align="left" valign="top" width="5%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="top" width="10%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="85%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="5%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="top" width="10%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Item
                1.</font></div>
            </td>
            <td align="left" valign="top" width="85%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Financial
                Statements </font></div>
            </td>
            <td align="left" valign="top" width="5%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1</font></div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="top" width="10%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td align="left" valign="top" width="85%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="5%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="top" width="10%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Item
                2.</font></div>
            </td>
            <td align="left" valign="top" width="85%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Management's
                Discussion and Analysis or Plan of Operation</font></div>
            </td>
            <td align="left" valign="top" width="5%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">11</font></div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="top" width="10%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td align="left" valign="top" width="85%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="5%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="top" width="10%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Item
                3. </font></div>
            </td>
            <td align="left" valign="top" width="85%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Quantitative
                and Qualitative Disclosures about Market Risk</font></div>
            </td>
            <td align="left" valign="top" width="5%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="top" width="10%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="85%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="5%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="top" width="10%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Item
                4T.</font></div>
            </td>
            <td align="left" valign="top" width="85%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Controls
                and Procedures</font></div>
            </td>
            <td align="left" valign="top" width="5%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">16</font></div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="top" width="10%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td align="left" valign="top" width="85%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="5%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="top" width="10%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PART
                II</font></div>
            </td>
            <td align="left" valign="top" width="85%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="top" width="5%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="top" width="10%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="85%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="5%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="top" width="10%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Item
                1.</font></div>
            </td>
            <td align="left" valign="top" width="85%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Legal
                Proceedings</font></div>
            </td>
            <td align="left" valign="top" width="5%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">16</font></div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="top" width="10%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="85%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="5%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="top" width="10%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Item
                6.</font></div>
            </td>
            <td align="left" valign="top" width="85%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Exhibits</font></div>
            </td>
            <td align="left" valign="top" width="5%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">16</font></div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="top" width="10%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td align="left" valign="top" width="85%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="5%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" colspan="2" valign="top" width="95%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">EXHIBIT
                INDEX</font></div>
            </td>
            <td align="left" valign="top" width="5%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">17</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">&#160;</div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center">&#160;</div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">&#160;</div>
      </div>
    </div><br>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Item
      1. Financial Statements</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Chancellor
      Group, Inc.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(A
      Development Stage Company)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><u>I
      N D
      E X</u></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div align="left">
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td align="left" valign="top" width="90%">&#160;</td>
            <td align="left" valign="top" width="10%">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><u><font size="2">Page
                No.</font></u></div>
            </td>
          </tr>
          <tr>
            <td align="left" valign="top" width="90%">&#160;</td>
            <td align="left" valign="top" width="10%">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="top" width="90%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Balance
                Sheets as at March 31, 2008 (Unaudited) and December 31, 2007
                (Audited)</font></div>
            </td>
            <td align="left" valign="top" width="10%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2</font></div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="top" width="90%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="10%" style="border-bottom: white;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
            </td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="top" width="90%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="top" width="10%" style="border-bottom: #d0ffd0;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="top" width="90%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Statements
                of Operations</font></div>
            </td>
            <td align="left" valign="top" width="10%" style="border-bottom: white;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
            </td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="top" width="90%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 45pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">For
                the Three Months Ended March 31, 2008 and 2007 (Unaudited)</font></div>
            </td>
            <td align="left" valign="top" width="10%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3</font></div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="top" width="90%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="10%" style="border-bottom: white;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
            </td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="top" width="90%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="top" width="10%" style="border-bottom: #d0ffd0;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="top" width="90%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Statements
                of Cash Flows</font></div>
            </td>
            <td align="left" valign="top" width="10%" style="border-bottom: white;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
            </td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="top" width="90%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 45pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">For
                the Three Months Ended March 31, 2008 and 2007 (Unaudited)</font></div>
            </td>
            <td align="left" valign="top" width="10%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4</font></div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="top" width="90%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="top" width="10%" style="border-bottom: white;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
            </td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="top" width="90%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="top" width="10%" style="border-bottom: #d0ffd0;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="top" width="90%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Notes
                to Financial Statements (Unaudited)</font></div>
            </td>
            <td align="left" valign="top" width="10%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">5-10</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: -13.5pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Chancellor
      Group, Inc.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">CONSOLIDATED
      BALANCE SHEETS</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="ftable" width="100%">

          <tr>
            <td align="left" valign="bottom" width="71%" style="border-bottom: medium none;">&#160;</td>
            <td width="2%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" colspan="2" valign="bottom" width="12%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">March
                31, 2008</font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Unaudited)
                </font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: medium none;">
              <div>&#160;</div>
            </td>
            <td align="left" colspan="2" valign="bottom" width="11%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">December
                31, </font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2007
                (Audited)</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: medium none;">&#160;</td>
          </tr>
          <tr>
            <td align="left" valign="bottom" width="71%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ASSETS</font></div>
            </td>
            <td width="2%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" colspan="2" valign="bottom" width="12%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" colspan="2" valign="bottom" width="11%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: medium none;">&#160;</td>
          </tr>
          <tr>
            <td align="left" valign="bottom" width="71%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Current
                Assets</font></div>
            </td>
            <td width="2%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" colspan="2" valign="bottom" width="12%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" colspan="2" valign="bottom" width="11%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: medium none;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Cash
                in Bank</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">182,583</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">218,118</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Revenue
                Receivable</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">367,667</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">248,680</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Other</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">920</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Total
                Current Assets</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">551,170</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">466,797</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Fixed
                Assets</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Leasehold
                Costs - Developed</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">4,988,183</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">4,938,564</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Office
                Building &amp; Equipment</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">127,463</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">126,073</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Fleet
                - Road</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">65,298</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">62,263</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Heavy
                Field Equipment &amp; Tools</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">393,150</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">405,593</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Accumulated
                Depreciation</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                549,782</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(411,495</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Total
                Fixed Assets</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">5,024,312</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">5,120,999</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Other
                Assets</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Unamortized
                Debt Expense</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">56,678</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">55,500</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Prepaid
                Long Term Hedge</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">44,400</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">70,848</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Deposits
                </font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">4,833</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">250
                </font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Total
                Other Assets</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">105,911</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Total
                Assets</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">5,681,393</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">5,714,394</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">LIABILITIES
                AND STOCKHOLDERS&#8217; EQUITY</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Current
                Liabilities</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Accounts
                Payable -- Chancellor</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">109,828</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">109,828</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Accounts
                Payable - Gryphon Production </font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">317,217</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">264,800</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Accrued
                Interest Payable</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">146,726</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">113,028</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Miscellaneous
                Accounts Payable &amp; Suspense</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">34,114</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">10,044</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Stock
                Subscription Payable</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">1,602</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">1,602</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Total
                Current Liabilities</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">609,487</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">499,302</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">&#160;</td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Long
                Term Liabilities</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Note
                Payable -- Senior Debt</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">2,078,177</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">2,108,332</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Note
                Payable - Subordinated Debt </font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">3,797,345</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">3,797,345</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Installment
                Loan - Equipment</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">59,983</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">63,576</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Note
                Payable - Investors</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">5,160</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">5,160</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Total
                Long Term Liabilities</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">5,940,665</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">5,408,344</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Stockholders&#8217;
                Equity</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Common
                Stock: $.001 par value, 250,000,000</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">shares
                authorized, 64,802,781 shares </font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">issued
                and outstanding at December 31, 2007</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px">&#160;</div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px">&#160;</div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">and
                March 31, 2008</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">64,803</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">62,605</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Paid
                in Capital</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">3,221,735</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">3,223,733</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Accumulated
                Deficit</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                4,155,297</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                4,045,659</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Total
                Stockholders&#8217; Equity</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                868,759</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                759,321</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Total
                Liabilities and Stockholders&#8217; Equity</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">5,681,393</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">5,714,394</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 solid;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">&#160;</td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">See
      Notes
      to Consolidated Financial Statements</font></div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div><br>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Chancellor
      Group, Inc.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">CONSOLIDATED
      STATEMENT OF OPERATIONS</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">FOR
      THE
      THREE MONTHS ENDED MARCH 31, 2008 AND MARCH 31, 2007</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Unaudited)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="ftable" width="100%">

          <tr>
            <td align="left" valign="bottom" width="71%" style="border-bottom: medium none;">&#160;</td>
            <td width="2%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" colspan="2" valign="bottom" width="12%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">March
                31, 2008 </font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: medium none;">
              <div>&#160;</div>
            </td>
            <td align="left" colspan="2" valign="bottom" width="11%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">March
                31, 2007</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: medium none;">&#160;</td>
          </tr>
          <tr>
            <td align="left" valign="bottom" width="71%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sales
                - Net of Royalties Paid to Others</font></div>
            </td>
            <td width="2%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" colspan="2" valign="bottom" width="12%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" colspan="2" valign="bottom" width="11%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: medium none;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Oil</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">786,495</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Natural
                Gas</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">149,709</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Other
                Income</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">1,150</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Gross
                Revenue</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">937,354</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Severance
                Taxes</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">46,501</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Marketing
                Fees</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">7,733</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Royalties
                Paid</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">12</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Net
                Revenue</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">883,108</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Operating
                Expenses</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Lease
                Operating Expense</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">317,665</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Other
                Operating Expense</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">344,469</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">General
                &amp; Administrative Expense</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">16,735</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">12,015</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Depreciation,
                Depletion &amp; Amortization</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">138,287</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Total
                Operating Expense</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">817,156</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">&#160;</td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Income
                (loss) From Operations</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">65,952</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                12,015</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">&#160;</td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Other
                Income (Expenses)</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Organization
                Costs</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Hedge
                Costs Amortization</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">11,100</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Total
                Other Income (Expense)</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">11,100</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Financing
                Charges</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Interest</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">150,319</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Bank
                Fees Amortization</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">14,170</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Total
                Financing Charges</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">164,489</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">&#160;</td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Income
                (Loss) before provision for Income</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Taxes</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                109,637</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                12,015</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Provision
                for Income Taxes</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Net
                Income (Loss)</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                109,637</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                12,015</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Net
                Income (Loss) per Share</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Basic
                and Fully Diluted)</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                *</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                *</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">&#160;</td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Weighted
                Average Number of Common Shares</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Outstanding</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black double;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">64,802,781</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black double;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">59,580,030</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">*
                Less than $.01 per Share</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">See
      Notes
      to Consolidated Financial Statements</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div><br>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Chancellor
      Group, Inc.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">CONSOLIDATED
      STATEMENT OF CASH FLOWS</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">FOR
      THE
      THREE MONTHS ENDED MARCH 31, 2008 AND MARCH 31, 2007</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Unaudited)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="ftable" width="100%">

          <tr>
            <td align="left" valign="bottom" width="71%" style="border-bottom: medium none;">&#160;</td>
            <td width="2%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" colspan="2" valign="bottom" width="12%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">March
                31, 2008 </font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: medium none;">
              <div>&#160;</div>
            </td>
            <td align="left" colspan="2" valign="bottom" width="11%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">March
                31, 2007</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: medium none;">&#160;</td>
          </tr>
          <tr>
            <td align="left" valign="bottom" width="71%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Cash
                Flows From Operating Activities:</font></div>
            </td>
            <td width="2%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" colspan="2" valign="bottom" width="12%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" colspan="2" valign="bottom" width="11%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: medium none;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Net
                Income (loss)</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                109,637</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                12,016</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">&#160;</td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Adjustments
                to reconcile net income</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(loss)
                to net cash provided by </font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(used
                for) operating activities:</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Depreciation
                &amp; Amortization</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">138,287</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Increase)
                Decrease in Operating Assets</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                99,222</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Increase
                (Decrease) in Operating</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Liabilities</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">110,185</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0 thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Net
                Cash Provided by (used for)</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Operating
                Activities</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">39,613</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">&#160;</td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Cash
                Flows From Investing Activities</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Capital
                Expenditures</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                41,599</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Net
                Cash Provided by (used for)</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Investing
                Activities</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                41,599</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Cash
                Flows From Financing Activities</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Notes
                Payable</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                33,749</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">5,000</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sales
                of Common Stock</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">200</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">22,500</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 9pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Net
                Cash Provided by (used for)</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Financing
                Activities</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                33,549</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">27,500</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Net
                Increase (Decrease) in Cash</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">(
                35,535</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">)</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">15,484</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Cash
                at the Beginning of the Period</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">218,118</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">830</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">&#160;</td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="71%" style="border-bottom: #d0ffd0 solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Cash
                at the End of the Period</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0 thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">182,583</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0 solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black double;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">16,314</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0 solid;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="71%" style="border-bottom: white;">&#160;</td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">See
      Notes
      to Consolidated Financial Statements</font></div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div><br>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Chancellor
      Group, Inc.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">NOTES
      TO
      FINANCIAL STATEMENTS</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">March
      31,
      2008</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">NOTE
      1.
      ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Chancellor
      Group, Inc. (the "Company") was incorporated in the state of Utah on May 2,
      1986, and then, on December 31, 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. In 1996 the
      Company's corporate name was changed from Nighthawk Capital, Inc. to Chancellor
      Group, Inc.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      April
      16, 2007, the Company closed the acquisition of assets from Caldwell Production
      Company, Inc., consisting of 48 mineral leases with 631 wells, of which
      approximately 100 were believed to be producing wells and 531 inactive well
      bores equipped with necessary production equipment, and related operating
      facilities and equipment including an office warehouse facility, ten pickup
      trucks, two pulling rigs, a backhoe, a winch truck and a water truck. The
      purchase price for such oil field equipment was $291,500. The purchase price
      for
      the mineral leases and an existing office building, including an attached
      warehouse/shop building valued at $81,630, was $5,000,000. The oil and natural
      gas leases purchased are on approximately 8,000 acres in Gray and Carson
      Counties, Texas, with a well spacing of 10 acres, and are in the Panhandle
      Field, discovered in 1920. After closing the acquisition, the Company has opened
      corporate offices for our production and oil field service subsidiaries at
      the
      purchased facilities in Pampa, Texas. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Productive
      capacity at December 31, 2007, was estimated to be 84 bopd and 198 mcfd gas.
      As
      of March 31, 2008, 210 wells are producing - an increase of 7 wells since the
      end of the year. Productive capacity at March 31, 2008 is estimated to be 96
      bopd and 207 mcfd gas. The oil is light sweet crude and the natural gas has
      very
      high heat content, 1600 to 2600 btu/scf.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As
      set
      forth in Note 4 below, on October 30, 2007, we filed for reorganization under
      Chapter 11 of the United States Bankruptcy Code with the United States
      Bankruptcy Court, District of Northern District of Texas.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Principles
      of Consolidation</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      accompanying consolidated financial statements include the accounts of
      Chancellor Group, Inc., and those of 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. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Oil
      and
      Gas Properties</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">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.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Income
      Tax </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">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.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">5</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Cash
      and
      Cash Equivalents</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company considers all highly liquid investments with an original maturity of
      three months or less as cash equivalents.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Accounting
      Year</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company employs a calendar accounting year. The Company recognizes income and
      expenses based on the accrual method of accounting.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Use
      of
      Estimates</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">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.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Net
      Income (loss) per share</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">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.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Property
      and Equipment</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Property
      and equipment are recorded at cost and depreciated under the straight line
      method over the estimated useful life of the equipment. This life is estimated
      to be five years. The useful life of the office building and warehouse is
      estimated to be 20 years.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Depletion
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      carrying value of the mineral leases is depleted over the minimum estimated
      productive life of the leases, or ten years.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Accounts
      Receivable</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company reviews accounts receivable periodically for collectibles and
      establishes an allowance for doubtful accounts and records bad debt expense
      when
      deemed necessary.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Products
      and Services, Geographic Areas and Major Customers</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company plans to develop its domestic oil and gas properties, located in Gray
      and Carson counties, Texas, and possibly to acquire additional producing oil
      and
      gas properties. The Company&#8217;s major customers are Valero Marketing, DCP
      Midstream, and Eagle Rock Energy.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Revenue
      Recognition</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">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.
</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">6</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Financial
      Instruments</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      carrying value of the Company's financial instruments, including cash and cash
      equivalents, accounts receivable, accounts payable, and long term debt, as
      reported in the accompanying balance sheet, approximates fair
      value.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Employee
      Stock-Based Compensation</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company uses the intrinsic value method of accounting for employee stock-based
      compensation.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Recent
      Accounting Pronouncements</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      March
      2006, the Financial Accounting Standards Board ("FASB") issued Statement of
      Financial Accounting Standard ("SFAS") No. 155, "Accounting for Certain Hybrid
      Financial Instruments." SFAS 155 resolves certain accounting issues related
      to
      various hybrid financial instruments. The Company has adopted the provisions
      of
      SFAS No. 155 which are effective for fiscal years beginning after September
      15,
      2006. The adoption did not have a material effect on the results of operations
      of the Company.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      March
      2006, the FASB issued SFAS No. 156 "Accounting for Servicing of Financial
      Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and
      Servicing of Financial Assets and Extinguishments of Liabilities". This
      statement requires all separately recognized servicing assets and servicing
      liabilities be initially measured at fair value, if practicable, and permits
      for
      subsequent measurement using either fair value measurement with changes in
      fair
      value reflected in earnings or the amortization and impairment requirements
      of
      Statement No. 140. The Company has adopted the provisions of SFAS No. 156,
      which
      are effective in general for an entity's fiscal year beginning after September
      15, 2006. The adoption did not have a material effect on the results of
      operations of the Company.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      December 2006, the FASB issued SFAS No. 157 "Fair Value Measurements", to
      improve consistency and comparability in fair value measurements, and to expand
      related disclosures. The Company has adopted the provisions of SFAS No. 157,
      which are effective for financial statements for fiscal years beginning after
      November 15, 2007. The adoption did not have a material effect on the results
      of
      operations of the Company.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      September 2006 the FASB issued SFAS No. 158, &#8220;Employers&#8217; Accounting for Defined
      Benefit Pension and Other Post Retirement Plans&#8221;. SFAS No. 158 requires the
      Company to recognize the funded status of its post retirement plans on the
      balance sheet and recognize as a component of accumulated other comprehensive
      income the gains and losses, prior service costs or credits that occur during
      the financial year but are not recognized as components of the Company&#8217;s pension
      costs This&#160;Statement&#160;is effective as of the beginning of its first
      fiscal year that begins after December 15, 2008. The Company does not expect
      application of SFAS No. 156 to have a material affect on its financial
      statements.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      February 2007 the FASB issued SFAS No. 159, &#8220;The Fair Value Option for Financial
      Assets and Financial Liabilities - Including an amendment of FASB Statement
      No.
      115&#8221;. SFAS No. 159 permits entities to choose to measure many financial
      instruments and certain other items at fair value. The amendment to SFAS No.
      115
      applies to all entities with investments in available-for-sale or trading
      securities. The statement is effective for fiscal years beginning after November
      15, 2007. The Company does not expect application of SFAS No. 159 to have a
      material affect on its financial statements.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">NOTE
      2.
      INCOME TAXES</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Deferred
      income taxes arise from the temporary differences between financial statement
      and income tax recognition of net operating losses. These loss carryovers are
      limited under the Internal Revenue Code should a significant change in ownership
      occur. The Company accounts for income taxes pursuant to SFAS 109.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">7</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At
      December 31, 2007, the Company had approximately $4,009,659 in unused federal
      net operating loss carry-forwards, which begin to expire principally in the
      year
      2011. A deferred tax asset of approximately $802,000 resulting from the loss
      carry-forward has been offset by a 100% valuation allowance. The increase in
      the
      valuation allowance from year end 2006 to the end of 2007 was approximately
      $142,000. The net operating loss carry-forwards may be limited under the Change
      of Control provisions of the Internal Revenue Code section 382.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At
      March
      31, 2008, the Company had approximately $4,155,297 in unused federal net
      operating loss carry-forwards, which begin to expire in the year 2011. A
      deferred tax asset of approximately $831,000 resulting from the loss
      carry-forward has been offset by a 100% valuation allowance. The increase in
      the
      valuation allowance from year end 2007 to the end of March 31, 2008 was
      approximately $29,000. The net operating loss carry-forwards may be limited
      under the Change of Control provisions of the Internal Revenue Code section
      382.
</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">NOTE
      3.
      STOCKHOLDERS' EQUITY</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Common
      Stock</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company has 250,000,000 authorized shares of common stock, par value $.001,
      with
      64,802,781 shares issued and outstanding as of March 31, 2008 which was
      unchanged from the year end.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Preferred
      Stock</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Preferred
      Series B 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 at into 166.667 shares of the Company's
      common stock upon election by the shareholder, with dates and terms set by
      the
      Board. No shares of Series B preferred stock are outstanding.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Stock
      Options</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Non-employee
      Stock Options</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company accounts for non-employee stock options under SFAS 123 (as amended
      by
      SFAS 148), whereby options costs are recorded based on the fair value of the
      consideration received or the fair value of the equity instruments issued,
      whichever is more reliably measurable. During the years ended December 31,
      2006
      and 2007, no options were issued, exercised or cancelled. There were no stock
      options issued in the first quarter of 2008.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company currently has stock options outstanding to various individuals in the
      following amounts: 2,000,000 options exercisable for one share of common stock
      at an exercise price of $0.025 per share, currently exercisable, expiring
      December 31, 2009, and 4,000,000 options exercisable for one share of common
      stock at an exercise price of $0.02 per share, currently exercisable, expiring
      December 31, 2009. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      addition, at the closing of the purchase of the Caldwell Assets, pursuant to
      an
      Agreement to Issue Warrants, dated April 13, 2007, with CapWest Resources,
      Inc.
      (&#8220;CapWest&#8221;), we also issued CapWest a warrant (&#8220;CapWest Warrants&#8221;) to purchase
      2,000,000 shares of our common stock, at a purchase price of $0.001 per share,
      which warrant is exercisable at any time up to April 13, 2012. CapWest has
      a put
      option during the period beginning on the first to occur of the following dates
      (a) the second anniversary of our Loan Agreement with CapWest; or (b) the date
      when the Company shall have paid CapWest&#8217;s loan in full to put the CapWest
      Warrants to the Company for repurchase at an exercise price of $1,000,000.
      These
      amounts are unchanged between December 31, 2007 and March 31, 2008.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Employee
      Stock Options</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company accounts for non-employee stock options under SFAS 123 (as Amended
      by
      SFAS 148). The Company issued no employee stock options and had none outstanding
      at the end of 2005, 2006 or as of the close of the year ending December 31,
      2007. There were no stock options issued in the first quarter of
      2008.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">8</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">NOTE
      4.
      GOING CONCERN UNCERTAINTY</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">These
      financial statements are presented assuming the Company will continue as a
      going
      concern. The Company has had recurring losses from operations, negative working
      capital, and stockholders' equity deficiency. This raises substantial doubt
      about its ability to continue as a going concern. Management's plan in regard
      to
      these matters includes restoring sufficient production capacity from the
      recently acquired properties so as to achieve positive cash flow, as well as
      raising working capital to assure the Company's viability, through private
      or
      public equity offerings and/or debt financing; and acquiring and developing
      profitable oil and gas properties. There can be no assurance that either
      operating or capital market transactions will be successful.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company filed a bankruptcy petition on October 30, 2007 under Chapter 11 of
      the
      United States Bankruptcy Code, and our operating subsidiaries, Gryphon
      Production Company, LLC and Gryphon Field Services, LLC, filed bankruptcy
      petitions under Chapter 11 of the Code on October 29 and October 30, 2007,
      respectively. At this time, the Company is managing its operations and those
      of
      its two subsidiaries as a debtor in possession. Our intention making in the
      Chapter 11 filings was to continue operations of the Company through the Chapter
      11 bankruptcy process and to emerge from the Chapter 11 reorganization as an
      operating company, with our financial structure reorganized, and where all
      of
      our creditors would receive the full amounts owed. However, there is no
      assurance that we will be able successfully to reorganize our company in this
      bankruptcy proceeding.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">NOTE
      5.
      CONTINGENT LIABILITY</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      August
      4, 2007, the Company received a letter from David L. Kagel, a former attorney
      for the Company, indicating his intention to initiate an arbitration proceeding
      or to file a lawsuit for recovery of $50,489 (including interest) for services
      rendered over several years under prior management. The Company believes the
      claim is without merit and that it has a number of counterclaims against Mr.
      Kagel. No further action has occurred regarding this issue. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">NOTE
      6.
      DEBT </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">To
      finance the acquisition of the assets purchased from Caldwell Production
      Company, Inc., on April 13, 2007, we closed on a Loan Agreement with Western
      National Bank (&#8220;WNB&#8221;), Midland, Texas, for a senior loan facility (the &#8220;WNB Loan
      Agreement&#8221;). At the closing of the purchase of the Caldwell Assets, we drew down
      $2.3 million under the WNB Loan Agreement The interest rate under the WNB Loan
      Agreement is a variable rate equal to the prime rate as defined in this
      Agreement plus 2%, but in no event to be less than 9.25%.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">April
      13,
      2007, we also entered into a Loan Agreement with CapWest Resources, Inc.,
      Midland, Texas, for an advancing line of credit/term loan facility, under which
      we drew down at closing $2,700,000 for the balance of the purchase price of
      the
      leases, $291,500 for the equipment, $111,000 for bank fees, legal expenses
      and
      associated costs, and $130,000 for initial working capital. The interest rate
      under the CapWest Loan Agreement is a variable rate equal to the prime rate
      as
      defined in this Agreement plus 4%. Under the CapWest loan agreement, CapWest
      has
      a 2% overriding royalty interest in the Leases.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">After
      the
      payout of CapWest&#8217;s loan, or in the event that the Company is sold, this
      overriding royalty interest will convert to a 15% net revenue interest in the
      Leases. This interest may be purchased by us under a formula specified in this
      Agreement. The CapWest Loan Agreement has now been fully drawn to the initially
      agreed amount of $3,700,000.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 459pt">&#160;</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      August
      2, 2007, we agreed in principle, subject to definitive documentation, with
      CapWest to amend the CapWest Loan Agreement in order to increase the loan by
      $250,000. The terms of the agreement in principle were: a) The Company must
      pay
      accrued interest thru July 30, by August 20, 2007. The Company has paid $42,000
      in August, and must pay an additional $85,000 by that date; b) CapWest agreed
      to
      require monthly interest only thereafter, until December 31, 2007; c) The
      Company agreed to raise $250,000 in common equity by October 31,2007; d) The
      Company agreed to reduce administrative salaries by $25,000 per month; e) The
      net revenue interest after payout provided in the CapWest loan was increased
      from 15% to 20%.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">9</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      October 30, 2008 the Company filed a bankruptcy petition under Chapter 11 of
      the
      United States Bankruptcy Code, and our operating subsidiaries, Gryphon
      Production Company, LLC and Gryphon Field Services, LLC, filed bankruptcy
      petitions under Chapter 11 of the Code on October 29 and October 30, 2007,
      respectively. The current loan balances due to WNB are $2,078,177 and $59,983
      and are currently subject to interest only payments. The current loan balance
      due to CapWest is $3,797,345 and is also currently subject to interest only
      payments.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Note
      7.
      ACCUMULATED COMPENSATED ABSENCES</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">It
      is the
      Company&#8217;s policy to permit employees to accumulate a limited amount of earned by
      unused vacation, which will be paid to employees upon separation from the
      Company&#8217;s service. The cost of vacation and sick leave is recognized when
      payments are made to employees. These amounts are immaterial.</font></div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: -36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ITEM
      2.
</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">RESULTS
      OF OPERATIONS </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">DISCLOSURE
      REGARDING FORWARD-LOOKING STATEMENTS </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Throughout
      this report, we make statements that may be deemed "forward-looking" statements
      within the meaning of Section&#160;27A of the Securities Act of 1933, as
      amended, and Section&#160;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. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">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. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">BACKGROUND</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      are in
      the business of acquisition, exploration, and development of natural gas and
      oil
      properties, and have completed an initial acquisition of oil and gas leases
      and
      related facilities and equipment as described below under &#8220;Plan of Operation.&#8221;
As set forth in detail below, on October 30, 2007, we filed for reorganization
      under Chapter 11 of the United States Bankruptcy Code with the United States
      Bankruptcy Court, District of Northern District of Texas.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Our
      common stock is quoted on the Over-The-Counter market and trades under the
      symbol CHAG.PK. As of May 1, 2008, there were </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">64,802,781</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">
      shares of our common stock issued and outstanding.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><u>Three
      Months Ended March 31, 2008 </u></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">We
      had no production operations in the first quarter of calendar year 2007. Our
      oil
      production operations began April 16</font><font style="DISPLAY: inline; FONT-SIZE: 8pt; COLOR: #000000; FONT-FAMILY: Times New Roman"><sup>th</sup></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">,
      2007 with an effective date of April 1</font><font style="DISPLAY: inline; FONT-SIZE: 8pt; COLOR: #000000; FONT-FAMILY: Times New Roman"><sup>st</sup></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">,
      2007. During the period ending December 31, 2007, we produced and sold 23,120
      barrels of oil and produced and sold 55,831 mcf gas. We had 84 wells actually
      producing oil and gas on April 16, 2007 and restored an additional 119 wells
      by
      December 31, 2007. In the three month period ended March 31, 2008, we produced
      and sold net 8,268 barrels of oil and produced and sold net 18,599 mcf gas,
      generating revenues of $937,354. During this period, we restored an additional
      7
      wells, so that at March 31, we had 210 wells actually producing.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">11</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PLAN
      OF
      OPERATION</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      April
      16, 2007, we closed the acquisition of assets from Caldwell Production Company,
      Inc., consisting of 48 mineral leases with 631 wells, of which approximately
      100
      were thought to be producing wells and 531 inactive well bores equipped with
      necessary production equipment, and related operating facilities and equipment
      including an office warehouse facility, ten pickup trucks, two pulling rigs,
      a
      backhoe, a winch truck and a water truck. The purchase price for the mineral
      leases and an existing office building including an attached warehouse/shop
      building valued at $81,630, was $5,000,000, and for the equipment $291,500.
      The
      oil and natural gas leases purchased are on approximately 8,000 acres in Gray
      and Carson Counties, Texas, with a well spacing of 10 acres, and are in the
      Panhandle Field, discovered in 1920. After closing the acquisition, we has
      opened corporate offices for our production and oil field service subsidiaries
      at the purchased facilities in Pampa, Texas. After the initial acquisition,
      the
      Gryphon Production Company subsidiary we have acquired additional trucks,
      including an electrical repair &#8220;bucket&#8221; truck, which is needed to restore
      electric power to several previously non-producing wells. The cost of this
      additional equipment was $34,000 and associated tools and equipment was $6,422.
      We have also acquired a replacement backhoe machine for $67,000. Subsequently,
      additional field equipment and tools were purchased for $31,184. We were also
      required to invest $38,949 in the rehabilitation and restoration of the office
      building.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      commenced operations on April 16, 2007 with what were 84 actually producing
      wells. As of December 31, 2007, 203 wells are producing. Productive capacity
      on
      April 16, 2007 was estimated to be 70 bopd and 90 mcfd. Productive capacity
      at
      March 31, 2008 is estimated to be 96 bopd and 198 mcfd gas. The oil is light
      sweet crude and the natural gas has very high heat content, 1600 to 2600
      btu/scf. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      following table is for the three months ended:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div align="left">
      <table border="0" cellpadding="0" cellspacing="0" id="ftable" width="60%">

          <tr>
            <td align="left" valign="bottom" width="40%" style="border-bottom: #ffffff solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td width="2%" style="border-bottom: #ffffff thin solid;">&#160;</td>
            <td colspan="2" valign="bottom" width="12%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">March
                31, 2008%</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #ffffff thin solid;">&#160;</td>
            <td colspan="2" valign="bottom" width="12%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">March
                31, 2007%</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #ffffff thin solid;">&#160;</td>
          </tr>
          <tr>
            <td align="left" valign="bottom" width="40%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Oil
                and Gas Sales</font></div>
            </td>
            <td width="2%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" colspan="2" valign="bottom" width="12%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: medium none;">&#160;</td>
            <td align="left" colspan="2" valign="bottom" width="12%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: medium none;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="40%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Oil
                Sales(Bbl)</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">8,268</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="40%" style="border-bottom: white solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Natural
                Gas Sales (Mcf)</font></div>
            </td>
            <td width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">18,599</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white thin solid;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: black thin solid;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white thin solid;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="40%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="40%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Average
                Sales Price:</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>
          <tr bgcolor="#d0ffd0">
            <td align="left" valign="bottom" width="40%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Oil,
                per Bbl:</font></div>
            </td>
            <td width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">95.07</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: #d0ffd0;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: #d0ffd0;">&#160;</td>
          </tr>
          <tr bgcolor="white">
            <td align="left" valign="bottom" width="40%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Gas,
                per MMCF:</font></div>
            </td>
            <td width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">$</font></div>
            </td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">8.05</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: white;">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="border-bottom: white;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px; FONT-FAMILY: Times New Roman">0</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="border-bottom: white;">&#160;</td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      current production levels for the first quarter of 2008 have increased over
      the
      fourth quarter of 2007. The first quarter production has increased by
      approximately 12 bopd and 9 mcfd gas. We produced 2663, 2729, and 2876 net
      barrels per month of oil in January, February, and March, respectively. There
      is
      no assurance that management will be able to continue to increase production,
      or
      to maintain current production levels.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Generally,
      in managing our business we must deal with many factors inherent in our
      industry. First and foremost is wide fluctuation of oil and gas prices. Oil
      and
      gas markets are cyclical and volatile, with future price movements difficult
      to
      predict. While our revenues are a function of both production and prices, wide
      swings in prices often have the greatest impact on our results of operations.
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      operations entail significant complexities. Advanced technologies requiring
      highly trained personnel are utilized in restoration of wells and production.
      The oil and gas industry is highly competitive. We compete with major and
      diversified energy companies, independent oil and gas companies, and individual
      operators. In addition, the industry as a whole competes with other businesses
      that supply energy to industrial, commercial, and residential end users.
</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">Our
      ability to recruit and retain experienced personnel is vital to the success
      of
      our endeavors.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">12</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      October 30, 2007, as discussed in more detail under &#8220;Liquidity and Capital
      Resources&#8221; below, due to notices of default received from Western National Bank
      and CapWest Resources, Inc., we filed a bankruptcy petition under Chapter 11
      of
      the United States Bankruptcy Code, and our operating subsidiaries, Gryphon
      Production Company, LLC and Gryphon Field Services, LLC, filed bankruptcy
      petitions under Chapter 11 of the Code on October 29 and October 30, 2007,
      respectively. At this time, the Company is managing its operations and those
      of
      its two subsidiaries as a debtor in possession. Our intention making in the
      Chapter 11 filings was to continue operations of the Company through the Chapter
      11 bankruptcy process and to emerge from the Chapter 11 reorganization as an
      operating company, with our financial structure reorganized, and where all
      of
      our creditors would receive the full amounts owed. However, there is no
      assurance that we will be able successfully to reorganize our company in this
      bankruptcy proceeding.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      have
      filed a Plan of Reorganization on March 1, 2008, and an amendment thereto on
      April 21, 2008. CapWest Resources, Inc. filed a plan of reorganization on April
      2, 2008, and we have filed on May 2, 2008, an objection to that plan.
</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><u>Liquidity
      &amp; Capital Resources</u></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As
      of
      March 31, 2008 the Company had $182,513&#160;of cash on hand. We have an
      accumulated deficit of $4,155,297 and have a stockholders' deficiency of
      $868,759 at March 31, 2008. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Loan
      Agreements with Western National Bank and CapWest Resources,
      Inc.</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">To
      finance the acquisition of the assets purchased from Caldwell Production
      Company, Inc., on April 13, 2007, we closed on a Loan Agreement with Western
      National Bank (&#8220;WNB&#8221;), Midland, Texas, for a senior loan facility (the &#8220;WNB Loan
      Agreement&#8221;). At the closing of the purchase of the Caldwell Assets, we drew down
      $2.3 million under the WNB Loan Agreement The interest rate under the WNB Loan
      Agreement is a variable rate equal to the prime rate as defined in this
      Agreement plus 2%, but in no event to be less than 9.25%.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      April
      13, 2007, we also entered into a Loan Agreement with CapWest Resources, Inc.,
      Midland, Texas (&#8220;CapWest&#8221;), for an advancing line of credit/term loan facility,
      under which we drew down at closing $2,700,000 for the balance of the purchase
      price of the leases, $291,500 for the equipment, $111,000 for bank fees, legal
      expenses and associated costs, and $130,000 for initial working capital. The
      interest rate under the CapWest Loan Agreement is a variable rate equal to
      the
      prime rate as defined in this Agreement plus 4%. Under the CapWest loan
      agreement, CapWest has a 2% overriding royalty interest in the Leases. After
      the
      payout of CapWest&#8217;s loan, or in the event that the Company is sold, this
      overriding royalty interest will convert to a 15% net revenue interest in the
      Leases. This interest may be purchased by us under a formula specified in this
      Agreement.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      April
      26, 2007 we drew $75,000 for additional working capital and start-up expenses.
      On May 6, 2007 we drew $88,800 to purchase a hedge floor for a portion of our
      oil production, as required by the loan agreements. On May 7, 2007 we drew
      $203,000 to fund lease operating expenses and well restorations. On June 14,
      2007 we drew $98,000 for the same purposes. The CapWest Loan Agreement has
      now
      been fully drawn to the initially agreed amount of $3,700,000.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Effective
      July 12, 2007, we executed an agreement ("Modification'), amending the WNB
      Term
      Note issued pursuant to the WNB Loan Agreement. The Modification changes the
      monthly payment date from the 15</font><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman"><sup>th</sup></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      to the
      25</font><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman"><sup>th</sup></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      of each
      month and extended the maturity date of the loan to April 25, 2010.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
      to the terms of the CapWest Loan Agreement, we have previously executed an
      assignment of overriding royalty interest under which we conveyed to CapWest
      a
      2% overriding royalty interest ("ORRI") in our leases, proportionately reduced
      to our net revenue interest. In addition to the aforementioned 2% ORRI, after
      payout of Cap West's loan (as defined in the CapWest Loan Agreement), CapWest
      will "back-in" for 15% of our gross oil and gas proceeds, conveyed in a Bill
      of
      Sale and Assignment of Contractual Rights dated April 13, 2007. We may
      repurchase this interest based upon a formula specified in the Cap West Loan
      Agreement. As of August 2, 2007, we entered into a new Bill of Sale and
      Assignment of Contractual Rights with CapWest that provides for an additional
      5%
      interest for Cap West in the gross oil and gas proceeds from our leases after
      payout of Cap West's loan, effectively resulting in an increase of the back-in
      from 15% to 20% of our gross oil and gas proceeds.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">13</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      received a notice of defaults dated September 7, 2007 from counsel for WNB
      and
      CapWest stating that we were in default of two financial covenants relating
      to
      our consolidated debt service coverage ratio under the WNB and CapWest loan
      documents. We subsequently received letters from WNB and CapWest, both dated
      September 12, 2007, waiving the previously stated events of default until
      October 15, 2007. Following the resignation of Bradley W. Fischer as our Chief
      Executive Officer effective October 16, 2007, we received notices dated that
      date from WNB and CapWest as to the existence of an event of default regarding
      our consolidated debt service coverage ratio, which had been waived by both
      financial institutions through October 15, 2007, and an event of default
      relating to the departure of Mr. Fischer as our Chief Executive Officer. As
      to
      the noticed default regarding our consolidated debt service coverage ratio,
      the
      October 16 notices from the lenders provided us until November 15, 2007 to
      take
      appropriate curative action. With regard to the management change, both lenders
      expressed a willingness to meet with Thomas Grantham, Mr. Fischer&#8217;s successor as
      our President and did, in fact, meet with Mr. Grantham. On October 22, 2007,
      we
      received an oral communication from a representative of one the lenders to
      the
      effect that the lenders would not waive this event of default and that they
      would not extend the November 15, 2007 compliance deadline for the debt service
      coverage ratio covenants. In continuing negotiations, on October 25, 2007,
      the
      lenders further advised that the banks would not foreclose on the Company&#8217;s
      assets if the Company agreed to pay the lenders in full by December 15, 2007,
      execute a release of the banks from liability, and deliver into escrow a deed
      in
      trust on all our properties and assets that would be released from escrow and
      delivered to the banks on December 15, 2007 if all loans were not paid in
      full.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Bankruptcy
      Filing under Chapter 11 of the Bankruptcy Code</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Due
      to
      the potential for an immediate event of default under the WNB and CapWest loan
      agreements, unless we signed additional documents with the banks with the
      required payoff of their loans by December 15, 2007, on October 30, 2007, we
      filed a bankruptcy petition under Chapter 11 of the United States Bankruptcy
      Code (the &#8220;Code&#8221;) with the United States Bankruptcy Court, Northern District of
      Texas. Our operating subsidiaries, Gryphon Production Company, LLC and Gryphon
      Field Services, LLC filed bankruptcy petitions under Chapter 11 of the Code
      on
      October 29 and October 30, 2007, respectively, with the same Court. At this
      time, the Company is managing its operations and those of its two subsidiaries
      as a debtor in possession.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      intention making in the Chapter 11 filings is to continue operations of the
      Company through the Chapter 11 bankruptcy process and to emerge from the Chapter
      11 reorganization as an operating company, with our financial structure
      reorganized, and where all of our creditors would receive the full amounts
      owed.
      In the context of our reorganization under Chapter 11 of the Code, we may be
      required to raise equity capital to fully rework wells that are currently not
      in
      production in the next 12 months and to finance our planned business operations.
      There are no assurances that we will be able to raise additional equity capital.
      In the event we are unable to obtain additional capital or funding we may be
      unable to reorganize successfully under Chapter 11 of the Code.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Reorganization
      Plans</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      filed
      a Plan of Reorganization dated March 1, 2008 (the &#8220;Plan&#8221;), providing for
      repayment of the WNB and CapWest loans over 42- to 60-month periods, the terms
      of the repayment being dependent on whether the particular lender accepts the
      Plan. Under the Plan as filed, the holders of common stock of the Company would
      retain all of their ownership interest. The Company&#8217;s oil and gas leases would
      be assumed under the Plan, and certain executory contracts would be assumed
      and
      certain others rejected.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">14</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      April
      2, 2008, CapWest Resources, Inc. filed its own plan of reorganization and
      disclosure statement to which we filed an objection on May 2, 2008.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      April
      21, 2008, we filed an amended Plan, in which we set forth a preliminary
      financing commitment we had received that would enable us to pay off our lenders
      and emerge from the Chapter 11 reorganization proceeding.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      May 2,
      2008, we filed our objections to CapWest Resouces, Inc.&#8217;s plan of reorganization
      and disclosure statement. In this filing we included professional evaluations
      of
      the value of our oil and gas reserves that show the value of our reserves
      substantially to exceed the sum of our obligations to Western National Bank
      and
      CapWest Resources, Inc.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">CRITICAL
      ACCOUNTING POLICIES</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Securities and Exchange Commission 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.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company assesses potential impairment of its long-lived assets, which include
      its property and equipment and its identifiable intangibles such as deferred
      charges under the guidance of SFAS 144 "Accounting for the Impairment or
      Disposal of Long-Lived Assets". The Company must continually determine if a
      permanent impairment of its long-lived assets has occurred and write down the
      assets to their fair values and charge current operations for the measured
      impairment.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ITEM
      3.</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">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 three
      months or less. Our interest income is sensitive to changes in the general
      level
      of U.S. interest rates. We do not have significant short-term investments,
      and
      due to the short-term nature of our investments, we believe that there is not
      a
      material risk exposure.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 54pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      are
      exposed to interest rate risk with borrowing under our loans with Western
      National Bank (&#8220;WNB&#8221;) and CapWest Resources (&#8220;CapWest&#8221;). </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      interest rate under the WNB Loan Agreement is a variable rate equal to the
      prime
      rate as defined in this Agreement plus 2%, but in no event to be less than
      9.25%. The interest rate under the CapWest Loan Agreement is a variable rate
      equal to the prime rate as defined in this Agreement plus 4%.</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      Increases or decreases in the prime rate will cause our interest obligations
      under these Agreements to increase or decrease correspondingly, subject to
      the
      floor in the WNB Agreement.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 36.8pt">&#160;</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 54pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">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.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">15</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 54pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">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.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ITEM
      4T.
      CONTROLS AND PROCEDURES</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company's President and Chief Financial Officer is primarily responsible for
      the accuracy of the financial information that is presented in this quarterly
      Report. This officer has as of the close of the period covered by this Quarterly
      Report, evaluated the Company's disclosure controls and procedures (as defined
      in Rules 13a-4c and 15d-14c promulgated under the Securities Exchange Act of
      1934) and determined that such controls and procedures were effective in
      ensuring that material information relating to the Company was made known to
      him
      during the period covered by this Quarterly Report. Since his evaluation, no
      changes were made to the Company's internal controls or in other factors that
      could significantly affect these controls.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PART
      II&#8212;OTHER INFORMATION</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ITEM
      1.
      Legal Proceedings.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 54pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      October 30, 2007, we filed a bankruptcy petition under Chapter 11 of the United
      States Bankruptcy Code (the &#8220;Code&#8221;) with the United States Bankruptcy Court,
      Northern District of Texas. Our operating subsidiaries, Gryphon Production
      Company, LLC and Gryphon Field Services, LLC filed bankruptcy petitions under
      Chapter 11 of the Code on October 29 and October 30, 2007, respectively, with
      the same Court. At this time, the Company is managing its operations and those
      of its two subsidiaries as a debtor in possession. On March 1, 2008, we filed
      a
      Plan of Reorganization with the Court, and on April 21, 2008 filed an amendment
      to that plan. On April 2, 2008, CapWest Resources, Inc. filed its own plan
      of
      reorganization and disclosure statement to which we filed a formal objection
      on
      May 2, 2008.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ITEM
      6.
      Exhibits. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 36pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">31</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certification
                of Principal Executive Officer and Chief Financial Officer Pursuant
                to
                Section 302 of The Sarbanes Oxley Act of
                2002.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="line-height: 1.25;">
            <td style="width: 36pt;">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">32
                </font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certification
                of Principal Executive Officer and Chief Financial Officer Pursuant
                to 18
                U.S.C. Section 1350 as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">16</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div><br>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">SIGNATURES</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">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.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">
      <table align="center" bgcolor="#ffffff" border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr valign="top" bgcolor="#ffffff">
            <td width="50%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;</font></td>
            <td width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;</font></td>
            <td width="49%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;</font></td>
          </tr>
          <tr valign="top" bgcolor="#ffffff">
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;</font></td>
            <td colspan="2"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">Chancellor
              Group,
              Inc. </font>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><strong><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Registrant)</font></strong></div>
            </td>
          </tr>
          <tr valign="top" bgcolor="#ffffff">
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;<br>&#160;</font></td>
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;<br>&#160;</font></td>
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;<br>&#160;</font></td>
          </tr>
          <tr valign="top" bgcolor="#ffffff">
            <td>&#160;</td>
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">By:&#160;&#160;</font></td>
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">/s/&#160;Thomas
              Grantham </font></td>
          </tr>
          <tr valign="top" bgcolor="#ffffff">
            <td colspan="2"><font style="FONT-FAMILY: " size="1">&#160;</font></td>
            <td align="left">
              <hr style="COLOR: black" align="left" noshade size="2" width="80%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">President
                and</font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Chief
                Financial Officer </font></div>
            </td>
          </tr>
          <tr valign="top" bgcolor="#ffffff">
            <td colspan="2"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;</font></td>
            <td>&#160;</td>
          </tr>

      </table><font size="2">Date:&#160;May 14,
      2008</font><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br>&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">EXHIBIT
      INDEX </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">
      <table border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td align="justify" valign="top" width="15%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Exhibit
                Number</font></div>
            </td>
            <td width="2%" style="border-bottom: #ffffff thin solid;">&#160;</td>
            <td align="justify" valign="top" width="83%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Description
                </font></div>
            </td>
          </tr>
          <tr>
            <td align="justify" valign="top" width="15%">&#160;</td>
            <td width="2%">&#160;</td>
            <td align="justify" valign="top" width="83%">&#160;</td>
          </tr>
          <tr>
            <td align="justify" valign="top" width="15%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">31</font></div>
            </td>
            <td width="2%">&#160;</td>
            <td align="justify" valign="top" width="83%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certification
                of Principal Executive Officer and Chief Financial Officer Pursuant
                to
                Section 302 of the Sarbanes Oxley Act of 2002.</font></div>
            </td>
          </tr>
          <tr>
            <td align="left" valign="top" width="15%">&#160;</td>
            <td width="2%">&#160;</td>
            <td align="left" valign="top" width="83%">&#160;</td>
          </tr>
          <tr>
            <td align="left" valign="top" width="15%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">32
                </font></div>
            </td>
            <td width="2%">&#160;</td>
            <td align="left" valign="top" width="83%" style="border-bottom: medium none;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certification
                of Principal Executive Officer and Chief Financial Officer Pursuant
                to 18
                U.S.C. Section 1350 as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Oxley Act of 2002.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div>&#160;</div>
    <div>&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">&#160;</div>
      </div>
      <div id="PN">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">17</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">&#160;</div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
  </body>
</html>
{"company-data": {"conformed-name": "CHANCELLOR GROUP INC/", "cik": "0000894544", "assigned-sic": "1311", "irs-number": "870438647", "state-of-incorporation": "NV", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-30219", "film-number": "08831383"}, "business-address": {"street1": "1800 EAST SAHARA AVENUE", "street2": "SUITE 172", "city": "LAS VEGAS", "state": "NV", "zip": "89104", "phone": "7027927479"}, "mail-address": {"street1": "1800 EAST SAHARA AVENUE", "street2": "SUITE 172", "city": "LAS VEGAS", "state": "NV", "zip": "89104"}, "former-company": {"former-conformed-name": "NIGHTHAWK CAPITAL INC", "date-changed": "19940426"}}
Unassociated Document
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, 2008
o
TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
                ACT OF 1934
For
                the transition period from
To
Commission
      file number 000-30219
Chancellor
      Group, Inc.
(Name
      of
      small business issuer 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
(Address
      of principal executive offices)
(806-688-9697)
(Issuer's
      telephone number)
Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.
x
Yes
o
No
Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).
o
Yes
x
No
Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a smaller reporting company. (Check One):
Large
                accelerated filer
o
Accelerated
                filer
o
Non-accelerated
                filer
o
Smaller
                reporting company
x
(Do
      not check if a smaller reporting company)
APPLICABLE
      ONLY TO CORPORATE ISSUERS
The
      number of shares outstanding the issuer's common stock, $.001 par value, was
      64,802,781 as of May 13, 2008.
Table
      of
      Contents
PART
                I
FINANCIAL
                INFORMATION
Item
                1.
Financial
                Statements
1
Item
                2.
Management's
                Discussion and Analysis or Plan of Operation
11
Item
                3.
Quantitative
                and Qualitative Disclosures about Market Risk
Item
                4T.
Controls
                and Procedures
16
PART
                II
Item
                1.
Legal
                Proceedings
16
Item
                6.
Exhibits
16
EXHIBIT
                INDEX
17
Item
      1. Financial Statements
Chancellor
      Group, Inc.
(A
      Development Stage Company)
I
      N D
      E X
Page
                No.
Balance
                Sheets as at March 31, 2008 (Unaudited) and December 31, 2007
                (Audited)
2
Statements
                of Operations
For
                the Three Months Ended March 31, 2008 and 2007 (Unaudited)
3
Statements
                of Cash Flows
For
                the Three Months Ended March 31, 2008 and 2007 (Unaudited)
4
Notes
                to Financial Statements (Unaudited)
5-10
1
Chancellor
      Group, Inc.
CONSOLIDATED
      BALANCE SHEETS
March
                31, 2008
(Unaudited)
December
                31,
2007
                (Audited)
ASSETS
Current
                Assets
Cash
                in Bank
$
182,583
$
218,118
Revenue
                Receivable
367,667
248,680
Other
920
0
Total
                Current Assets
551,170
466,797
Fixed
                Assets
Leasehold
                Costs - Developed
4,988,183
4,938,564
Office
                Building & Equipment
127,463
126,073
Fleet
                - Road
65,298
62,263
Heavy
                Field Equipment & Tools
393,150
405,593
Accumulated
                Depreciation
(
                549,782
)
(411,495
)
Total
                Fixed Assets
5,024,312
5,120,999
Other
                Assets
Unamortized
                Debt Expense
56,678
55,500
Prepaid
                Long Term Hedge
44,400
70,848
Deposits
4,833
250
Total
                Other Assets
105,911
0
Total
                Assets
$
5,681,393
$
5,714,394
LIABILITIES
                AND STOCKHOLDERS' EQUITY
Current
                Liabilities
Accounts
                Payable -- Chancellor
$
109,828
$
109,828
Accounts
                Payable - Gryphon Production
317,217
264,800
Accrued
                Interest Payable
146,726
113,028
Miscellaneous
                Accounts Payable & Suspense
34,114
10,044
Stock
                Subscription Payable
1,602
1,602
Total
                Current Liabilities
609,487
499,302
Long
                Term Liabilities
Note
                Payable -- Senior Debt
2,078,177
2,108,332
Note
                Payable - Subordinated Debt
3,797,345
3,797,345
Installment
                Loan - Equipment
59,983
63,576
Note
                Payable - Investors
5,160
5,160
Total
                Long Term Liabilities
5,940,665
5,408,344
Stockholders'
                Equity
Common
                Stock: $.001 par value, 250,000,000
shares
                authorized, 64,802,781 shares
issued
                and outstanding at December 31, 2007
and
                March 31, 2008
64,803
62,605
Paid
                in Capital
3,221,735
3,223,733
Accumulated
                Deficit
(
                4,155,297
)
(
                4,045,659
)
Total
                Stockholders' Equity
(
                868,759
)
(
                759,321
)
Total
                Liabilities and Stockholders' Equity
$
5,681,393
$
5,714,394
See
      Notes
      to Consolidated Financial Statements
2
Chancellor
      Group, Inc.
CONSOLIDATED
      STATEMENT OF OPERATIONS
FOR
      THE
      THREE MONTHS ENDED MARCH 31, 2008 AND MARCH 31, 2007
(Unaudited)
March
                31, 2008
March
                31, 2007
Sales
                - Net of Royalties Paid to Others
Oil
$
786,495
$
0
Natural
                Gas
149,709
Other
                Income
1,150
0
Gross
                Revenue
937,354
0
Severance
                Taxes
46,501
Marketing
                Fees
7,733
Royalties
                Paid
12
0
Net
                Revenue
883,108
0
Operating
                Expenses
Lease
                Operating Expense
317,665
Other
                Operating Expense
344,469
General
                & Administrative Expense
16,735
12,015
Depreciation,
                Depletion & Amortization
138,287
0
Total
                Operating Expense
817,156
0
Income
                (loss) From Operations
65,952
(
                12,015
)
Other
                Income (Expenses)
Organization
                Costs
Hedge
                Costs Amortization
11,100
0
Total
                Other Income (Expense)
11,100
0
Financing
                Charges
Interest
150,319
Bank
                Fees Amortization
14,170
0
Total
                Financing Charges
164,489
0
Income
                (Loss) before provision for Income
Taxes
(
                109,637
)
(
                12,015
)
Provision
                for Income Taxes
0
0
Net
                Income (Loss)
$
(
                109,637
)
$
(
                12,015
)
Net
                Income (Loss) per Share
(Basic
                and Fully Diluted)
$
(
                *
)
$
(
                *
)
Weighted
                Average Number of Common Shares
Outstanding
64,802,781
59,580,030
*
                Less than $.01 per Share
See
      Notes
      to Consolidated Financial Statements
3
Chancellor
      Group, Inc.
CONSOLIDATED
      STATEMENT OF CASH FLOWS
FOR
      THE
      THREE MONTHS ENDED MARCH 31, 2008 AND MARCH 31, 2007
(Unaudited)
March
                31, 2008
March
                31, 2007
Cash
                Flows From Operating Activities:
Net
                Income (loss)
$
(
                109,637
)
$
(
                12,016
)
Adjustments
                to reconcile net income
(loss)
                to net cash provided by
(used
                for) operating activities:
Depreciation
                & Amortization
138,287
(Increase)
                Decrease in Operating Assets
(
                99,222
)
Increase
                (Decrease) in Operating
Liabilities
110,185
0
Net
                Cash Provided by (used for)
Operating
                Activities
39,613
(
                0
)
Cash
                Flows From Investing Activities
Capital
                Expenditures
(
                41,599
)
0
Net
                Cash Provided by (used for)
Investing
                Activities
(
                41,599
)
0
Cash
                Flows From Financing Activities
Notes
                Payable
(
                33,749
)
5,000
Sales
                of Common Stock
200
22,500
Net
                Cash Provided by (used for)
Financing
                Activities
(
                33,549
)
27,500
Net
                Increase (Decrease) in Cash
(
                35,535
)
15,484
Cash
                at the Beginning of the Period
218,118
830
Cash
                at the End of the Period
$
182,583
$
16,314
See
      Notes
      to Consolidated Financial Statements
4
Chancellor
      Group, Inc.
NOTES
      TO
      FINANCIAL STATEMENTS
March
      31,
      2008
NOTE
      1.
      ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES:
Chancellor
      Group, Inc. (the "Company") was incorporated in the state of Utah on May 2,
      1986, and then, on December 31, 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. In 1996 the
      Company's corporate name was changed from Nighthawk Capital, Inc. to Chancellor
      Group, Inc.
On
      April
      16, 2007, the Company closed the acquisition of assets from Caldwell Production
      Company, Inc., consisting of 48 mineral leases with 631 wells, of which
      approximately 100 were believed to be producing wells and 531 inactive well
      bores equipped with necessary production equipment, and related operating
      facilities and equipment including an office warehouse facility, ten pickup
      trucks, two pulling rigs, a backhoe, a winch truck and a water truck. The
      purchase price for such oil field equipment was $291,500. The purchase price
      for
      the mineral leases and an existing office building, including an attached
      warehouse/shop building valued at $81,630, was $5,000,000. The oil and natural
      gas leases purchased are on approximately 8,000 acres in Gray and Carson
      Counties, Texas, with a well spacing of 10 acres, and are in the Panhandle
      Field, discovered in 1920. After closing the acquisition, the Company has opened
      corporate offices for our production and oil field service subsidiaries at
      the
      purchased facilities in Pampa, Texas.
Productive
      capacity at December 31, 2007, was estimated to be 84 bopd and 198 mcfd gas.
      As
      of March 31, 2008, 210 wells are producing - an increase of 7 wells since the
      end of the year. Productive capacity at March 31, 2008 is estimated to be 96
      bopd and 207 mcfd gas. The oil is light sweet crude and the natural gas has
      very
      high heat content, 1600 to 2600 btu/scf.
As
      set
      forth in Note 4 below, on October 30, 2007, we filed for reorganization under
      Chapter 11 of the United States Bankruptcy Code with the United States
      Bankruptcy Court, District of Northern District of Texas.
Principles
      of Consolidation
The
      accompanying consolidated financial statements include the accounts of
      Chancellor Group, Inc., and those of 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.
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.
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.
5
Cash
      and
      Cash Equivalents
The
      Company considers all highly liquid investments with an original maturity of
      three months or less as cash equivalents.
Accounting
      Year
The
      Company employs a calendar accounting year. The Company recognizes income and
      expenses based on the accrual method of accounting.
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.
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.
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. This life is estimated
      to be five years. The useful life of the office building and warehouse is
      estimated to be 20 years.
Depletion
The
      carrying value of the mineral leases is depleted over the minimum estimated
      productive life of the leases, or ten years.
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.
Products
      and Services, Geographic Areas and Major Customers
The
      Company plans to develop its domestic oil and gas properties, located in Gray
      and Carson counties, Texas, and possibly to acquire additional producing oil
      and
      gas properties. The Company's major customers are Valero Marketing, DCP
      Midstream, and Eagle Rock Energy.
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.
6
Financial
      Instruments
The
      carrying value of the Company's financial instruments, including cash and cash
      equivalents, accounts receivable, accounts payable, and long term debt, as
      reported in the accompanying balance sheet, approximates fair
      value.
Employee
      Stock-Based Compensation
The
      Company uses the intrinsic value method of accounting for employee stock-based
      compensation.
Recent
      Accounting Pronouncements
In
      March
      2006, the Financial Accounting Standards Board ("FASB") issued Statement of
      Financial Accounting Standard ("SFAS") No. 155, "Accounting for Certain Hybrid
      Financial Instruments." SFAS 155 resolves certain accounting issues related
      to
      various hybrid financial instruments. The Company has adopted the provisions
      of
      SFAS No. 155 which are effective for fiscal years beginning after September
      15,
      2006. The adoption did not have a material effect on the results of operations
      of the Company.
In
      March
      2006, the FASB issued SFAS No. 156 "Accounting for Servicing of Financial
      Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and
      Servicing of Financial Assets and Extinguishments of Liabilities". This
      statement requires all separately recognized servicing assets and servicing
      liabilities be initially measured at fair value, if practicable, and permits
      for
      subsequent measurement using either fair value measurement with changes in
      fair
      value reflected in earnings or the amortization and impairment requirements
      of
      Statement No. 140. The Company has adopted the provisions of SFAS No. 156,
      which
      are effective in general for an entity's fiscal year beginning after September
      15, 2006. The adoption did not have a material effect on the results of
      operations of the Company.
In
      December 2006, the FASB issued SFAS No. 157 "Fair Value Measurements", to
      improve consistency and comparability in fair value measurements, and to expand
      related disclosures. The Company has adopted the provisions of SFAS No. 157,
      which are effective for financial statements for fiscal years beginning after
      November 15, 2007. The adoption did not have a material effect on the results
      of
      operations of the Company.
In
      September 2006 the FASB issued SFAS No. 158, "Employers' Accounting for Defined
      Benefit Pension and Other Post Retirement Plans". SFAS No. 158 requires the
      Company to recognize the funded status of its post retirement plans on the
      balance sheet and recognize as a component of accumulated other comprehensive
      income the gains and losses, prior service costs or credits that occur during
      the financial year but are not recognized as components of the Company's pension
      costs This Statement is effective as of the beginning of its first
      fiscal year that begins after December 15, 2008. The Company does not expect
      application of SFAS No. 156 to have a material affect on its financial
      statements.
In
      February 2007 the FASB issued SFAS No. 159, "The Fair Value Option for Financial
      Assets and Financial Liabilities - Including an amendment of FASB Statement
      No.
      115". SFAS No. 159 permits entities to choose to measure many financial
      instruments and certain other items at fair value. The amendment to SFAS No.
      115
      applies to all entities with investments in available-for-sale or trading
      securities. The statement is effective for fiscal years beginning after November
      15, 2007. The Company does not expect application of SFAS No. 159 to have a
      material affect on its financial statements.
NOTE
      2.
      INCOME TAXES
Deferred
      income taxes arise from the temporary differences between financial statement
      and income tax recognition of net operating losses. These loss carryovers are
      limited under the Internal Revenue Code should a significant change in ownership
      occur. The Company accounts for income taxes pursuant to SFAS 109.
7
At
      December 31, 2007, the Company had approximately $4,009,659 in unused federal
      net operating loss carry-forwards, which begin to expire principally in the
      year
      2011. A deferred tax asset of approximately $802,000 resulting from the loss
      carry-forward has been offset by a 100% valuation allowance. The increase in
      the
      valuation allowance from year end 2006 to the end of 2007 was approximately
      $142,000. The net operating loss carry-forwards may be limited under the Change
      of Control provisions of the Internal Revenue Code section 382.
At
      March
      31, 2008, the Company had approximately $4,155,297 in unused federal net
      operating loss carry-forwards, which begin to expire in the year 2011. A
      deferred tax asset of approximately $831,000 resulting from the loss
      carry-forward has been offset by a 100% valuation allowance. The increase in
      the
      valuation allowance from year end 2007 to the end of March 31, 2008 was
      approximately $29,000. The net operating loss carry-forwards may be limited
      under the Change of Control provisions of the Internal Revenue Code section
      382.
NOTE
      3.
      STOCKHOLDERS' EQUITY
Common
      Stock
The
      Company has 250,000,000 authorized shares of common stock, par value $.001,
      with
      64,802,781 shares issued and outstanding as of March 31, 2008 which was
      unchanged from the year end.
Preferred
      Stock
Preferred
      Series B 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 at into 166.667 shares of the Company's
      common stock upon election by the shareholder, with dates and terms set by
      the
      Board. No shares of Series B preferred stock are outstanding.
Stock
      Options
Non-employee
      Stock Options
The
      Company accounts for non-employee stock options under SFAS 123 (as amended
      by
      SFAS 148), whereby options costs are recorded based on the fair value of the
      consideration received or the fair value of the equity instruments issued,
      whichever is more reliably measurable. During the years ended December 31,
      2006
      and 2007, no options were issued, exercised or cancelled. There were no stock
      options issued in the first quarter of 2008.
The
      Company currently has stock options outstanding to various individuals in the
      following amounts: 2,000,000 options exercisable for one share of common stock
      at an exercise price of $0.025 per share, currently exercisable, expiring
      December 31, 2009, and 4,000,000 options exercisable for one share of common
      stock at an exercise price of $0.02 per share, currently exercisable, expiring
      December 31, 2009.
In
      addition, at the closing of the purchase of the Caldwell Assets, pursuant to
      an
      Agreement to Issue Warrants, dated April 13, 2007, with CapWest Resources,
      Inc.
      ("CapWest"), we also issued CapWest a warrant ("CapWest Warrants") to purchase
      2,000,000 shares of our common stock, at a purchase price of $0.001 per share,
      which warrant is exercisable at any time up to April 13, 2012. CapWest has
      a put
      option during the period beginning on the first to occur of the following dates
      (a) the second anniversary of our Loan Agreement with CapWest; or (b) the date
      when the Company shall have paid CapWest's loan in full to put the CapWest
      Warrants to the Company for repurchase at an exercise price of $1,000,000.
      These
      amounts are unchanged between December 31, 2007 and March 31, 2008.
Employee
      Stock Options
The
      Company accounts for non-employee stock options under SFAS 123 (as Amended
      by
      SFAS 148). The Company issued no employee stock options and had none outstanding
      at the end of 2005, 2006 or as of the close of the year ending December 31,
      2007. There were no stock options issued in the first quarter of
      2008.
8
NOTE
      4.
      GOING CONCERN UNCERTAINTY
These
      financial statements are presented assuming the Company will continue as a
      going
      concern. The Company has had recurring losses from operations, negative working
      capital, and stockholders' equity deficiency. This raises substantial doubt
      about its ability to continue as a going concern. Management's plan in regard
      to
      these matters includes restoring sufficient production capacity from the
      recently acquired properties so as to achieve positive cash flow, as well as
      raising working capital to assure the Company's viability, through private
      or
      public equity offerings and/or debt financing; and acquiring and developing
      profitable oil and gas properties. There can be no assurance that either
      operating or capital market transactions will be successful.
The
      Company filed a bankruptcy petition on October 30, 2007 under Chapter 11 of
      the
      United States Bankruptcy Code, and our operating subsidiaries, Gryphon
      Production Company, LLC and Gryphon Field Services, LLC, filed bankruptcy
      petitions under Chapter 11 of the Code on October 29 and October 30, 2007,
      respectively. At this time, the Company is managing its operations and those
      of
      its two subsidiaries as a debtor in possession. Our intention making in the
      Chapter 11 filings was to continue operations of the Company through the Chapter
      11 bankruptcy process and to emerge from the Chapter 11 reorganization as an
      operating company, with our financial structure reorganized, and where all
      of
      our creditors would receive the full amounts owed. However, there is no
      assurance that we will be able successfully to reorganize our company in this
      bankruptcy proceeding.
NOTE
      5.
      CONTINGENT LIABILITY
On
      August
      4, 2007, the Company received a letter from David L. Kagel, a former attorney
      for the Company, indicating his intention to initiate an arbitration proceeding
      or to file a lawsuit for recovery of $50,489 (including interest) for services
      rendered over several years under prior management. The Company believes the
      claim is without merit and that it has a number of counterclaims against Mr.
      Kagel. No further action has occurred regarding this issue.
NOTE
      6.
      DEBT
To
      finance the acquisition of the assets purchased from Caldwell Production
      Company, Inc., on April 13, 2007, we closed on a Loan Agreement with Western
      National Bank ("WNB"), Midland, Texas, for a senior loan facility (the "WNB Loan
      Agreement"). At the closing of the purchase of the Caldwell Assets, we drew down
      $2.3 million under the WNB Loan Agreement The interest rate under the WNB Loan
      Agreement is a variable rate equal to the prime rate as defined in this
      Agreement plus 2%, but in no event to be less than 9.25%.
April
      13,
      2007, we also entered into a Loan Agreement with CapWest Resources, Inc.,
      Midland, Texas, for an advancing line of credit/term loan facility, under which
      we drew down at closing $2,700,000 for the balance of the purchase price of
      the
      leases, $291,500 for the equipment, $111,000 for bank fees, legal expenses
      and
      associated costs, and $130,000 for initial working capital. The interest rate
      under the CapWest Loan Agreement is a variable rate equal to the prime rate
      as
      defined in this Agreement plus 4%. Under the CapWest loan agreement, CapWest
      has
      a 2% overriding royalty interest in the Leases.
After
      the
      payout of CapWest's loan, or in the event that the Company is sold, this
      overriding royalty interest will convert to a 15% net revenue interest in the
      Leases. This interest may be purchased by us under a formula specified in this
      Agreement. The CapWest Loan Agreement has now been fully drawn to the initially
      agreed amount of $3,700,000.
On
      August
      2, 2007, we agreed in principle, subject to definitive documentation, with
      CapWest to amend the CapWest Loan Agreement in order to increase the loan by
      $250,000. The terms of the agreement in principle were: a) The Company must
      pay
      accrued interest thru July 30, by August 20, 2007. The Company has paid $42,000
      in August, and must pay an additional $85,000 by that date; b) CapWest agreed
      to
      require monthly interest only thereafter, until December 31, 2007; c) The
      Company agreed to raise $250,000 in common equity by October 31,2007; d) The
      Company agreed to reduce administrative salaries by $25,000 per month; e) The
      net revenue interest after payout provided in the CapWest loan was increased
      from 15% to 20%.
9
On
      October 30, 2008 the Company filed a bankruptcy petition under Chapter 11 of
      the
      United States Bankruptcy Code, and our operating subsidiaries, Gryphon
      Production Company, LLC and Gryphon Field Services, LLC, filed bankruptcy
      petitions under Chapter 11 of the Code on October 29 and October 30, 2007,
      respectively. The current loan balances due to WNB are $2,078,177 and $59,983
      and are currently subject to interest only payments. The current loan balance
      due to CapWest is $3,797,345 and is also currently subject to interest only
      payments.
Note
      7.
      ACCUMULATED COMPENSATED ABSENCES
It
      is the
      Company's policy to permit employees to accumulate a limited amount of earned by
      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.
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.
BACKGROUND
We
      are in
      the business of acquisition, exploration, and development of natural gas and
      oil
      properties, and have completed an initial acquisition of oil and gas leases
      and
      related facilities and equipment as described below under "Plan of Operation."
As set forth in detail below, on October 30, 2007, we filed for reorganization
      under Chapter 11 of the United States Bankruptcy Code with the United States
      Bankruptcy Court, District of Northern District of Texas.
Our
      common stock is quoted on the Over-The-Counter market and trades under the
      symbol CHAG.PK. As of May 1, 2008, there were
64,802,781
shares of our common stock issued and outstanding.
Three
      Months Ended March 31, 2008
We
      had no production operations in the first quarter of calendar year 2007. Our
      oil
      production operations began April 16
th
,
      2007 with an effective date of April 1
st
,
      2007. During the period ending December 31, 2007, we produced and sold 23,120
      barrels of oil and produced and sold 55,831 mcf gas. We had 84 wells actually
      producing oil and gas on April 16, 2007 and restored an additional 119 wells
      by
      December 31, 2007. In the three month period ended March 31, 2008, we produced
      and sold net 8,268 barrels of oil and produced and sold net 18,599 mcf gas,
      generating revenues of $937,354. During this period, we restored an additional
      7
      wells, so that at March 31, we had 210 wells actually producing.
11
PLAN
      OF
      OPERATION
On
      April
      16, 2007, we closed the acquisition of assets from Caldwell Production Company,
      Inc., consisting of 48 mineral leases with 631 wells, of which approximately
      100
      were thought to be producing wells and 531 inactive well bores equipped with
      necessary production equipment, and related operating facilities and equipment
      including an office warehouse facility, ten pickup trucks, two pulling rigs,
      a
      backhoe, a winch truck and a water truck. The purchase price for the mineral
      leases and an existing office building including an attached warehouse/shop
      building valued at $81,630, was $5,000,000, and for the equipment $291,500.
      The
      oil and natural gas leases purchased are on approximately 8,000 acres in Gray
      and Carson Counties, Texas, with a well spacing of 10 acres, and are in the
      Panhandle Field, discovered in 1920. After closing the acquisition, we has
      opened corporate offices for our production and oil field service subsidiaries
      at the purchased facilities in Pampa, Texas. After the initial acquisition,
      the
      Gryphon Production Company subsidiary we have acquired additional trucks,
      including an electrical repair "bucket" truck, which is needed to restore
      electric power to several previously non-producing wells. The cost of this
      additional equipment was $34,000 and associated tools and equipment was $6,422.
      We have also acquired a replacement backhoe machine for $67,000. Subsequently,
      additional field equipment and tools were purchased for $31,184. We were also
      required to invest $38,949 in the rehabilitation and restoration of the office
      building.
We
      commenced operations on April 16, 2007 with what were 84 actually producing
      wells. As of December 31, 2007, 203 wells are producing. Productive capacity
      on
      April 16, 2007 was estimated to be 70 bopd and 90 mcfd. Productive capacity
      at
      March 31, 2008 is estimated to be 96 bopd and 198 mcfd gas. The oil is light
      sweet crude and the natural gas has very high heat content, 1600 to 2600
      btu/scf.
The
      following table is for the three months ended:
March
                31, 2008%
March
                31, 2007%
Oil
                and Gas Sales
Oil
                Sales(Bbl)
8,268
0
Natural
                Gas Sales (Mcf)
18,599
0
Average
                Sales Price:
Oil,
                per Bbl:
$
95.07
0
Gas,
                per MMCF:
$
8.05
0
Our
      current production levels for the first quarter of 2008 have increased over
      the
      fourth quarter of 2007. The first quarter production has increased by
      approximately 12 bopd and 9 mcfd gas. We produced 2663, 2729, and 2876 net
      barrels per month of oil in January, February, and March, respectively. There
      is
      no assurance that management will be able to continue to increase production,
      or
      to maintain current production levels.
Generally,
      in managing our business we must deal with many factors inherent in our
      industry. First and foremost is wide fluctuation of oil and gas prices. Oil
      and
      gas markets are cyclical and volatile, with future price movements difficult
      to
      predict. While our revenues are a function of both production and prices, wide
      swings in prices often have the greatest impact on our results of operations.
Our
      operations entail significant complexities. Advanced technologies requiring
      highly trained personnel are utilized in restoration of wells and production.
      The oil and gas industry is highly competitive. We compete with major and
      diversified energy companies, independent oil and gas companies, and individual
      operators. In addition, the industry as a whole competes with other businesses
      that supply energy to industrial, commercial, and residential end users.
Our
      ability to recruit and retain experienced personnel is vital to the success
      of
      our endeavors.
12
On
      October 30, 2007, as discussed in more detail under "Liquidity and Capital
      Resources" below, due to notices of default received from Western National Bank
      and CapWest Resources, Inc., we filed a bankruptcy petition under Chapter 11
      of
      the United States Bankruptcy Code, and our operating subsidiaries, Gryphon
      Production Company, LLC and Gryphon Field Services, LLC, filed bankruptcy
      petitions under Chapter 11 of the Code on October 29 and October 30, 2007,
      respectively. At this time, the Company is managing its operations and those
      of
      its two subsidiaries as a debtor in possession. Our intention making in the
      Chapter 11 filings was to continue operations of the Company through the Chapter
      11 bankruptcy process and to emerge from the Chapter 11 reorganization as an
      operating company, with our financial structure reorganized, and where all
      of
      our creditors would receive the full amounts owed. However, there is no
      assurance that we will be able successfully to reorganize our company in this
      bankruptcy proceeding.
We
      have
      filed a Plan of Reorganization on March 1, 2008, and an amendment thereto on
      April 21, 2008. CapWest Resources, Inc. filed a plan of reorganization on April
      2, 2008, and we have filed on May 2, 2008, an objection to that plan.
Liquidity
      & Capital Resources
As
      of
      March 31, 2008 the Company had $182,513 of cash on hand. We have an
      accumulated deficit of $4,155,297 and have a stockholders' deficiency of
      $868,759 at March 31, 2008.
Loan
      Agreements with Western National Bank and CapWest Resources,
      Inc.
To
      finance the acquisition of the assets purchased from Caldwell Production
      Company, Inc., on April 13, 2007, we closed on a Loan Agreement with Western
      National Bank ("WNB"), Midland, Texas, for a senior loan facility (the "WNB Loan
      Agreement"). At the closing of the purchase of the Caldwell Assets, we drew down
      $2.3 million under the WNB Loan Agreement The interest rate under the WNB Loan
      Agreement is a variable rate equal to the prime rate as defined in this
      Agreement plus 2%, but in no event to be less than 9.25%.
On
      April
      13, 2007, we also entered into a Loan Agreement with CapWest Resources, Inc.,
      Midland, Texas ("CapWest"), for an advancing line of credit/term loan facility,
      under which we drew down at closing $2,700,000 for the balance of the purchase
      price of the leases, $291,500 for the equipment, $111,000 for bank fees, legal
      expenses and associated costs, and $130,000 for initial working capital. The
      interest rate under the CapWest Loan Agreement is a variable rate equal to
      the
      prime rate as defined in this Agreement plus 4%. Under the CapWest loan
      agreement, CapWest has a 2% overriding royalty interest in the Leases. After
      the
      payout of CapWest's loan, or in the event that the Company is sold, this
      overriding royalty interest will convert to a 15% net revenue interest in the
      Leases. This interest may be purchased by us under a formula specified in this
      Agreement.
On
      April
      26, 2007 we drew $75,000 for additional working capital and start-up expenses.
      On May 6, 2007 we drew $88,800 to purchase a hedge floor for a portion of our
      oil production, as required by the loan agreements. On May 7, 2007 we drew
      $203,000 to fund lease operating expenses and well restorations. On June 14,
      2007 we drew $98,000 for the same purposes. The CapWest Loan Agreement has
      now
      been fully drawn to the initially agreed amount of $3,700,000.
Effective
      July 12, 2007, we executed an agreement ("Modification'), amending the WNB
      Term
      Note issued pursuant to the WNB Loan Agreement. The Modification changes the
      monthly payment date from the 15
th
to the
      25
th
of each
      month and extended the maturity date of the loan to April 25, 2010.
Pursuant
      to the terms of the CapWest Loan Agreement, we have previously executed an
      assignment of overriding royalty interest under which we conveyed to CapWest
      a
      2% overriding royalty interest ("ORRI") in our leases, proportionately reduced
      to our net revenue interest. In addition to the aforementioned 2% ORRI, after
      payout of Cap West's loan (as defined in the CapWest Loan Agreement), CapWest
      will "back-in" for 15% of our gross oil and gas proceeds, conveyed in a Bill
      of
      Sale and Assignment of Contractual Rights dated April 13, 2007. We may
      repurchase this interest based upon a formula specified in the Cap West Loan
      Agreement. As of August 2, 2007, we entered into a new Bill of Sale and
      Assignment of Contractual Rights with CapWest that provides for an additional
      5%
      interest for Cap West in the gross oil and gas proceeds from our leases after
      payout of Cap West's loan, effectively resulting in an increase of the back-in
      from 15% to 20% of our gross oil and gas proceeds.
13
We
      received a notice of defaults dated September 7, 2007 from counsel for WNB
      and
      CapWest stating that we were in default of two financial covenants relating
      to
      our consolidated debt service coverage ratio under the WNB and CapWest loan
      documents. We subsequently received letters from WNB and CapWest, both dated
      September 12, 2007, waiving the previously stated events of default until
      October 15, 2007. Following the resignation of Bradley W. Fischer as our Chief
      Executive Officer effective October 16, 2007, we received notices dated that
      date from WNB and CapWest as to the existence of an event of default regarding
      our consolidated debt service coverage ratio, which had been waived by both
      financial institutions through October 15, 2007, and an event of default
      relating to the departure of Mr. Fischer as our Chief Executive Officer. As
      to
      the noticed default regarding our consolidated debt service coverage ratio,
      the
      October 16 notices from the lenders provided us until November 15, 2007 to
      take
      appropriate curative action. With regard to the management change, both lenders
      expressed a willingness to meet with Thomas Grantham, Mr. Fischer's successor as
      our President and did, in fact, meet with Mr. Grantham. On October 22, 2007,
      we
      received an oral communication from a representative of one the lenders to
      the
      effect that the lenders would not waive this event of default and that they
      would not extend the November 15, 2007 compliance deadline for the debt service
      coverage ratio covenants. In continuing negotiations, on October 25, 2007,
      the
      lenders further advised that the banks would not foreclose on the Company's
      assets if the Company agreed to pay the lenders in full by December 15, 2007,
      execute a release of the banks from liability, and deliver into escrow a deed
      in
      trust on all our properties and assets that would be released from escrow and
      delivered to the banks on December 15, 2007 if all loans were not paid in
      full.
Bankruptcy
      Filing under Chapter 11 of the Bankruptcy Code
Due
      to
      the potential for an immediate event of default under the WNB and CapWest loan
      agreements, unless we signed additional documents with the banks with the
      required payoff of their loans by December 15, 2007, on October 30, 2007, we
      filed a bankruptcy petition under Chapter 11 of the United States Bankruptcy
      Code (the "Code") with the United States Bankruptcy Court, Northern District of
      Texas. Our operating subsidiaries, Gryphon Production Company, LLC and Gryphon
      Field Services, LLC filed bankruptcy petitions under Chapter 11 of the Code
      on
      October 29 and October 30, 2007, respectively, with the same Court. At this
      time, the Company is managing its operations and those of its two subsidiaries
      as a debtor in possession.
Our
      intention making in the Chapter 11 filings is to continue operations of the
      Company through the Chapter 11 bankruptcy process and to emerge from the Chapter
      11 reorganization as an operating company, with our financial structure
      reorganized, and where all of our creditors would receive the full amounts
      owed.
      In the context of our reorganization under Chapter 11 of the Code, we may be
      required to raise equity capital to fully rework wells that are currently not
      in
      production in the next 12 months and to finance our planned business operations.
      There are no assurances that we will be able to raise additional equity capital.
      In the event we are unable to obtain additional capital or funding we may be
      unable to reorganize successfully under Chapter 11 of the Code.
Reorganization
      Plans
We
      filed
      a Plan of Reorganization dated March 1, 2008 (the "Plan"), providing for
      repayment of the WNB and CapWest loans over 42- to 60-month periods, the terms
      of the repayment being dependent on whether the particular lender accepts the
      Plan. Under the Plan as filed, the holders of common stock of the Company would
      retain all of their ownership interest. The Company's oil and gas leases would
      be assumed under the Plan, and certain executory contracts would be assumed
      and
      certain others rejected.
14
On
      April
      2, 2008, CapWest Resources, Inc. filed its own plan of reorganization and
      disclosure statement to which we filed an objection on May 2, 2008.
On
      April
      21, 2008, we filed an amended Plan, in which we set forth a preliminary
      financing commitment we had received that would enable us to pay off our lenders
      and emerge from the Chapter 11 reorganization proceeding.
On
      May 2,
      2008, we filed our objections to CapWest Resouces, Inc.'s plan of reorganization
      and disclosure statement. In this filing we included professional evaluations
      of
      the value of our oil and gas reserves that show the value of our reserves
      substantially to exceed the sum of our obligations to Western National Bank
      and
      CapWest Resources, Inc.
CRITICAL
      ACCOUNTING POLICIES
The
      Securities and Exchange Commission 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.
The
      Company assesses potential impairment of its long-lived assets, which include
      its property and equipment and its identifiable intangibles such as deferred
      charges under the guidance of SFAS 144 "Accounting for the Impairment or
      Disposal of Long-Lived Assets". The Company must continually determine if a
      permanent impairment of its long-lived assets has occurred and write down the
      assets to their fair values and charge current operations for the measured
      impairment.
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 three
      months or less. Our interest income is sensitive to changes in the general
      level
      of U.S. interest rates. We do not have significant short-term investments,
      and
      due to the short-term nature of our investments, we believe that there is not
      a
      material risk exposure.
We
      are
      exposed to interest rate risk with borrowing under our loans with Western
      National Bank ("WNB") and CapWest Resources ("CapWest").
The
      interest rate under the WNB Loan Agreement is a variable rate equal to the
      prime
      rate as defined in this Agreement plus 2%, but in no event to be less than
      9.25%. The interest rate under the CapWest Loan Agreement is a variable rate
      equal to the prime rate as defined in this Agreement plus 4%.
Increases or decreases in the prime rate will cause our interest obligations
      under these Agreements to increase or decrease correspondingly, subject to
      the
      floor in the WNB Agreement.
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.
15
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 President and Chief Financial Officer is primarily responsible for
      the accuracy of the financial information that is presented in this quarterly
      Report. This officer has as of the close of the period covered by this Quarterly
      Report, evaluated the Company's disclosure controls and procedures (as defined
      in Rules 13a-4c and 15d-14c promulgated under the Securities Exchange Act of
      1934) and determined that such controls and procedures were effective in
      ensuring that material information relating to the Company was made known to
      him
      during the period covered by this Quarterly Report. Since his evaluation, no
      changes were made to the Company's internal controls or in other factors that
      could significantly affect these controls.
PART
      II—OTHER INFORMATION
ITEM
      1.
      Legal Proceedings.
On
      October 30, 2007, we filed a bankruptcy petition under Chapter 11 of the United
      States Bankruptcy Code (the "Code") with the United States Bankruptcy Court,
      Northern District of Texas. Our operating subsidiaries, Gryphon Production
      Company, LLC and Gryphon Field Services, LLC filed bankruptcy petitions under
      Chapter 11 of the Code on October 29 and October 30, 2007, respectively, with
      the same Court. At this time, the Company is managing its operations and those
      of its two subsidiaries as a debtor in possession. On March 1, 2008, we filed
      a
      Plan of Reorganization with the Court, and on April 21, 2008 filed an amendment
      to that plan. On April 2, 2008, CapWest Resources, Inc. filed its own plan
      of
      reorganization and disclosure statement to which we filed a formal objection
      on
      May 2, 2008.
ITEM
      6.
      Exhibits.
31
Certification
                of Principal Executive Officer and Chief Financial Officer Pursuant
                to
                Section 302 of The Sarbanes Oxley Act of
                2002.
32
Certification
                of Principal Executive Officer and Chief Financial Officer Pursuant
                to 18
                U.S.C. Section 1350 as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.
16
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/ Thomas
              Grantham
President
                and
Chief
                Financial Officer
Date: May 14,
      2008
EXHIBIT
      INDEX
Exhibit
                Number
Description
31
Certification
                of Principal Executive Officer and Chief Financial Officer Pursuant
                to
                Section 302 of the Sarbanes Oxley Act of 2002.
32
Certification
                of Principal Executive Officer and Chief Financial Officer Pursuant
                to 18
                U.S.C. Section 1350 as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Oxley Act of 2002.
17