- Amended Annual Report (10-K/A)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A
Amendment No. 1

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended: December 31, 2011

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from __________ to __________

Commission File No. 000-30219

CHANCELLOR GROUP, INC.
(Exact name of Registrant as Specified in Its Charter)

Nevada 50-0024298 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 500 Taylor Street Plaza Two - Suite 200 Amarillo, Texas 79105 (Address of principal executive offices) (Zip Code) [phone] (Registrant's telephone number, including area code)

None
(Former name, former address and former fiscal year,
if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by checkmark if the registrant is not required to file reports to
Section 13 or 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in

Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

As of September 28, 2012 (the last business day of its most recently completed third fiscal quarter), the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $509,515.

As of September 28, 2012, there were 69,560,030 shares of the registrant's common stock ($0.001 par value) outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Document Parts Into Which Incorporated

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EXPLANATORY NOTE

This Amendment No. 1 to the Annual Report on Form 10-K of Chancellor Group, Inc. ("Chancellor", the "Company" or "we") for the fiscal year ended December 31, 2011 is being filed solely to expand the Company's disclosures contained in the original Form 10-K regarding certain litigation initiated against a subsidiary of the Company and the Company's planned capital expenditures for the fiscal year ended December 31, 2012. This Form 10-K/A amends and restates Part I, Item 3, Legal Proceedings, and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, respectively, with respect to the original Form 10-K, in order to make such corrections.

Except as described above, no other changes have been made to the original Form 10-K, and this Form 10-K/A does not amend, update, or change the financial statements or any other items or disclosures in the original Form 10-K. This Form 10-K/A does not reflect events occurring after the filing of the original Form 10-K or modify or update those disclosures, including any exhibits to the original Form 10-K affected by subsequent events. Information not affected by the changes described above is unchanged and reflects the disclosures made at the time of the filing of the original Form 10-K on March 26, 2012. Accordingly, this Form 10-K/A should be read in conjunction with our filings made with the Securities and Exchange Commission subsequent to the filing of the original Form 10-K, including any amendments to those filings.

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ITEM 3. LEGAL PROCEEDINGS

Chancellor is from time to time involved in legal proceedings incidental to its business and arising in the ordinary course. Chancellor's management does not believe that any such proceedings will result in liability material to its financial condition, results of operations or cash flow.

On March 31, 2011, Dennis Caldwell filed a lawsuit against Chancellor's subsidiary, Gryphon Production Company, LLC, in the 223rd District Court of Gray County, Texas, for an alleged breach of the April 1, 2007, purchase and sale agreement between Gryphon and Caldwell Production Co., Inc. Caldwell contended that Gryphon did not pay for the oil in the storage tanks in the April 2007 transaction. The plaintiff alleges breach of contract, conversion and fraud and seeks damages of $451,998.54 as contract damages, pre-judgment and post-judgment interest, exemplary damages, attorney fees, and court costs. Gryphon has denied all allegations in the lawsuit, asserted affirmative defenses, and challenged plaintiff's standing. Chancellor believes the lawsuit is without merit and intends to vigorously defend it.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

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

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

BACKGROUND

In April 2007 we commenced operations with what were 84 actually producing wells in Gray and Carson counties, Texas. On July 22, 2008, we had entered into an Agreement, effective as of June 1, 2008, with Legacy Reserves Operating LP ("Legacy") for the sale of our oil and gas wells in Carson County, Texas, representing for approximately 84% of our oil and gas production at that time. In 2010, the Company acquired three additional properties in Hutchinson County, including approximately 16 wells, for a purchase price of approximately $150,000. In 2011, the Company continued our operational and restoration programs and the production capacity from our 67 actively producing wells in Gray and Hutchinson counties. Pursuant to the terms of the Purchase and Sale Agreement dated October 18, 2011, LCB purchased all of Gryphon's right, title and interest in certain leases, wells, equipment, contracts, data and other designated property. The assets sold to LCB constituted approximately 82% of the company's consolidated assets as of September 30, 2011 and contributed approximately 95% and 77%, respectively, of the Company's consolidated gross revenues and total expenses for the nine months then ended. Under the terms of the Purchase and Sale Agreement, LCB paid Gryphon $2,050,000 in cash, subject to certain adjustments as set forth in the Purchase and Sale Agreement.

The Company has continued to maintain a total of four (4) producing wells and one (1) water disposal well. Gryphon will also retain an operator's license with

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the Texas Railroad Commission and continue to operate the Hood Leases itself. The proceeds from the asset sale will be used to provide working capital to Gryphon and for future corporate purposes including, but not limited to, possible acquisitions and other corporate programs and purposes that have yet to be identified.

Our common stock is quoted on the Over-The-Counter market and trades under the symbol CHAG.OB. As of March 26, 2012, there were 68,560,030 shares of our common stock issued and outstanding.

RESULTS OF OPERATIONS

Twelve Months Ended December 31, 2011 Compared to Twelve Months Ended December 31, 2010

PRODUCTION: During 2011, we produced and sold 7,794 barrels of oil and produced and sold 6,546 mcf of gas, generating $733,268 in gross revenues net of royalties paid, with a one month lag in receipt of revenues for the prior months sales, as compared with 9,854 barrels of oil and 10,199 mcf of gas, generating $834,084 in gross revenues net of royalties paid during 2010. We had 4 wells actually producing oil and none producing gas at December 31, 2011 and had 67 wells actually producing oil and 2 producing gas at December 31, 2010. Pursuant to the terms of the Purchase and Sale Agreement dated October 18, 2011, LCB purchased all of Gryphon's right, title and interest in certain leases, wells, equipment, contracts, data and other designated property. The assets sold to LCB constituted approximately 82% of the Company's consolidated assets as of September 30, 2011 and contributed approximately 95% and 77%, respectively, of the Company's consolidated gross revenues and total expenses for the nine months then ended. Under the terms of the Purchase and Sale Agreement, LCB paid Gryphon $2,050,000 in cash, subject to certain adjustments as set forth in the Purchase and Sale Agreement. The Company recognized a gain of approximately $414,000 related to the sale of assets to LCB.

The Company has continued to maintain a total of four (4) producing wells and one (1) water disposal well. Gryphon will also retain an operator's license with the Texas Railroad Commission and continue to operate the Hood Leases itself. The proceeds from the asset sale will be used to provide working capital to Gryphon and for future corporate purposes including, but not limited to, possible acquisitions and other corporate programs and purposes that have yet to be identified.

The following table summarizes our production volumes and average sales prices for the years ended December 31:

2011 2010 -------- --------- Production: Oil Sales (Bbl) 7,794 9,854 Natural Gas Sales (Mcf) 6,546 10,199 Average Sales Price: Oil, per Bbl $ 88.54 $ 75.64 Gas, per McF $ 6.57 $ 9.06

The decrease in net sales of both oil and natural gas during the year ended December 31, 2011 (as compared to the year ended December 31, 2010) resulted in part from the sale of substantially all of our producing wells effective December 1, 2011 to LCB. The reduction in our production was offset in part by higher oil prices in 2011. The decline in natural gas production was the result of inclement weather in the first quarter of 2011 and down time due to repairs and maintenance on gas compressor equipment.

DEPRECIATION AND AMORTIZATION: Expense recognized for depreciation and amortization of property and equipment decreased $19,589, or approximately 7%, in 2011 from 2010. This decrease was primarily attributable to the sale of substantially all of our producing wells effective December 1, 2011 to LCB.

GENERAL AND ADMINISTRATIVE EXPENSES: During 2011, our general and administrative expenses decreased $53,009, or approximately 9%, in 2011 from 2010. Significant components of these expenses include salaries, professional fees, and insurance. Salaries (included in both administrative expenses and operating costs) decreased approximately 20% during 2011, primarily the result of staff

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reductions beginning in January 2011. Professional fees increased approximately 19% during 2011, primarily the result of increased consultation costs with third parties. Insurance decreased approximately 16% during 2011.

OVERALL: The majority of the past year we continued with the ongoing production, maintenance and enhancements of our producing wells in Gray and Hutchinson counties. As a result of these efforts, along with continued increases in oil prices during most of 2011, our gross revenues for 2011 are $733,268. Effective December 1, 2011, pursuant to the terms of the Purchase and Sale Agreement dated October 18, 2011, LCB purchased all of Gryphon's right, title and interest in certain leases, wells, equipment, contracts, data and other designated property. The assets sold to LCB constituted approximately 82% of the company's consolidated assets as of September 30, 2011 and contributed approximately 95% and 77%, respectively, of the Company's consolidated gross revenues and total expenses for the nine months then ended. Under the terms of the Purchase and Sale Agreement, LCB paid Gryphon $2,050,000 in cash, subject to certain adjustments as set forth in the Purchase and Sale Agreement. The Company recognized a gain of $414,710 on the sale of these assets to LCB. During 2011 we were also able to reduce our direct lease and operating costs by approximately $236,000, or 26% as compared to 2010. However, we again reported a net loss of $341,241 during 2011, compared to a net loss of $943,233 reported for 2010.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW: The following table highlights certain information in relation to our liquidity and capital resources at December 31:

2011 2010 ---------- ---------- Working Capital $2,253,170 $ 774,409 Current Assets $2,424,020 $ 922,630 Current Liabilities $ 170,850 $ 148,221 Stockholders' Equity $2,284,463 $2,595,703

Our working capital at December 31, 2011 increased by $1,478,761, or approximately 190%, from December 31, 2010, primarily from the sale of assets to LCB. Current assets increased by $1,501,390, or approximately 162%, while current liabilities increased $22,629, or approximately 15%, primarily as a result of the timing of cash disbursements.

Our capital resources consist primarily of cash from operations and permanent financing, in the form of capital contributions from our stockholders. As of December 31, 2011 the Company had $2,336,776 of cash on hand, which includes restricted cash of $250,000 held as collateral for a letter of credit issued to the Railroad Commission of Texas as required for its oil and gas activities. Our capital expenditures for fiscal year 2012, estimated to be approximately $15,000 to $20,000, consist of repair and maintenance of our four producing oil wells and one water disposal well. We expect to pay these costs from cash on hand and from operations.

CASH FLOW: Net cash generated during 2011 was $1,526,678, compared to net cash used of $594,597 during 2010. The most significant factor causing the increase in net cash flow during 2011 was the sale of assets to LCB on December 1, 2011, which generated a net cash flow of $1,923,085.

Cash used for operations decreased by $6,559, or approximately 2%, during 2011, compared to 2010.

Cash used for investing activities increased by $2,163,466, or approximately 840%, during 2011, compared to 2010, primarily due to the sale of assets to LCB which generated a net cash flow of 1,923,085.

Cash provided by financing activities decreased by $48,750, or approximately 100% during 2011, compared to 2010, as there were not any issuances of common stock for cash in 2011 compared to 2010.

EQUITY FINANCING: As of December 31, 2011, our stockholders have contributed $3,566,013 in equity financing. We do not anticipate that significant equity financing will take place in the foreseeable future.

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CONTRACTUAL OBLIGATIONS

On October 13, 2011, the Company entered into a consulting agreement for 500,000 shares of stock and $3,000. The agreement is for six months with an additional 200,000 shares and $3,000 payable monthly. The Company recognized $18,000 in consulting fee expense in relation to the stock issued pursuant to this agreement in 2011.

CRITICAL ACCOUNTING POLICIES

The Securities and Exchange Commission (the "SEC") recently issued "FINANCIAL REPORTING RELEASE NO. 60 CAUTIONARY ADVICE REGARDING DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES" ("FRR 60"), suggesting companies provide additional disclosures, discussion and commentary on those accounting policies considered most critical to its business and financial reporting requirements. FRR 60 considers an accounting policy to be critical if it is important to the company's financial condition and results of operations, and requires significant judgment and estimates on the part of management in the application of the policy. For a summary of the Company's significant accounting policies, including the critical accounting policies discussed below, please refer to the accompanying notes to the financial statements provided in this Annual Report on Form 10-K.

NATURAL GAS AND OIL PROPERTIES

In January 2010, the Financial Accounting Standards Board issued ASU 2010-03 to align the oil and gas reserve estimation and disclosure requirements of Extractive Industries -- Oil and Gas Topic of the Accounting Standards Codification with the requirements in the SEC's final rule, "MODERNIZATION OF THE OIL AND GAS REPORTING REQUIREMENTS". We implemented ASU 2010-03 as of December 31, 2009. Key items in the new rules include changes to the pricing used to estimate reserves and calculate the full cost ceiling limitation, whereby a 12-month average price is used rather than a single day spot price, the use of new technology for determining reserves, the ability to include nontraditional resources in reserves and the ability to disclose probable and possible reserves. Management has elected not to include probable and possible reserves in its reserve studies and related disclosures. The process of estimating quantities of oil and gas reserves is complex, requiring significant decisions in the evaluation of all available geological, geophysical, engineering and economic data. The data for a given field may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, material revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various fields make these estimates generally less precise than other estimates included in the financial statement disclosures.

As of December 31, 2010, we had proved reserves of 1.888 bcfe at 2010 12-month average prices of $7.56 per mcf and $75.73 per barrel before price differential adjustments. As of December 31, 2011, we had proved reserves of .103 bcfe at 2011 12-month average prices of $89.74 per barrel before price differential adjustments. This decrease in reserves is due primarily to sale of assets to LCB for a gross sales price of $2,050,000.

INCOME TAXES

As part of the process of preparing the consolidated financial statements, we are required to estimate federal and state income taxes in each of the jurisdictions in which Chancellor operates. This process involves estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as derivative instruments, depreciation, depletion and amortization, and certain accrued liabilities for tax and accounting purposes. These differences and our net operating loss carry-forwards result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We must then assess, using all available

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positive and negative evidence, the likelihood that the deferred tax assets will be recovered from future taxable income. If we believe that recovery is not likely, we must establish a valuation allowance. Generally, to the extent Chancellor establishes a valuation allowance or increases or decreases this allowance in a period, we must include an expense or reduction of expense within the tax provision in the consolidated statement of operations.

Under accounting guidance for income taxes, an enterprise must use judgment in considering the relative impact of negative and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists (i) the more positive evidence is necessary and
(ii) the more difficult it is to support a conclusion that a valuation allowance is not needed for some portion or all of the deferred tax asset. Among the more significant types of evidence that we consider are:

* taxable income projections in future years;

* whether the carry-forward period is so brief that it would limit realization of tax benefit;

* future sales and operating cost projections that will produce more than enough taxable income to realize the deferred tax asset based on existing sales prices and cost structures; and

* our earnings history exclusive of the loss that created the future deductible amount coupled with evidence indicating that the loss is an aberration rather than a continuing condition.

If (i) oil and natural gas prices were to decrease significantly below present levels (and if such decreases were considered other than temporary), (ii) exploration, drilling and operating costs were to increase significantly beyond current levels, or (iii) we were confronted with any other significantly negative evidence pertaining to our ability to realize our NOL carry-forwards prior to their expiration, we may be required to provide a valuation allowance against our deferred tax assets. As of December 31, 2011, a deferred tax asset of $314,000 has been recognized but partially offset by a valuation allowance of approximately $310,000 due to federal NOL carry-back and carry-forward limitations.

OFF-BALANCE SHEET ARRANGEMENTS

There are no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships of the Company with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Chancellor Group, Inc.
(Registrant)

Date: October 1, 2012 By: /s/ Maxwell Grant ------------------------------------------ Maxwell Grant, Chief Executive Officer and Principal Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Maxwell Grant October 1, 2012 ---------------------------------------- Maxwell Grant, Chief Executive Officer, Principal Financial Officer and Director /s/ Dudley Muth October 1, 2012 ---------------------------------------- Dudley Muth, Director

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EXHIBIT INDEX

Exhibit No.

31 Chief Executive Officer and Principal Financial Officer Certificate pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated October 1, 2012. Filed Herewith. Chief Executive Officer and Principal Financial Officer 32 Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated October 1, 2012. Filed Herewith.