Exhibit 23.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 2013
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, TX 79105
(Address of principal executive offices, including zip code)
Issuer's Telephone Number, Including Area Code: (806) 322-2731
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value per share
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 [ ] No [X]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates as of the last business day of the registrant's most recently
completed second fiscal quarter was $3,721,122
Number of shares of Common Stock outstanding as of March 27, 2014: 74,250,030
Documents incorporated by reference: None
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TABLE OF CONTENTS
PART I
Item 1. Business 1
Item 1A. Risk Factors 4
Item 1B. Unresolved Staff Comments 4
Item 2. Properties 4
Item 3. Legal Proceedings 6
Item 4. Mine Safety Disclosures 7
PART II
Item 5. Market for Registrant's Common Equity, Related Shareholder
Matters and Issuer Purchases of Equity Securities 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 8
Items 7A. Quantitative and Qualitative Disclosures About Market Risk 14
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 35
Item 9A(T) Controls and Procedures 35
Item 9B. Other Information 35
PART III
Item 10. Directors, Executive Officers and Corporate Governance 35
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 37
Item 13. Certain Relationships and Related Transactions, and Director
Independence 38
Item 14. Principal Accountant Fees and Services 38
Item 15. Exhibits and Financial Statement Schedules 39
SIGNATURES 41
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PART I
ITEM 1. BUSINESS.
Chancellor Group, Inc., a Nevada corporation ("we", "us", "Chancellor" or the
"Company"), was organized under the laws of the state of Utah in 1986 and
subsequently reorganized under the laws of the state of Nevada in 1993. The
Company is organized as a producing oil company and licensed as an operator by
the Texas Railroad Commission. In addition to oil production, Chancellor is also
in the business of technology development through its two subsidiaries Pimovi,
Inc. and The Fuelist, LLC. Our common stock is quoted on the Over-The-Counter
Bulletin Board market and trades under the symbol CHAG.OB. As of December 31,
2013, there were 73,760,030 shares of our common stock issued and outstanding.
As of December 31, 2013 our subsidiaries are:
* Gryphon Production Company, LLC (wholly-owned)
* Gryphon Field Services, LLC (wholly-owned)
* Pimovi, Inc. (majority owned, with a 61% equity ownership interest)
* The Fuelist, LLC (majority owned, with a 51% equity ownership
interest)
BUSINESS DEVELOPMENTS
On August 15, 2013, Chancellor entered into a binding term sheet with The
Fuelist, LLC, a California limited liability company ("Fuelist"), and its
founders (the "Founders"), pursuant to which Chancellor acquired a 51% ownership
interest in Fuelist. As consideration for the 51% ownership interest in Fuelist,
Chancellor agreed to contribute to Fuelist a total of $271,200 in cash payable
in 12 monthly installments of $22,600. As additional consideration for its
ownership interest, Chancellor contributed a total of 2,000,000 shares of newly
issued common stock to Fuelist on August 19, 2013, valued at $156,000, or $0.078
per share. The Fuelist is a development stage entity formed for the primary
business purpose of developing a data-driven mobile and web technology platform
that leverages extensive segment expertise and big data analysis tools to value
classic vehicles. These tools enable users to quickly find values, track
valuations over time and to identify investment and arbitrage opportunities in
this lucrative market.
On November 16, 2012, a certificate of incorporation was filed with the state of
Delaware for the formation of Pimovi, Inc. ("Pimovi"), a new majority-owned
subsidiary of Chancellor, and with which separate company financial statements
are consolidated with Chancellor's consolidated financial statements beginning
for the fourth quarter of 2012. Subsequently on January 11, 2013 the final
binding term sheet was signed by Chancellor summarizing the principal terms,
conditions and formal establishment of Pimovi by its two "Co-Founders",
Chancellor and Kasian Franks. Under the agreement, Chancellor has agreed to
provide the initial funding of $250,000 over a period of up to eight months, in
consideration of the receipt of 61% of the equity of Pimovi in the form of
Series A Preferred Stock. Kasian Franks, whom is also the Chief Scientific
Officer of Pimovi, has agreed to contribute certain intellectual property
related to its business in consideration for receipt of the remaining equity in
Pimovi in the form of common stock. Pimovi has licensed search and
recommendation software for use in its products and services (under development)
from Mimvi, Inc., a company for which Mr. Franks serves as Founder, CVO and
Chairman. The license is for a period of three years, subject to extension. The
primary business purpose of Pimovi relates largely to technology and mobile
application fields, including development of proprietary consumer algorithms,
creating user photographic and other activity records, First Person Video Feeds
and other such activities related to mobile and computer gaming. Pimovi was
reincorporated in Nevada in March 2013.
SEGMENTS
The Company's reportable segments are strategic business units that are
separately managed and operate in two different industries. First is our oil
production segment, in which we currently own and operate 5 oil wells in Gray
County in the Texas Panhandle, of which 4 are actively producing oil wells and 1
is a water disposal well. Second is our technology segment, which is in the
business of developing web-based and mobile technology platforms through our two
majority owned subsidiaries, Pimovi, Inc. and The Fuelist, LLC, both further
described earlier above.
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INDUSTRY AND ECONOMIC FACTORS
In managing our businesses we must deal with many factors inherent in the
industries which we operate in. For our oil segment, 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.
In addition, the condition of the general economy of the local area is beginning
to show some of the strain from the national economic morass, as is the general
economy in the State of Texas. The national and international economic
environment is unsettled and will present challenges to any form of business
operations.
It is uncertain what structural changes in the oil industry may need to be
modified due to political changes in the national government, availability of
financing, and concerns created by expectations that evolve around the concepts
of carbon credits. In general it is a buyer's market if financing is available.
The Company does not anticipate any severe effects upon its structure in the
short-term due to any of the above-mentioned concerns because of the size and
nature of the Company's 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, most of which have substantially more assets and production than us.
In addition, the industry as a whole competes with other businesses that supply
energy to industrial, commercial, and residential end users. Other businesses
that we may undertake and develop in the future also likely will involve
substantial complexity and rigorous competition.
For our technology segment, first and foremost is that our two majority-owned
subsidiaries, Pimovi, Inc. and The Fuelist, LLC., are both currently development
stage entities, formed for the primary purpose of developing web-based and
mobile technology platforms.
The technology industry is an expanding and rapidly changing industry
characterized by intense competition. We believe that our ability to compete in
this industry will be dependent in large part upon our ability to successfully
develop our web-based and mobile technology platforms. Then after those
technologies are successfully developed, our focus will have to immediately
shift to the product launch and marketing and sales of our web-based and mobile
technology platforms to the public and end users, or customers. In order to
bring our technologies to successful commercialization, we will have to
effectively utilize and expand our current operational capabilities, continue to
enhance and continually improve on those technologies, along with the having to
add both marketing and sales capabilities for our technologies as released.
The future success of our technology segment will also be contingent upon our
ability to have or acquire additional capital and financing sources, which
funding will be necessary upon successful development and release of our
technologies, which additional resources will be required to maintain and expand
on our operational capabilities, to continue to enhance and improve our
technologies, plus having to add both marketing and sales capabilities for our
technologies when released.
APPROACH TO OUR BUSINESS
Implementation of our business approach relies on our ability to fund ongoing
technology segment development projects with cash flow provided by our oil
segment operating activities. Other external sources of capital may be required
in the future to help fund our technology segment projects upon successful
development and release of our web-based and mobile technology platforms for
both Pimovi, Inc. and The Fuelist, LLC, both further described earlier above.
MARKETING AND CUSTOMERS
For our oil segment, the Company has no plans at this stage to further develop
its producing domestic oil properties, located in Gray County, Texas. The
Company's major customers, to which substantially all oil production is sold are
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Plains Marketing, ExxonMobil, and XTO Energy. Given the number of readily
available purchasers for our products, it is unlikely that the loss of a single
customer in the areas in which we sell our products would materially affect our
sales. For our technology segment, the Company plans to continue developing its
web-based and mobile technology platforms for its two majority-owned
subsidiaries, Pimovi, Inc. and Fuelist, LLC.
ENVIRONMENTAL REGULATIONS
Significant environmental regulations related primarily to our oil segment, for
which we are subject to extensive and complex federal, state and local laws and
regulations governing the protection of the environment and of the health and
safety of our employees. These laws and regulations may, among other things:
* require the acquisition of various permits before drilling or
production commences;
* require the installation of expensive pollution control equipment;
* require safety-related procedures and personal protective equipment to
be used during operations;
* restrict the types, quantities and concentrations of various
substances that can be released into the environment in connection
with natural gas and oil drilling production, transportation and
treating activities;
* suspend, limit, prohibit or require approval before construction,
drilling and other activities; and
* require remedial measures to mitigate pollution from historical and
ongoing operations, such as the closure of pits and plugging of
abandoned wells.
These laws, rules and regulations may also restrict the rate of natural gas and
oil production below the rate that would otherwise be possible. The regulatory
burden on the oil and gas industry increases the cost of doing business in the
industry and consequently affects profitability.
Governmental authorities have the power to enforce compliance with environmental
laws, regulations and permits, and violations are subject to injunction, as well
as administrative, civil and potentially criminal penalties. The effects of
these laws and regulations, as well as other laws or regulations that may be
adopted in the future, could have a material adverse impact on our business,
financial condition and results of operations.
The Company did not incur any material environmental costs in 2013, nor has the
Company been notified of any material environmental obligations from any
governmental authorities.
REGULATION OF THE OIL AND GAS INDUSTRY
The oil and gas industry is extensively regulated by numerous federal, state and
local authorities. Legislation affecting the oil and gas industry is under
constant review for amendment or expansion, frequently increasing the regulatory
burden. Also, numerous departments and agencies, both federal and state, are
authorized by statute to issue rules and regulations binding on the oil and gas
industry and its individual members, some of which carry substantial penalties
for noncompliance. Although the regulatory burden on the oil and gas industry
increases our cost of doing business and, consequently, affects our
profitability, these burdens generally do not affect us any differently or to
any greater or lesser extent than they affect other companies in the industry
with similar types, quantities and locations of production.
LICENSES AND PATENTS
Our technology segment will be dependent upon obtaining proper licenses and
patents to access and protect our rights to such technologies developed and
released. Pimovi has licensed search and recommendation software from Mimvi,
Inc. and has applied for a provisional patent covering video distribution
service. U.S. Patent Application number 61774549 entitled " Video Distribution
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Service" involves video distribution for Chancellor Group's recently formed
mobile app multimedia subsidiary Pimovi, which is developing POV (Point Of View)
technology.
EMPLOYEES
As of December 31, 2013, we had no full-time employees. All of our activities
are conducted by our Executive Officers and by contract laborers, independent
contractors and consultants.
ITEM 1A. RISK FACTORS.
Not applicable for Small Reporting Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
DESCRIPTION OF PROPERTIES
For our technology segment, at December 31, 2013, we did not own any significant
properties. Those operations and headquarters for both Pimovi, Inc. and The
Fuelist, LLC., located in Berkeley, California are in a single commercial
facility under a lease agreement with a related party limited liability company.
For our oil segment, at December 31, 2013, the Company and its wholly-owned
subsidiaries, Gryphon and Gryphon Field Services, LLC, own 5 wells located in
Gray County in the Texas Panhandle, of which 4 are actively producing oil wells
and 1 is a water disposal well.
PROVED RESERVES
The following historical estimates of net proved oil and natural gas reserves
are based on reserve reports as of December 31, 2013 and 2012, both of which
were prepared by independent petroleum engineers. The reserve report as of
December 31, 2013 and 2012 were based on the average price during the 12-month
period ended December 31, 2013 and 2012, respectively, using the
first-day-of-the-month price for each month.
The Company maintains internal controls to ensure the reliability of reserve
estimations, including:
* Engaging an independent third-party reservoir engineering and
geo-science professional firm to prepare all of our estimated proved
reserves, and
* Senior management reviewing all reserve studies annually to verify
that accurate production and cost variables are used by the
third-party engineering firm.
GSM, INC., a registered petroleum engineering firm located in Amarillo, Texas,
prepared reports of estimated proved reserves of oil and natural gas for our net
interest in certain oil and natural gas properties comprising 100% of our
estimated proved reserves (by volume) at year-end. A copy of the report issued
by GSM, Inc. is filed with this Annual Report on Form 10-K as Exhibit 99.1. The
qualifications of the technical person of this firm primarily responsible for
overseeing his firm's preparation of the Company's reserve estimates is set
forth below:
* Over 40 years of practical experience in petroleum engineering, with
primarily all of this experience being in the estimation and
evaluation of reserves,
* A registered professional engineer in the state of Texas,
* Bachelor of Science Degree in Petroleum Engineering,
* Bachelor of Science Degree in Geology,
* Master of Science Degree in Geology.
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A summary of our proved oil reserves, all of which are located in Gray County,
Texas, is presented below:
December 31,
-------------------------------
Estimated Proved Reserves 2013 2012
-------- --------
Developed
Oil, (Bbl) 20,421 21,281
Natural gas (Mcf) -- --
Undeveloped
Oil, (Bbl) -- --
Natural gas (Mcf) -- --
OIL AND GAS RESERVE QUANTITIES
Proved oil and gas reserves are those quantities of oil and gas, which, by
analysis of geoscience and engineering data, can be estimated with reasonable
certainty to be economically producible, based on prices used to estimate
reserves, from a given date forward from known reservoirs, and under existing
economic conditions, operating methods, and government regulation before the
time of which contracts providing the right to operate expire, unless evidence
indicates that renewal is reasonably certain. Proved developed reserves are
proved reserves expected to be recovered through existing wells with existing
equipment and operating methods or in which the cost of the required equipment
is relatively minor compared with the cost of a new well. Proved undeveloped
reserves are reserves that are expected to be recovered from new wells on
undrilled acreage, or from existing wells where a relatively large major
expenditure is required for recompletion.
The table below represents the Company's estimate of proved oil reserves
attributable to the Company's net interest in oil and gas properties, all of
which are located in Gray County in the Texas Panhandle, based upon the
evaluation by the Company and its independent petroleum engineers of pertinent
geoscience and engineering data in accordance with the SEC's regulations. The
Company does not have any proved undeveloped reserves and there were no material
changes in the Company's undeveloped reserves during the fiscal years ending
December 31, 2013 and 2012. Estimates of all of the Company's proved reserves
have been prepared by independent reservoir engineers and geoscience
professionals and are reviewed by members of the Company's senior management to
ensure that the Company consistently applies rigorous professional standards and
the reserve definitions prescribed by the SEC. Management has elected not to
include probable and possible reserves in its reserve studies and related
disclosures.
Total Future
Net Oil Net Gas Total Future Severance & Discounted
Reserves Reserves Total Future Projected Ad Valorem Future Net Per Annum
Proved Developed (Barrels) (Mcf) Net Revenue Cost Taxes cash flow as 10%
---------------- --------- ----- ----------- ---- ----- --------- ------
2013
Producing 20,421 -- $1,854,188 $920,861 $213,232 $ 720,099 $276,597
2012
Producing 21,281 -- $1,982,108 $571,680 $170,461 $1,239,966 $377,885
The Company did not drill any wells or conduct any exploratory activities
(including any implementation of mining methods) during the fiscal years ended
December 31, 2013, 2012 or 2011. However, the Company did capitalize $0 and
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$9,840 of development costs related to remedial and restoration work to its
existing proved developed properties for the fiscal years ended December 31,
2013 and 2012, respectively.
As of March 27, 2014, the Company was not in the process of drilling any wells,
installing any waterfloods or undertaking any pressure maintenance operations or
other related activities of material importance.
As of March 27, 2014, the Company owned an interest in approximately 5 gross
wells and 5 net wells, all of which are located in the brown dolomite and/or
granite wash formations in Gray County, Texas. There is no minimum remaining
term of leases as all acreage is currently held by production or some other
savings clause contained in the respective lease document.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)
The standardized measure of discounted cash flows and summary of the changes in
the standardized measure computation from year to year are prepared in
accordance with ASC Topic 932. The assumptions that underlie the computation of
the standardized measure of discounted cash flows may be summarized as follows:
* the standardized measure includes the Company's estimate of proved
oil, natural gas and natural gas tiquids reserves and projected future
production volumes based upon economic conditions;
* pricing is applied based upon 12-month average market prices at
December 31, 2013 and, 2012. The calculated weighted average per unit
prices for the Company's proved reserves and future net revenues were
as follows:
At December 31,
---------------------
2013 2012
------- -------
Oil (per barrel) $ 90.80 $ 93.14
Natural gas (per Mcf) $ n/a $ n/a
* future development and production costs are determined based upon
actual cost at year-end;
* the standardized measure includes projections of future abandonment
costs based upon actual costs at year-end; and
* a discount factor of 10% per year is applied annually to the future
net cash flows.
PRODUCTION AND PRICE HISTORY
For Year Ended December 31,
----------------------------------------
2013 2012 2011
-------- -------- --------
Production:
Oil Sales (Bbl) 617 1,067 7,794
Natural Gas Sales (Mcf) -- -- 6,546
Average Sales Price:
Oil, per Bbl $ 89.77 $ 85.64 $ 88.54
Gas, per MMCF $ n/a $ n/a $ 6.57
Expenses per Bble:
Lease Operating Expenses $ 63.21 $ 36.43 $ 19.33
Production Taxes $ 4.13 $ 3.69 $ 3.96
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.
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ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
(a) Principal Market or Markets: The Company's common stock trades under the
symbol CHAG.OB on the OTC Bulletin Board.
High and low bids for the Company's common stock on the OTC Bulletin Board for
the previous eight quarters are shown below.
Class Quarter Ended High* Low*
----- ------------- ----- ----
Common Mar. 31, 2013 0.08 0.04
Common June 30, 2013 0.09 0.04
Common Sept. 30, 2013 0.09 0.05
Common Dec. 31, 2013 0.15 0.06
Common Mar. 31, 2012 0.03 0.01
Common June 30, 2012 0.03 0.01
Common Sept. 30, 2012 0.03 0.02
Common Dec. 31, 2012 0.05 0.01
----------
* Quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.
(b) Common Stock: On December 31, 2013, there were 73,760,030 shares of common
stock issued and outstanding, which were held by more than 400 stockholders of
record excluding individuals holding securities in street name. Our common
shares are issued in registered form. Quicksilver Stock Transfer LLC, 6623 South
Las Vegas Blvd, Suite 255, Las Vegas, NV 89119 (Telephone 702.629.1883), is the
registrar and transfer agent for our common shares.
The Company has never paid cash dividends on its common stock and currently
intends to continue its policy of retaining all of its earnings for use in its
business.
(c) Preferred Stock: The Company at December 31, 2013 had no preferred shares
issued and outstanding.
(d) Unregistered Sales of Equity Securities and Use of Proceeds.
The following table sets forth the sales of unregistered securities since the
Company's last report filed under this item.
Total
Principal Offering Price/
Date Title and Amount (1) Purchaser Consideration
---- ---------------- --------- -------------
November 18, 2013 100,000 shares of common stock Advisor $ 0 (1)
November 18, 2013 100,000 shares of common stock Advisor $ 0 (1)
February 25, 2014 340,000 shares of common stock Advisor $ 0 (2)
February 25, 2014 150,000 shares of common stock Advisor $ 0 (2)
----------
(1) Securities issued in consideration for advisory services. The company
recognized $23,000 in consulting fee expense related to these issuances.
(2) Securities issued in consideration for engineering expertise, see Note 9
Subsequent Events for further information.
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The Company did not engage an underwriter with respect to any of the issuances
of securities described in the foregoing table, and none of these issuances gave
rise to any underwriting discount or commission. The shares were issued in
private transactions, exempt from registration under the Securities Act of 1933,
and are restricted securities within the meaning of Rule 144 thereunder.
ITEM 6. SELECTED FINANCIAL DATA.
Information required by this item is not required to be disclosed by the Company
since it is a Smaller Reporting Company.
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 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. 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. On October 18, 2011, pursuant to the
terms of the Purchase and Sale Agreement, LCB Resources purchased all of
Gryphon's rights, titles and interests in certain leases, wells, equipment,
contracts, data and other designated property, which sale to LCB constituted
approximately 82% of the Company's consolidated total 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 Agreement.
Since the sale of substantially all of the assets of Gryphon to LCB, the Company
has continued to maintain a total of four (4) producing wells and one (1) water
disposal well. Gryphon also retains an operator's license with the Texas
Railroad Commission and continues to operate the Hood Leases itself. The
proceeds from the asset sale to LCB are being used to provide working capital to
Chancellor and for future corporate purposes, including but not limited to
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possible acquisitions, including new business ventures outside of the oil and
gas industry, such as with Pimovi, Inc. commencing during the fourth quarter of
2012 and The Fuelist, LLC commencing during the third quarter 2013.
On November 16, 2012, a certificate of incorporation was filed with the state of
Delaware for the formation of Pimovi, Inc. ("Pimovi"), a new majority-owned
subsidiary of Chancellor, the separate company financial statements of which are
consolidated with Chancellor's consolidated financial statements beginning for
the fourth quarter of 2012. Subsequently on January 11, 2013 the final binding
term sheet was signed by Chancellor summarizing the principal terms, conditions
and formal establishment of Pimovi by its two "Co-Founders", Chancellor and
Kasian Franks. Under the agreement, Chancellor agreed to provide the initial
funding of $250,000 over a period of up to eight months, in consideration of the
receipt of 61% of the equity of Pimovi in the form of Series A Preferred Stock.
Kasian Franks, whom is also the Chief Scientific Officer of Pimovi, agreed to
contribute certain intellectual property related to its business in
consideration for receipt of the remaining equity in Pimovi in the form of
common stock. The primary business purpose of Pimovi relates largely to
technology and mobile application fields, including development of proprietary
consumer algorithms, creating user photographic and other activity records,
First Person Video Feeds and other such activities related to mobile and
computer gaming. In March 2013, Pimovi was reincorporated in Nevada.
On August 15, 2013, Chancellor entered into a binding term sheet with The
Fuelist, LLC, a California limited liability company ("Fuelist"), and its
founders, Matthew Hamilton, Eric Maas and Thomas Rand-Nash, pursuant to which
Chancellor agreed to acquire a 51% ownership interest in Fuelist. As
consideration for the ownership interest, Chancellor will contribute to Fuelist
a total of $271,200 in cash payable in 12 monthly installments of $22,600,
beginning in August 2013. As additional consideration for the ownership
interest, Chancellor contributed a total of 2,000,000 shares of newly issued
common stock to Fuelist on August 19, 2013, valued at $156,000, or $0.078 per
share. The primary business purpose of Fuelist relates largely to developing a
data-driven mobile and web technology platform that leverages extensive segment
expertise and big data analysis tools to value classic vehicles. These tools
enable users to quickly find values, track valuations over time and to identify
investment and arbitrage opportunities in this lucrative market.
Our common stock is quoted on the Over-The-Counter market and trades under the
symbol CHAG.OB. As of March 27, 2014, there were 74,250,030 shares of our common
stock issued and outstanding.
RESULTS OF OPERATIONS BY SEGMENT
Twelve Months Ended December 31, 2013 Compared to Twelve Months Ended December
31, 2012
OIL SEGMENT REVENUES AND PRODUCTION: During 2013, we produced and sold 617
barrels of oil and produced and sold no gas, generating $55,400 in gross
revenues net of royalties paid, with a one month lag in receipt of revenues for
the prior months sales, as compared with 1,067 barrels of oil and no gas,
generating $91,377 in gross revenues net of royalties paid during 2012. We had 4
wells producing oil and none producing gas at December 31, 2013 and 2012.
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 2011 LCB asset sale was 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:
2013 2012
-------- --------
Oil and Gas Sales:
Oil Sales (Bbl) 617 1,067
Average Sales Price:
Oil, per Bbl $89.77 $85.64
9
<PAGE>
The decrease in net sales of oil during the year ended December 31, 2013 (as
compared to the year ended December 31, 2012) resulted primarily from the
settlement with LCB Resources for $24,620 in revenues in the first quarter of
2012 for the oil in storage tanks present at the date of sale to LCB which was
reported in revenues in 2012. The remaining decrease of approximately $11,000
relates primarily to the timing of deliveries.
TECHNOLOGY SEGMENT REVENUES AND DEVELOPMENT: During 2013 and 2012, we did not
generate any revenues as our operations focused solely on the development of our
web-based and mobile application technologies.
DEPRECIATION AND AMORTIZATION: Expense recognized for depreciation and
amortization of property and equipment increased $897, or approximately 18% in
2013 from 2012. This increase was primarily attributable to additional
depreciation on 2012 capitalized well costs during 2013. The Fuelist, LLC, also
incurred $159 in depreciation expense related to compute equipment.
OPERATING EXPENSES AND ADMINISTRATIVE EXPENSES: During 2013, our operating
expenses increased $705,437, or approximately 102%, primarily due to
approximately $791,139 of professional and consulting expenses and other
expenses incurred by Pimovi, Inc. and Fuelist, LLC. Approximately $619,900 of
this expense incurred was for Pimovi's general business purposes related to
initial development of technology and mobile applications fields. Approximately
$197,000 was incurred for Fuelist's general business purposes related to the
development of technology and mobile applications fields. Of the approximately
$197,031 reported by Fuelist, approximately $171,200 was professional and
consulting expenses, approximately $23,300 was other operating expenses and
approximately $2,300 was administrative expenses. Fuelist was started in 2013
therefore did not have any activity during 2012. During 2013, Chancellor's
general and administrative expenses decreased $12,000, or approximately 2% in
2013 from 2012. Significant components of these expenses include consulting
fees, professional fees and insurance. Professional and consulting fees
increased approximately $56,000, or approximately 15% during 2013, primarily the
result of increased costs with third parties, including consultants, attorneys,
and accounting and audit costs, all of which increased as a result of the
Company's two new majority-owned subsidiaries, Pimovi and Fuelist. Insurance
decreased approximately $14,700, or approximately 36% during 2013 due to the
cancellation of several insurance policies including health, commercial auto,
and property insurance subsequent to the sale of substantially all the Company's
oil and gas wells.
OVERALL: During 2013, we continued with the ongoing production, maintenance and
enhancements of our 4 producing wells in Gray County. As a result of these
efforts, our gross revenues from oil production for 2013 were $55,400. During
2013, the Company also recorded other income of $53,337 related to the
settlement of Cause 37053, related to production proceeds from 2009 through 2011
from properties previously owned and operated by the Company which had been
previously paid to another party in error. The management of the Company has
expended a large amount of time and resources in exploring other acquisitions
and business opportunities, primarily outside of the oil and gas industry.
During the fourth quarter of 2012, Chancellor formed a new subsidiary, Pimovi,
Inc., and then subsequently established an agreement to maintain 61% of the
ownership, with Pimovi becoming a new majority-owned subsidiary of Chancellor
beginning in the fourth quarter of 2012. Pimovi's primary focus is creating new
methods for recording activities, along with editing and assembling such records
in a proprietary format, including First Person Video Feeds for sporting and
other events that present the different points of views of the athletes and
other participants. During 2013, Pimovi incurred a loss of $619,891, mostly
related to consulting fees and general and administrative expenses, as it began
to develop its product line. Chancellor recorded a $378,134 loss from Pimovi
during 2013, representing its 61% share of Pimovi. During the third quarter of
2013, Chancellor acquired a 51% ownership interest in The Fuelist, LLC. During
the period from August 15, 2013 through December 31, 2013, Fuelist incurred a
loss of $214,812, mostly related to consulting fees and general and
administrative expenses, as it began to develop its technologies. Chancellor
recorded a $94,761 loss from Fuelist for the period ended December 31, 2013.
Therefore, the Company reported a consolidated net loss of $944,142 during 2013,
compared to a net loss of $547,967 reported for 2012.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW: The following table highlights certain information relating to our
liquidity and capital resources at December 31:
2013 2012
---------- ----------
Working Capital $ 465,115 $1,712,701
Current Assets 657,854 1,747,045
Current Liabilities 192,739 34,344
Stockholders' Equity 924,846 1,746,696
Our working capital at December 31, 2013, decreased by $1,247,586, or
approximately 73%, from December 31, 2012, primarily from the losses from
operations for 2013 related to Pimovi and Fuelist. Current assets decreased by
$1,089,188 or approximately 62%, while current liabilities increased $158,395,
or approximately 461%, primarily a result of the timing of cash disbursements
related to Pimovi and Fuelist operating expenses.
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, 2013, the Company had $589,901 of unrestricted cash on hand. Our
capital expenditures related to our oil and gas operations for fiscal year 2014,
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.
Chancellor has fulfilled its contractual obligations to provide funding for
Fuelist but expects from time to time to provide additional support for Pimovi
until such time as Pimovi receives sufficient operating revenue from its
business. This additional support is not expected to exceed $20,000 - $25,000 a
month. Based on current cash availability Chancellor should be able to provide
this for the next 6 - 8 months. Thereafter it would need to obtain third party
financing. There is no assurance that would be available on favourable terms or
at all. It is anticipated that Fuelist will require significant additional
capital to further develop its business. Fuelist plans to fund this development
from subscriptions and royalties from its website which began operating on March
22, 2014 and from other planned developments such as a related phone app. If
such revenue is not sufficient to fund business operations and development
Fuelist would need third party financing and there is no assurance that would be
available on favourable terms or at all.
CASH FLOW: Net cash used during 2013 was $1,110,607, compared to net cash used
of $611,268 during 2012. The most significant factor causing the increase in net
cash used during 2013 was an increase in legal and consulting costs related to
the development of Pimovi and Fuelist's technologies and the payment of accrued
expenses and accounts payable from December 31, 2012. The most significant
factor in the net cash used during 2012 was the sale of assets to LCB on
December 1, 2011, which generated net cash of $1,923,085.
Cash used for operations increased by $561,425, or approximately 99% during
2013, compared to 2012, primarily resulting from the loss from operations
attributable to both Pimovi and Fuelist of approximately $619,000 and $185,000,
respectively, during 2013. These operating losses were mostly related to
consulting fees and general and administrative expenses, as Pimovi and Fuelist
continued to develop their technologies.
Cash used for investing activities is $4,454 during 2013 compared to cash used
by investing activities in 2012 of $42,240, mainly attributable to computer
equipment purchased by Fuelist.
Cash provided by financing activities increased $24,300, or approximately 100%
during 2013, compared to 2012, solely related to the cash contributions received
by Fuelist from its other equity members.
EQUITY FINANCING: As of December 31, 2013, our stockholders have contributed
$3,887,615 in equity financing.
11
<PAGE>
CONTRACTUAL OBLIGATIONS
On February 25, 2013, the Company entered into a 12 month agreement with a new
investor relations consultant, which pays the consultant a fee of $9,000 monthly
for the period from February 2013 through July 2013. In addition, the Company
granted 1,000,000 shares of common stock to the consultant upon execution of the
agreement. The Company recognized $104,500 in consulting fees related to this
agreement during 2013 and also still has $9,500 in prepaid expenses in current
assets as of December 31, 2013.
On May 1, 2013, Fuelist entered into a lease agreement with a related party
limited liability company for the Company's main office, located in Berkeley,
California. The lease term is for one year beginning on May 1, 2013 and ending
May 1, 2014. The Company is obligated to pay rent of $6,000 per year in equal
monthly installments of $500 payable on the 1st of each month. The Company
subsequently entered into a sublease agreement with another related party entity
in which it was not legally relieved of its primary obligation for the lease
agreement. The Company recognized $10,800 in sub-lease rent revenue in other
income and $11,600 in rent expense in other operating expenses, relation to
these agreements during the year ended December 31, 2013.
CRITICAL ACCOUNTING POLICIES
This discussion and analysis of financial condition and results of operations
has been prepared by our management based on our consolidated financial
statements, which have been prepared in accordance with US GAAP. The preparation
of these financial statements requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues, and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, our management evaluates our critical accounting policies and
estimates, including those related to revenue recognition, valuation of accounts
receivable, intangible assets and contingencies. Estimates are based on
historical experience and on various assumptions believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. These judgments and estimates affect the reported
amounts of assets and liabilities and the reported amounts of revenue and
expenses during the reporting periods.
We consider the following accounting policies important in understanding our
operating results and financial condition:
GOING CONCERN
These consolidated financial statements have been prepared on the basis of a
going concern, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has had continued net
operating losses with net losses attributable to Chancellor Group, Inc.
Shareholders of $944,142 and $547,967 at December 31, 2013 and 2012,
respectively, and retained earnings deficits of $2,773,659 and $1,829,517,
respectively. The Company's continued operations are dependent on the successful
implementation of its business plan and its ability to obtain additional
financing as needed. The accompanying consolidated financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
INTANGIBLE ASSET VALUATION
Assessing the valuation of intangible assets is subjective in nature and
involves significant estimates and assumptions as well as management's judgment.
We periodically perform impairment tests on our long-lived assets, including our
intangible assets, whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Long-lived assets are testing for
impairment by first comparing the estimated future undiscounted cash flows from
a particular asset or asset group to the carrying value. If the expected
undiscounted cash flows are greater than the carrying value, no impairment is
recognized. If the expected undiscounted cash flows are less than the carrying
value, then an impairment charge is recorded for the difference between the
carrying value and the expected discounted cash flows. The assumptions used in
developing expected cash flow estimates are similar to those used in developing
other information used by us for budgeting and other forecasting purposes. In
instances where a range of potential future cash flows is possible, we use a
12
<PAGE>
probability-weighted approach to weigh the likelihood of those possible
outcomes. As of December 31, 2013 and 2012, we do not believe any of our
long-lived assets are impaired.
GOODWILL
Our goodwill represents the excess of the purchase price paid for The Fuelist,
LLC. over the fair value of the identifiable net assets and liabilities
acquired. Goodwill is not amortized but is tested annually for impairment, and
between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying
value. Goodwill is tested for impairment by comparing the carrying amount of the
asset to its fair value, which is estimated through the use of a discounted cash
flows model. If the carrying amount exceeds fair value, an impairment loss is
recognized for the difference. As of December 31, 2013, we determined there was
no impairment of our goodwill.
REVENUE RECOGNITION
For our oil segment, revenue is recognized for the oil production segment 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. For our technology segment, revenue will be
recognized when earned, including both future subscriptions and other future
revenue streams, as required under relevant revenue recognition policies under
generally accepted accounting policies.
NATURAL GAS AND OIL PROPERTIES
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 make these estimates
generally less precise than other estimates included in the financial statement
disclosures.
As of December 31, 2013, we had proved reserves of .12253 bcfe at 2013 12-month
average prices of $90.80 per barrel before price differential adjustments. As of
December 31, 2012, we had proved reserves of .1278 bcfe at 2012 12-month average
prices of $93.14 per barrel before price differential adjustments. This minor
decrease in reserves is due primarily to 2013 production.
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 and Pimovi operate. This process involves
estimating the actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items, such as derivative
instruments, depreciation, depletion and amortization, and certain accrued
liabilities for tax and accounting purposes. These differences and our net
operating loss carry-forwards result in deferred tax assets and liabilities,
which are included in our consolidated balance sheet. We must then assess, using
all available positive and negative evidence, the likelihood that the deferred
tax assets will be recovered from future taxable income. If we believe that
recovery is not likely, we must establish a valuation allowance. Generally, to
the extent Chancellor establishes a valuation allowance or increases or
decreases this allowance in a period, we must include an expense or reduction of
expense within the tax provision in the consolidated statement of operations.
Under accounting guidance for income taxes, an enterprise must use judgment in
considering the relative impact of negative and positive evidence. The weight
given to the potential effect of negative and positive evidence should be
commensurate with the extent to which it can be objectively verified. The more
negative evidence that exists (i) the more positive evidence is necessary and
(ii) the more difficult it is to support a conclusion that a valuation allowance
is not needed for some portion or all of the deferred tax asset. Among the more
significant types of evidence that we consider are:
13
<PAGE>
* 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, 2013, a deferred tax asset
of $527,915 has been recognized but partially offset by a valuation allowance of
approximately $524,414 due to federal NOL carry-back and carry-forward
limitations.
BUSINESS COMBINATIONS
The Company accounts for business combinations in accordance with FASB ASC Topic
805 "Business Combinations". This standard modifies certain aspects of how the
acquiring entity recognizes and measures the identifiable assets acquired, the
liabilities assumed and the goodwill acquired in a business combination. Net
assets acquired must be recorded upon acquisition at their estimated fair
values. Fair values must be determined based on the requirements of FASB ASC
Topic 820, Fair Value Measurements. In many cases the determination of fair
values of net assets requires management to make estimates about discount rates,
future expected cash flows, market conditions and other future events that are
highly subjective in nature and subject to change. Also often times these fair
value estimates are considered preliminary at acquisition date, and are subject
to change for up to one year after the closing date of the acquisition if any
additional information relative to closing dated fair values becomes available.
On August 15, 2013, the Company entered into a business combination with The
Fuelist, LLC.).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable for Small Reporting Company.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CHANCELLOR GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
Consolidated Financial Statements
TABLE OF CONTENTS
Page
----
Report of Independent Registered Public Accounting Firm 16
Consolidated Balance Sheets 17
Consolidated Statements of Operations 18
Consolidated Statements of Stockholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21
15
<PAGE>
[Letterhead of StarkSchenkein, LLP]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Chancellor Group, Inc.
We have audited the accompanying consolidated balance sheets of Chancellor
Group, Inc. and its subsidiaries as of December 31, 2013 and 2012, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 2013 and 2012. Chancellor Group, Inc's
management is responsible for these financial statements. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Chancellor Group,
Inc. as of December 31, 2013 and 2012, and the results of its operations and its
cash flows for the years ended December 31, 2013 and 2012 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the entity will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the entity has suffered recurring losses from
operations and has significant retained earnings deficits and may have ongoing
requirements for additional capital investments. These factors raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ StarkSchenkein, LLP
----------------------------------
StarkSchenkein, LLP
March 27, 2014
16
<PAGE>
CHANCELLOR GROUP, INC.
Consolidated Balance Sheets
December 31, 2013 and 2012
2013 2012
------------ ------------
ASSETS
Current Assets:
Cash $ 589,901 $ 1,700,508
Restricted Cash 25,000 25,000
Revenue Receivable 12,326 5,500
Income Tax Receivable 12,558 7,753
Prepaid Expenses 18,069 8,284
------------ ------------
Total Current Assets 657,854 1,747,045
------------ ------------
Property and Equipment:
Leasehold Costs - Developed 57,580 57,580
Furniture, Fixtures, & Office Equipment 4,454 --
Accumulated Depreciation and Amortization (29,752) (23,835)
------------ ------------
Total Property and Equipment, net 32,282 33,745
------------ ------------
Other Assets:
Goodwill 427,200 --
Deposits 250 250
------------ ------------
Total Other Assets 427,450 250
------------ ------------
Total Assets $ 1,117,586 $ 1,781,040
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 99,866 $ 34,175
Contributions Payable 90,400 --
Accrued Expenses 2,473 169
------------ ------------
Total Current Liabilities 192,739 34,344
------------ ------------
Stockholders' Equity
Series B Preferred Stock: $1,000 Par Value 250,000 shares authorized,
none outstanding -- --
Common Stock; $.001 par value, 250,000,000 shares authorized,
73,760,030 and 69,560,030 shares issued and outstanding, respectively 73,760 69,560
Paid-in Capital 3,813,853 3,539,053
Retained Earnings (Deficit) (2,773,659) (1,829,517)
------------ ------------
Total Chancellor, Inc. Stockholders' Equity 1,113,955 1,779,096
Non-controlling Minority Interest (Deficit) in Pimovi, Inc. (274,157) (32,400)
Non-controlling Minority Interest in The Fuelist, LLC 85,049 --
------------ ------------
Total Stockholders' Equity 924,846 1,746,696
------------ ------------
Total Liabilities and Stockholders' Equity $ 1,117,586 $ 1,781,040
============ ============
See Notes to Consolidated Financial Statements
17
<PAGE>
CHANCELLOR GROUP, INC.
Consolidated Statements of Operations
Years Ended December 31, 2013 and 2012
2013 2012
------------ ------------
Revenues:
Oil, net of royalties paid $ 55,400 $ 91,377
Technology Segment Revenues -- --
Other Operating Income 53,337 18,750
------------ ------------
Gross Revenues 108,737 110,127
------------ ------------
Operating Expenses:
Lease Operating Expenses 39,004 38,873
Severance Taxes 2,546 3,934
Other Operating Expenses 37,740 28,051
Technology Segment Professional and Consulting Expenses 791,139 83,076
Administrative Expenses 520,186 532,141
Depreciation and Amortization 5,917 5,020
------------ ------------
Total Operating Expenses 1,396,532 691,095
------------ ------------
(Loss) From Operations (1,287,795) (580,968)
------------ ------------
Other Income (Expense):
Interest Income 1,378 4,079
Other Income 11,200 --
------------ ------------
Total Other Income (Expense) 12,578 4,079
------------ ------------
Financing Charges:
Bank Fees Amortization 1,727 3,478
------------ ------------
Total Financing Charges 1,727 3,478
------------ ------------
(Loss) Before Provision for Income Taxes (1,276,944) (580,367)
Provision for Income Taxes (Benefit) -- --
------------ ------------
Net (Loss) of Chancellor, Inc. (1,276,945) (580,367)
Net Loss attributable to non-controlling interest in Pimovi, Inc. 241,757 32,400
Net Loss attributable to non-controlling interest in The Fuelist, LLC 91,045 --
------------ ------------
Net (Loss) attributable to Chancellor Group, Inc. Shareholders $ (944,142) $ (547,967)
============ ============
Net (Loss) per Share
(Basic and Fully Diluted) $ (0.01) $ (0.01)
============ ============
Weighted Average Number of Common Shares Outstanding 71,997,290 69,157,844
============ ============
See Notes to Consolidated Financial Statements
18
<PAGE>
CHANCELLOR GROUP, INC.
Consolidated Statements of Stockholders' Equity
December 31, 2013 and 2012
COMMON COMMON PREFERRED
STOCK STOCK Series B Paid in (Accumulated
Shares Amount Amount Capital Deficit)
------ ------ ------ ------- --------
Balance at December 31, 2011 67,960,030 $67,960 $ -- $3,498,053 $(1,281,550)
Compensatory Stock Issuances 1,600,000 1,600 -- 41,000 --
Net (Loss) -- -- -- -- (547,967)
---------- ------- -------- ---------- -----------
Balance at December 31, 2012 69,560,030 69,560 -- 3,539,053 (1,829,517)
Compensatory Stock Issuances 2,200,000 2,200 -- 120,800 --
Fuelist Acquisition Stock
Issuance 2,000,000 2,000 -- 154,000 --
Fuelist Accumulated Deficit
Prior to 51% Interest
Acquisition -- -- -- -- --
Fuelist Capital Contributions -- -- -- -- --
Net (Loss) -- -- -- -- (944,142)
---------- ------- -------- ---------- -----------
Balance at December 31, 2013 73,760,030 $73,760 $ -- $3,813,853 $(2,773,659)
========== ======= ======== ========== ===========
Non-controlling
Chancellor Interest Non-controlling Total
Stockholders' (deficit) Interest Stockholders'
Equity Pimovi, Inc. Fuelist, LLC Equity
------ ------------ ------------ ------
Balance at December 31, 2011 $2,284,463 $ -- $ -- $ 2,284,463
Compensatory Stock Issuances 42,600 -- -- 42,600
Net (Loss) (547,967) (32,400) -- (580,367)
---------- --------- -------- -----------
Balance at December 31, 2012 1,779,096 (32,400) -- 1,746,696
Compensatory Stock Issuances 123,000 -- -- 123,000
Fuelist Acquisition Stock
Issuance 156,000 -- -- 156,000
Fuelist Accumulated Deficit
Prior to 51% Interest
Acquisition -- -- (29,006) (29,006)
Fuelist Capital Contributions -- -- 205,100 205,100
Net (Loss) (944,142) (241,757) (91,045) (1,276,944)
---------- --------- -------- -----------
Balance at December 31, 2013 $1,113,955 $(274,157) $ 85,049 $ 924,846
========== ========= ======== ===========
See Notes to Consolidated Financial Statements
19
<PAGE>
CHANCELLOR GROUP, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 2013 and 2012
2013 2012
------------ ------------
Cash Flows From Operating Activities:
Net (Loss) attributable to Chancellor Group, Inc. Shareholders $ (944,142) $ (547,967)
Adjustments to Reconcile Net (Loss) to Net Cash
Provided by (Used in) Operating Activities:
Loss from Non-controlling Interest in Pimovi, Inc. (241,757) --
Loss from Non-controlling Interest in The Fuelist, LLC (91,045) --
Depreciation and Amortization 5,918 5,020
Stock Compensation Expense 123,000 42,600
Decrease in Operating Assets (21,415) 67,825
Increase (Decrease) in Operating Liabilities 38,989 (136,506)
------------ ------------
Net Cash (Used in) Operating Activities (1,130,453) (569,028)
------------ ------------
Cash Flows From Investing Activities:
Investment in Unconsolidated Subsidiary -- (32,400)
Other Capital Expenditures (4,454) (9,840)
------------ ------------
Net Cash (Used in) Investing Activities (4,454) (42,240)
------------ ------------
Cash Flows From Financing Activities:
Capital Contributions Received from Other Member 24,300 --
------------ ------------
Net Cash Provided by Financing Activities 24,300 --
------------ ------------
Net (Decrease) in Cash and Restricted Cash (1,110,607) (611,268)
Cash and Restricted Cash at the Beginning of the Year 1,725,508 2,336,776
------------ ------------
Cash and Restricted Cash at the End of the Year $ 614,901 $ 1,725,508
============ ============
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ -- $ --
============ ============
Income Taxes Paid $ -- $ 10,917
============ ============
Non Cash Investing and Financing Activities:
Contributions Payable related to Acquisition of Fuelist, Inc. $ 271,200 $ --
============ ============
Common Stock issued for Fuelist, LLC Acquisition $ 156,000 $ --
============ ============
Goodwill from Fuelist, LLC Acquisition $ 427,200 $ --
============ ============
See Notes to Consolidated Financial Statements
20
<PAGE>
CHANCELLOR GROUP, INC.
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
Chancellor Group, Inc. (the "Company", "our", "we", "Chancellor" or the
"Company") was incorporated in the state of Utah on May 2, 1986, and then, on
December 30, 1993, dissolved as a Utah corporation and reincorporated as a
Nevada corporation. The Company's primary business purpose is to engage in the
acquisition, exploration and development of oil and gas production. On March 26,
1996, the Company's corporate name was changed from Nighthawk Capital, Inc. to
Chancellor Group, Inc. During early 2012, the Company's corporate office was
moved from Pampa to Amarillo, Texas.
On November 16, 2012, a certificate of incorporation was filed with the state of
Delaware for the formation of Pimovi, Inc. ("Pimovi"), a new majority-owned
subsidiary of Chancellor, and with which separate company financial statements
are consolidated with Chancellor's consolidated financial statements beginning
for the fourth quarter of 2012. Chancellor owns 61% of the equity of Pimovi in
the form of Series A Preferred Stock, therefore Chancellor maintains significant
financial control. As of December 31, 2013, Pimovi had not commenced principal
operations and had no sales or revenues for 2013, therefore Pimovi is considered
a "development-stage enterprise". The primary business purpose of Pimovi relates
largely to technology and mobile application fields, including development of
proprietary consumer algorithms, creating user photographic and other activity
records, First Person Video Feeds and other such activities related to mobile
and computer gaming.
On August 15, 2013, Chancellor Group, Inc. entered into a binding term sheet
(the "Term Sheet") with The Fuelist, LLC, a California limited liability company
("Fuelist"), and its founders, Matthew Hamilton, Eric Maas and Thomas Rand-Nash
(together, the "Founders"), pursuant to which Chancellor agreed to acquire a 51%
ownership interest in Fuelist,. As consideration for the ownership interest,
Chancellor will contribute to Fuelist a total of $271,200 in cash payable in 12
monthly installments of $22,600, beginning in August 2013. As additional
consideration for the ownership interest, Chancellor contributed a total of
2,000,000 shares of newly issued common stock to Fuelist on August 19, 2013,
valued at $156,000, or $0.078 per share. As of December 31, 2013, Fuelist had
not commenced principal operations and had no sales or operating revenues
through December 31, 2013, therefore Fuelist is considered a "development-stage
enterprise". The primary purpose of Fuelist is the development of a data-driven
mobile and web technology platform that leverages extensive segment expertise
and big data analysis tools to value classic vehicles. These tools will enable
users to quickly find values, track valuations over time, and to identify
investment and arbitrage opportunities in this lucrative market.
Going Concern
These consolidated financial statements have been prepared on the basis of a
going concern, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has had continued net
operating losses with net losses attributable to Chancellor Group, Inc.
Shareholders of $944,142 and $547,967 at December 31, 2013 and 2012,
respectively, and retained earnings deficits of $2,773,659 and $1,829,517,
respectively. The Company's continued operations are dependent on the successful
implementation of its business plan and its ability to obtain additional
financing as needed. The accompanying consolidated financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
Operations
The Company is licensed by the Texas Railroad Commission as an oil and gas
producer and operator. The Company and its wholly-owned subsidiaries, Gryphon
Production Company, LLC and Gryphon Field Services, LLC, own 5 wells in Gray
County, Texas, of which 1 is a water disposal well. As of December 31, 2013 and
2012, approximately 4 oil wells are actively producing.
21
<PAGE>
We produced a total of 617 and 1,067 barrels of oil in the year ended December
31, 2013 and 2012, respectively. The oil is light sweet crude.
Both Pimovi and Fuelist were development stage enterprises as of December 31,
2013, with no significant operations other than the ongoing development of their
respective technologies described above.
Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
These accompanying consolidated financial statements include the accounts of
Chancellor and its wholly-owned subsidiaries: Gryphon Production Company, LLC,
and Gryphon Field Services, LLC. These entities are collectively hereinafter
referred to as "the Company". Beginning in the fourth quarter 2012, the
accompanying consolidated financial statements include the accounts of
Chancellor's majority-owned subsidiary, Pimovi, Inc., with which Chancellor owns
61% of the equity of Pimovi and maintains significant financial control.
Beginning in the third quarter 2013, the accompanying consolidated financial
statements also include Chancellor's majority-owned subsidiary, The Fuelist,
LLC, which Chancellor owns 51% of the equity of Fuelist and maintains
significant financial control. All material intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
Accounting Year
The Company employs a calendar accounting year. The Company recognizes income
and expenses based on the accrual method of accounting under generally accepted
accounting principles.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Products and Services, Geographic Areas and Major Customers
The Company plans to operate its domestic oil and gas properties, located in
Gray County in Texas, and possibly to acquire additional producing oil and gas
properties. The Company's major customers, to which the majority of its oil
production is sold, are Plains Marketing and ExxonMobil.
As of December 31, 2013, both Pimovi and Fuelist were in the development stage
of operations pursuing the development of their respective technologies, with no
significant products, services or major customers.
Net Loss per Share
The net loss per share is computed by dividing the net loss by the weighted
average number of shares of common outstanding. Warrants, stock options, and
common stock issuable upon the conversion of the Company's preferred stock (if
any), are not included in the computation if the effect would be anti-dilutive
and would increase the earnings or decrease loss per share.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
22
<PAGE>
Concentration of Credit Risk
Some of the Company's operating cash balances are maintained in accounts that
currently exceed federally insured limits. The Company believes that the
financial strength of deposit institutions mitigates the underlying risk of
loss. To date, these concentrations of credit risk have not had a significant
impact on the Company's financial position or results of operations.
Restricted Cash
Included in restricted cash at December 31, 2013 and 2012 are deposits totaling
$25,000, in the form of bond issued to the Railroad Commission of Texas as
required for the Company's oil and gas activities which is renewed annually.
Accounts Receivable
The Company reviews accounts receivable periodically for collectibles,
establishes an allowance for doubtful accounts and records bad debt expense when
deemed necessary. Based on review of accounts receivable by management at year
end, including credit quality and subsequent collections from customers, an
allowance for doubtful accounts was not considered necessary or recorded at
December 31, 2013, and 2012.
Prepaid Expenses
Certain expenses, primarily investment professional and consulting fees, have
been prepaid and will be used within one year.
Goodwill
Goodwill represents the cost in excess of the fair value of net assets of the
acquisition. Goodwill is not amortized but is subject to periodic testing for
impairment. The Company tests goodwill for impairment using a two-step process.
The first step tests for potential impairment, while the second step measures
the amount of the impairment, if any. The Company performs the annual impairment
test during the last quarter of each year. As of December 31, 2013, we
determined there was no impairment of our goodwill.
Property
Property and equipment are recorded at cost and depreciated under the
straight-line method over the estimated useful life of the assets. The estimated
useful life of leasehold costs, equipment and tools ranges from five to seven
years.
Oil and Gas Properties
The Company follows the successful efforts method of accounting for its oil and
gas activities. Under this accounting method, costs associated with the
acquisition, drilling and equipping of successful exploratory and development
wells are capitalized. Geological and geophysical costs, delay rentals and
drilling costs of unsuccessful exploratory wells are charged to expense as
incurred. The carrying value of mineral leases is depleted over the minimum
estimated productive life of the leases, or ten years. Undeveloped properties
are periodically assessed for possible impairment due to un-recoverability of
costs invested. Cash received for partial conveyances of property interests is
treated as a recovery of cost and no gain or loss is recognized.
Depreciation
Equipment is depreciated over the estimated useful lifes of the assets, which
ranged from 5 to 10 years, using the straight-line method.
23
<PAGE>
Long-Lived Assets
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 Topic 360 "PROPERTY, PLANT AND EQUIPMENT"
in the Accounting Standards Codification (the "ASC"). 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. As of December 31, 2013 and 2012, we do
not believe any of our long-lived assets are impaired.
Asset Retirement Obligations
The Company has not recorded an asset retirement obligation (ARO) in accordance
with ASC 410. Under ASC 410, a liability should be recorded for the fair value
of an asset retirement obligation when there is a legal obligation associated
with the retirement of a tangible long-lived asset, and the liability can be
reasonably estimated. The associated asset retirement costs should also be
capitalized and recorded as part of the carrying amount of the related oil and
gas properties. Management believes that not recording an ARO liability and
asset under ASC 410 is immaterial to the consolidated financial statements.
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. We have recorded a
valuation allowance as of December 31, 2013 and 2012.
Revenue Recognition
For our oil segment, revenue is recognized for the oil production 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. For our technology segment, revenue will be
recognized when earned, including both future subscriptions and other future
revenue streams, as required under relevant revenue recognition policies under
generally accepted accounting policies.
Fair Value Measurements and Disclosures
The Company estimates fair values of assets and liabilities which require either
recognition or disclosure in the financial statements in accordance with FASB
ASC Topic 820 "FAIR VALUE MEASUREMENTS". There is no material impact on the 2013
and 2012 consolidated financial statements related to fair value measurements
and disclosures. Fair value measurements include the following levels:
Level 1: Quoted market prices in active markets for identical assets or
liabilities. Valuations for assets and liabilities traded in active
exchange markets, such as the New York Stock Exchange. Level 1 also
includes U.S. Treasury and federal agency securities and federal
agency mortgage-backed securities, which are traded by dealers or
brokers in active markets. Valuations are obtained from readily
available pricing sources for market transactions involving identical
assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are
corroborated by market data. Valuations for assets and liabilities
traded in less active dealer or broker markets. Valuations are
obtained from third party pricing services for identical or similar
assets or liabilities.
24
<PAGE>
Level 3: Unobservable inputs that are not corroborated by market data.
Valuations for assets and liabilities that are derived from other
valuation methodologies, including option pricing models, discounted
cash flow models and similar techniques, and not based on market
exchange, dealer, or broker traded transactions. Level 3 valuations
incorporate certain assumptions and projections in determining the
fair value assigned to such assets or liabilities.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, including cash in
bank, restricted cash, revenue receivable and accounts payable as reported in
the accompanying consolidated balance sheet, approximates fair values.
Employee Stock-Based Compensation
Compensation expense is recognized for performance-based stock awards if
management deems it probable that the performance conditions are or will be met.
Determining the amount of stock-based compensation expense requires us to
develop estimates that are used in calculating the fair value of stock-based
compensation, and also requires us to make estimates of assumptions including
expected stock price volatility which is derived based upon our historical stock
prices.
Business Combinations
The Company accounts for business combinations in accordance with FASB ASC Topic
805 "Business Combinations". This standard modifies certain aspects of how the
acquiring entity recognizes and measures the identifiable assets, the
liabilities assumed and the goodwill acquired in a business combination. The
Company entered into a business combination with The Fuelist, LLC on August 15,
2013 (See Note 7 for further disclosure).
Recent Accounting Pronouncements
In July 2013, FASB issued ASU No. 2013-11, INCOME TAXES (TOPIC 740):
PRESENTATION OF AN UNRECOGNIZED TAX BENEFIT WHEN A NET OPERATING LOSS
CARRYFORWARD, A SIMILAR TAX LOSS, OR A TAX CREDIT CARRYFORWARD EXISTS. This ASU
is effective for interim and annual periods beginning after December 15, 2013.
This update standardizes the presentation of an unrecognized tax benefit when a
net operating loss carryforward, a similar tax loss, or a tax credit
carryforward exists. Management does not anticipate that the accounting
pronouncement will have any material future effect on our consolidated financial
statements.
There were various other updates recently issued, most of which represented
technical corrections to the accounting literature or application to specific
industries, and are not expected to have a material impact on the Company's
financial position, results of operations or cash flows.
NOTE 2. INCOME TAXES
Income Tax Expense is comprised of the following:
Fiscal Year
---------------------------
2013 2012
---------- ----------
Current federal -- --
Current state and local -- --
Deferred federal, state and local -- --
The difference between expected income tax expense (benefit) (computed by
applying the statutory rate of 35% to income before income taxes) and actual
income tax expense (benefit) is as follow:
25
<PAGE>
Fiscal Year
---------------------------
2013 2012
---------- ----------
Computed "expected" Tax (Benefit) $ (446,931) $ (203,128)
State and local income taxes, net
of federal effect -- --
Changes in Valuation Allowance and
other adjustments 446,931 203,128
---------- ----------
$ -- $ --
========== ==========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below.
Fiscal Year
---------------------------
2013 2012
---------- ----------
Deferred tax assets:
Net operating loss carry-forward $ 527,915 $ 414,867
---------- ----------
Total deferred tax assets 527,915 414,867
Valuation allowance against deferred tax assets (524,414) (411,212)
Deferred tax assets net of valuation allowance 3,501 3,655
Deferred tax liabilities:
Property and equipment 3,501 3,655
---------- ----------
Total deferred tax liabilities 3,501 3,655
---------- ----------
Net deferred tax assets $ -- $ --
========== ==========
Deferred income taxes are recorded for temporary differences between financial
statement and income tax basis. Temporary differences are differences between
the amounts of assets and liabilities reported for financial statement purposes
and their tax basis. Deferred tax assets are recognized for temporary
differences that will be deductible in future years' tax returns and for
operating loss and tax credit carryforwards. Deferred tax assets are reduced by
a valuation allowance if it is deemed more likely than not that some or all of
the deferred tax assets will not be realized. Deferred tax liabilities are
recognized for temporary differences that will be taxable in future years' tax
returns.
At December 31, 2013, the Company had a federal net operating loss carry-forward
of approximately $2,639,577. A deferred tax asset of approximately $527,915 has
been partially offset by a valuation allowance of approximately $524,414 due to
federal net operating loss carry-back and carry-forward limitations.
At December 31, 2013, the Company also had approximately $3,501 in deferred
income tax liability attributable to timing differences between federal income
tax depreciation, depletion and book depreciation, which has been offset against
the deferred tax asset related to the net operating loss carry-forward.
Management evaluated the Company's tax positions under FASB ASC No. 740
"Uncertain Tax Positions," and concluded that the Company had taken no uncertain
tax positions that require adjustment to the consolidated financial statements
to comply with the provisions of this guidance. With few exceptions, the Company
is no longer subject to income tax examinations by the U.S. federal, state or
local tax authorities for years before 2010.
26
<PAGE>
NOTE 3. STOCKHOLDERS' EQUITY
Preferred Stock
The Company has provided for the issuance of 250,000 shares, par value $1,000
per share, of convertible Preferred Series B stock ("Series B"). Each Series B
share is convertible into 166.667 shares of the Company's common stock upon
election by the stockholder, with dates and terms set by the Board. No shares of
Series B preferred stock are outstanding.
Common Stock
The Company has 250,000,000 authorized shares of common stock, par value $.001,
with 73,760,030 shares issued and outstanding as of December 31, 2013.
During the year ended December 31, 2013, Chancellor issued 4,200,000 shares of
its common stock, including: (1) 1,000,000 shares issued on February 25, 2013 to
a new investor relations consultant related to a 12 month agreement, (2)
1,000,000 shares issued on March 25, 2013 to the co-founder of Pimovi, Inc.
related to Chancellor's acquisition of 61% of the equity of Pimovi, (3)
2,000,000 shares issued on August 19, 2013 to The Fuelist, LLC. as partial
consideration of Chancellor's acquisition of 51% of the ownership interest of
Fuelist (see Note 7 for further information) and (4) 200,000 shares issued to
unrelated parties for consulting fees incurred during November 2013.
Stock based Compensation
During 2012, the Company recognized $42,600 in professional fees expense related
to stock issued to unrelated parties for business development services
performed.
During 2013, the Company recognized $123,000 in professional fees expense
related to stock issued to unrelated parties for business development and
consulting services performed.
Non-employee Stock Options and Warrants
The Company accounts for non-employee stock options under FASB ASC Topic 505
"EQUITY-BASED PAYMENTS TO NON-EMPLOYEES", whereby options costs are recorded
based on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable. During 2013
and 2012, no options were issued, exercised or cancelled.
The Company currently has outstanding warrants expiring December 31, 2014 to
purchase an aggregate of 6,000,000 shares of common stock; these warrants
consist of warrants to purchase 2,000,000 shares at an exercise price of $.025
per share, and warrants to purchase 4,000,000 shares at an exercise price of
$0.02 per share. In July 2009, the Company issued additional warrants expiring
June 30, 2014 to purchase an aggregate of 500,000 shares of common stock at an
exercise price of $0.125 per share. From June 2010 thru April 2011, the Company
issued additional warrants expiring June 30, 2015 to purchase an aggregate of
420,000 shares of common stock at an exercise price of $0.125 per share.
On December 31, 2013, the Company had the following outstanding warrants:
27
<PAGE>
Weighted
Remaining Average
Exercise Number of Contractual Life Exercise Price times Exercise
Price Shares (in years) Number of Shares Price
----- ------ ---------- ---------------- -----
$0.025 2,000,000 1 $ 50,000
$0.020 4,000,000 1 80,000
$0.125 500,000 .50 62,500
$0.125 420,000 1.50 52,500
--------- --------
6,920,000 $245,000 $0.035
========= ========
Remaining
Number of Weighted Average Contractual Life
Warrants Shares Exercise Price (in years)
-------- ------ -------------- ----------
Outstanding at January 1, 2012 6,920,000 $0.035
--------- ------
Issued -- --
Exercised -- --
Expired/Cancelled -- --
--------- ------
Outstanding at January 1, 2013 6,920,000 $0.035
--------- ------
Issued -- --
Exercised -- --
Expired/Cancelled -- --
Outstanding at December 31, 2013 6,920,000 $0.035 1.0
--------- ------ ------
Exercisable at December 31, 2013 6,920,000 $0.035 1.0
========= ====== ======
NOTE 4. PROPERTY AND EQUIPMENT
A summary of fixed assets at:
Balance Balance
December 31, December 31,
2011 Additions Deletions 2012
-------- --------- --------- --------
Equipment $ -- $ -- $ -- $ --
Leases & Lease Equipment 47,740 9,840 -- 57,580
-------- -------- -------- --------
Total Cost $ 47,740 $ 9,840 $ -- $ 57,580
======== ======== ======== ========
Less: Accumulated Depreciation 18,815 5,020 -- 23,835
-------- -------- -------- --------
Total Property and Equipment, net $ 28,925 $ 5,020 $ -- $ 33,745
======== ======== ======== ========
28
<PAGE>
A summary of fixed assets at:
Balance Balance
December 31, December 31,
2012 Additions Deletions 2013
-------- --------- --------- --------
Equipment $ -- $ 4,454 $ -- $ 4,454
Leases & Lease Equipment 57,580 - -- 57,580
-------- --------- -------- --------
Total Cost $ 57,580 $ - $ -- $ 62,034
======== ========= ======== ========
Less: Accumulated Depreciation 23,835 5,917 -- 29,752
-------- --------- -------- --------
Total Property and Equipment, net $ 33,745 $ 5,917 $ -- $ 32,282
======== ========= ======== ========
NOTE 5. CONTRACTUAL OBLIGATIONS
On February 25, 2013, the Company entered into a twelve month agreement with a
new investor relations consultant, which pays the consultant a fee of $9,000
monthly for the period from February 2013 through July 2013. In addition, the
Company granted 1,000,000 shares of common stock to the consultant upon
execution of the agreement. The Company recognized $104,500 in consulting fees
related to this agreement for 2013 and also still has $9,500 in related prepaid
expenses in current assets as of December 31, 2013.
On May 1, 2013, Fuelist entered into a lease agreement with a related party
limited liability company for the Company's main office, located in Berkeley,
California. The lease term is for one year beginning on May 1, 2013 and ending
May 1, 2014. The Company is obligated to pay rent of $6,000 per year in equal
monthly installments of $500 payable on the 1st of each month. The Company
subsequently entered into a sublease agreement with another related party entity
in which it was not legally relieved of its primary obligation for the lease
agreement. The Company recognized $10,800 in sub-lease rent revenue in other
income and $11,600 in rent expense in other operating expenses, relation to
these agreements during the year ended December 31, 2013.
NOTE 6. RELATED PARTY TRANSACTIONS
The Company has used the services of a consulting company owned by the Chairman
of the Board. The Company has paid $108,000 and $104,000 annually for those
services during the years ended December 31, 2013 and December 31, 2012. The
Company has paid directors fees to a company owned by the chairman of the board
in the amounts of $30,000 and $44,500 during the years ended December 31, 2013
and December 31, 2012, respectively, and to one other director in the amounts of
$30,000 and $44,500 in total during the years ended December 31, 2013 and
December 31, 2012, respectively. During 2013, the Company has paid $2,400 in
professional services to a company owned by the Chairman of Board for the
supervision and storage of company documents
NOTE 7. BUSINESS COMBINATION
On August 15, 2013, Chancellor entered into a binding term sheet with The
Fuelist, LLC, a California limited liability company ("Fuelist"), and its
founders (the "Founders"), pursuant to which Chancellor acquired a 51% ownership
interest in Fuelist.
As consideration for the 51% ownership interest in Fuelist, Chancellor agreed to
contribute to Fuelist a total of $271,200 in cash payable in 12 monthly
installments of $22,600. As additional consideration for the ownership interest,
Chancellor contributed a total of 2,000,000 shares of newly issued common stock
to Fuelist on August 19, 2013, valued at $156,000, or $0.078 per share.
Also in the term sheet, the 2,000,000 shares of Chancellor common stock are
deemed the property of the Founders irrespective of any future sales of the
Company or outcomes, and in the event of any sale of the Company to a third
party, the Founder's shares paid as part-consideration to the Company for the
purchase of Chancellor's 51% shall remain the property of the Founders and those
29
<PAGE>
Founder's shares shall be transferred to the Founders before, or as part of, the
closing of any such sale in the future to a third party.
Chancellor determined that the acquisition of its majority-owned interest in
Fuelist constitutes a business combination as defined by FASB ASC Topic 805,
Business Combinations. Accordingly, the net assets acquired were recorded upon
acquisition at their estimated fair values. Fair values were determined based on
the requirements of FASB ASC Topic 820, Fair Value Measurements. In many cases
the determination of these fair values required management to make estimates
about discount rates, future expected cash flows, market conditions and other
future events that are highly subjective in nature and subject to change. These
fair value estimates were considered preliminary, and are subject to change for
up to one year after the closing date of the acquisition if any additional
information relative to closing dated fair values becomes available.
The initial fair value of assets acquired and liabilities assumed in the
purchase has yielded little to no value as such all the proceeds are currently
allocated to goodwill as shown below:
Purchase Price:
Issuance of 2,000,000 shares of common stock $156,000
Contributions payable 271,200
--------
Total $427,200
========
For the period subsequent to the purchase through December 31, 2013, Chancellor
paid $180,800 towards the contributions payable resulting in $90,400 outstanding
as of December 31, 2013.
NOTE 8. NON-CONTROLLING INTERESTS
All non-controlling interest of Chancellor related to Fuelist is a result of
Chancellor's initial investment, the investment of other members in Fuelist, and
results of operations. Cumulative results of these activities result in:
December 31, December 31,
2013 2012
-------- --------
Cash contributions paid by Chancellor to Fuelist $180,800 $ --
Cash contributions paid by others to Fuelist 24,300 --
Net loss prior to acquisition by Chancellor
attributable to non-controlling interest (29,006) --
Net loss subsequent to acquisition by Chancellor
attributable to non-controlling interest (91,045) --
-------- --------
Total non-controlling interest in Fuelist $ 85,049 $ --
======== ========
The following is a summary of changes in non-controlling interest in Fuelist
during the year ended December 31, 2013:
Non-controlling interest in Fuelist at December 31, 2012 $ --
Cash contributions paid by Chancellor to Fuelist 180,800
Cash contributions paid by others to Fuelist 24,300
Net losses attributable to non-controlling interest in Fuelist (120,051)
---------
Non-controlling interest in Fuelist at December 31, 2013 $ 85,049
=========
All non-controlling interest of Chancellor related to Pimovi is a result of
results of operations. Cumulative results of these activities result in:
December 31, December 31,
2013 2012
-------- --------
Cumulative net loss attributable to
non-controlling interest in Pimovi $(274,057) $ (32,400)
---------- ----------
Total non-controlling interest in Pimovi $(274,057) $ (32,400)
========== ==========
30
<PAGE>
The following is a summary of changes in non-controlling interest in Pimovi
during the year ended December 31, 2013:
Non-controlling interest in Pimovi at December 31, 2012 $ (32,400)
Net loss attributable to non-controlling interest in Pimovi (241,757)
---------
Non-controlling interest in Pimovi at December 31, 2013 $(274,157)
=========
NOTE 9. SUBSEQUENT EVENTS
Events occurring after December 31, 2013 were evaluated through the date this
Annual Report was issued, in compliance FASB ASC Topic 855 "Subsequent Events",
to ensure that any subsequent events that met the criteria for recognition
and/or disclosure in this report have been included.
On February 12, 2014, the Board approved the issuance of 490,000 total shares to
two unrelated individuals for their engineering expertise and advice related to
Fuelist. The shares were issued to both individuals as of February 25, 2014. The
Company will recognize $26,950 in Professional and Consulting Fee Expense in the
first quarter of 2014 related to these shares.
NOTE 10. SUPPLEMENTAL INFORMAITON ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
The Supplementary Information on Oil and Gas Producing Activities is presented
as required by ASC Topic 932, "EXTRACTIVE ACTIVITIES -- OIL AND GAS".
Supplemental information is provided for the estimated quantities of proved oil
and gas reserves, future cash flows and the standardized measure of discounted
future net cash flows associated with proved oil and gas reserves.
Oil and Gas Reserve Quantities
Proved oil and gas reserves are those quantities of oil and gas, which, by
analysis of geoscience and engineering data, can be estimated with reasonable
certainty to be economically producible, based on prices used to estimate
reserves, from a given date forward from known reservoirs, and under existing
economic conditions, operating methods, and government regulation before the
time of which contracts providing the right to operate expire, unless evidence
indicates that renewal is reasonably certain. Proved developed reserves are
proved reserves expected to be recovered through existing wells with existing
equipment and operating methods or in which the cost of the required equipment
is relatively minor compared with the cost of a new well. Proved undeveloped
reserves are reserves that are expected to be recovered from new wells on
undrilled acreage, or from existing wells where a relatively large major
expenditure is required for recompletion.
The table below represents the Company's estimate of proved oil and natural gas
reserves attributable to the Company's net interest in oil and gas properties,
all of which are located in Gray and Hutchinson counties in the Texas panhandle,
based upon the evaluation by the Company and its independent petroleum engineers
of pertinent geoscience and engineering data in accordance with the SEC's
regulations. Estimates of all of the Company's proved reserves have been
prepared by independent reservoir engineers and geoscience professionals and are
reviewed by members of the Company's senior management to ensure that the
Company consistently applies rigorous professional standards and the reserve
definitions prescribed by the SEC. Management has elected not to include
probable and possible reserves in its reserve studies and related disclosures.
GSM, INC., a registered Petroleum engineering firm in Amarillo, Texas, prepared
reports of estimated proved reserves of natural gas and oil for our net interest
in certain oil and natural gas properties located in Gray and Hutchinson
counties in Texas.
31
<PAGE>
Total Future
Net Oil Net Gas Total Future Severance & Discounted
Reserves Reserves Total Future Projected Ad Valorem Future Net Per Annum
Proved Developed (Barrels) (Mcf) Net Revenue Cost Taxes cash flow as 10%
---------------- --------- ----- ----------- ---- ----- --------- ------
2013
Producing 20,421 -- $1,854,188 $920,861 $213,232 $ 720,099 $276,597
2012
Producing 21,281 -- $1,982,108 $571,680 $170,461 $1,239,966 $377,885
Presented below is a summary of changes in estimated reserves of the Company
during the periods ended December 31, 2013 and 2012:
Oil Total
(mmbbl) (bcfe)
-------- -------
December 31, 2013
Proved reserves, beginning of period 21.281 0.127
Extensions, discoveries and other additions -- --
Revisions of previous estimates -- --
Production (0.617) (0.006)
Sale of reserves-in-place -- --
Purchase of reserves-in-place -- --
-------- -------
Proved reserves, end of period 20.421 0.123
======== =======
Proved developed reserves:
Beginning of period 21.281 0.104
======== =======
End of period 20.421 0.123
======== =======
December 31, 2012
Proved reserves, beginning of period 17.330 0.104
Extensions, discoveries and other additions -- --
Revisions of previous estimates 5.018 0.029
Production (1.067) (0.006)
Sale of reserves-in-place -- --
Purchase of reserves-in-place -- --
-------- -------
Proved reserves, end of period 21.281 0.127
======== =======
Proved developed reserves:
Beginning of period 17.330 0.099
======== =======
End of period 21.281 0.127
======== =======
During 2013, Chancellor sold .004 bcfe of our proved reserves for approximately
$55,400 in gross revenues.
During 2012, Chancellor sold .006 bcfe of our proved reserves for approximately
$91,000 in gross revenues.
32
<PAGE>
The aggregate amounts of capitalized costs relating to our oil and gas producing
activities and the aggregate amounts of related accumulated depletion,
depreciation, and amortization as of December 31, 2013 and 2012 are as follows.
Years Ended December 31,
-----------------------------
2013 2012
-------- --------
Unproved oil and gas properties -- --
Proved oil and gas properties $ 57,580 $ 57,580
Accumulated depreciation, depletion, and
amortization, and valuation allowances (29,593) (23,835)
-------- --------
Net capitalized costs $ 27,987 $ 33,745
======== ========
The costs incurred by the Company in oil and natural gas property exploration,
development and acquisition activities are summarized as follows:
Years Ended December 31,
-----------------------------
2013 2012
-------- --------
Acquisition of properties
Proved $ -- $ --
Unproved -- --
Exploration costs -- --
Development costs $ -- $ 9,840
The Company's results of operations from oil and natural gas producing
activities are presented below for the years ended December 31, 2013 and 2012.
The following table includes revenues and expenses associated directly with the
Company's oil and natural gas producing activities. It does not include any
interest costs or general and administrative costs and, therefore, is not
necessarily indicative of the contribution to consolidated net operating results
of the Company's oil and natural gas operations.
Years Ended December 31,
-----------------------------
2013 2012
-------- --------
Revenues
Sales, net of royalties paid $ 55,400 $ 91,377
Transfers -- --
-------- --------
Total Revenues 55,400 91,377
Production costs (79,290) (70,858)
Exploration expenses -- --
Depreciation, depletion and
amortization and valuation provisions (5,758) (5,020)
Income tax expenses (benefits) -- --
-------- --------
Results of operations from producing
activities (excluding corporate overhead
and interest costs) $(29,648) $ 15,499
======== ========
The principal sources of change in the standardized measure of discounted future
net cash flows for the years ended December 31, 2013 and 2012 are as follows:
33
<PAGE>
Years Ended December 31,
--------------------------
2013 2012
-------- --------
Net change in sales and transfer prices and
in production (lifting) costs related to
future production $218,057 $ 80,375
Changes in estimated future development costs -- --
Sales and transfers of oil and gas produced
during the period, net of production taxes (55,400) (91,377)
Net change due to purchase of minerals in place -- --
Net change due to revisions in quantity estimates (61,369) 142,344
Previously estimated development costs incurred
during the period -- --
Accretion of discount -- --
Net change due to sale of minerals in place -- --
Net change in income taxes -- --
-------- --------
Aggregate change in the standardized measure of
discounted future net cash flows for the year $101,288 $131,342
======== ========
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted cash flows and summary of the changes in
the standardized measure computation from year to year are prepared in
accordance with ASC Topic 932. The assumptions that underlie the computation of
the standardized measure of discounted cash flows may be summarized as follows:
* the standardized measure includes the Company's estimate of proved
oil, natural gas and natural gas liquids reserves and projected future
production volumes based upon economic conditions;
* pricing is applied based upon 12-month average market prices at
December 31, 2013 and December 31, 2012. The calculated weighted
average per unit prices for the Company's proved reserves and future
net revenues were as follows:
At December 31,
---------------------
2013 2012
------- -------
Oil (per barrel) $ 90.80 $ 93.14
Natural gas (per Mcf) $ n/a $ n/a
* future development and production costs are determined based upon
actual cost at year-end;
* the standardized measure includes projections of future abandonment
costs based upon actual costs at year-end; and
* a discount factor of 10% per year is applied annually to the future
net cash flows.
34
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A(T). CONTROLS AND PROCEDURES.
As supervised by our Board of Directors and our principal executive and
principal financial officer, management has established a system of disclosure
controls and procedures and has evaluated the effectiveness of that system. The
system and its evaluation are reported on in the below Management's Annual
Report on Internal Control over Financial Reporting. Based on the evaluation of
our controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) required by paragraph (b)
of Rule 13a-15, our principal executive and financial officer has concluded that
our disclosure controls and procedures as of December 31, 2013, are effective to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is (x) accumulated and communicated to
management, including our principal executive and financial officer, as
appropriate to allow timely decisions regarding required disclosure and (y)
recorded, processed, summarized and reported within the time periods specified
by the SEC's rules and forms.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING:
Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f) of
the Exchange Act. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles.
Management assessed the effectiveness of internal control over financial
reporting as of December 31, 2013. Management carried out this assessment using
the criteria of the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control--Integrated Framework.
This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm, pursuant to rules of the Securities and Exchange Commission
that permit us to provide only management's report in this annual report.
Management concluded in this assessment that as of December 31, 2013, our
internal control over financial reporting is effective.
There have been no significant changes in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
for the year ended December 31, 2013 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION.
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
The Directors of the Registrant as of the date of this annual report on Form
10-K are as follows:
Served as a
Name Age Position Director since
---- --- -------- --------------
Maxwell Grant 76 Chairman and Director May 23, 2007
Dudley Muth 74 Director March 31, 2009
35
<PAGE>
All Directors of the Company hold office until successors are elected according
to the Company's by-laws.
The Officers of the Registrant as of the date of this annual report on Form 10-K
are as follows:
Served as a
Name Age Position Officer since
---- --- -------- -------------
Maxwell Grant 76 Chief Executive Officer and May 23, 2007
Principal Financial Officer
Officers of the Company are elected by the Board of Directors according to the
Company's by-laws and hold office until their death, resignation, or removal
from office.
Maxwell Grant whose company, Koala Pictures, is Chancellor's largest
stockholder, has a business degree and a journalism diploma in 1960 from
Melbourne University. A former international journalist and university lecturer
in the early 1960's in labor relations at Monash University, Melbourne, his New
York-published novels have been translated into several languages. His wide
range of interests include TV and film production, film financing and more
recently oil and gas. For the last three years, Mr. Grant has primarily
concentrated on locating a suitable acquisition for the Company and worked on
several other film and investment projects. He co-founded in the late 1990's and
was a 19% shareholder of Majestic Film Management Limited, Melbourne, Australia,
which raised several million dollars for international feature films for Village
Roadshow Pictures. The film JOEY, which he conceived and on which he was
Associate Producer, was sold internationally to MGM. Mr. Grant devoted his time
and efforts to locate for Chancellor its producing oil and gas properties in
Texas. He participated in negotiations on behalf of the Company for the purchase
of the property and identified the sources of financing for the Company to
complete the acquisitions.
Mr. Dudley Muth is a Los Angeles attorney and a broker-dealer compliance
officer. From January 2009 to the present, Mr. Muth has been the Compliance
Director/Counsel for BMA Securities, Rolling Hills Estates, California, and
prior thereto from March to December 2008, he was the Compliance
Director/Consultant for Financial West Group, Los Angeles, California. From
October 2002 to February, 2008, Mr. Muth was the Director of Compliance for the
Shemano Group, Los Angeles, California. Mr. Muth received a BA in Economics from
Pomona College in 1961, an MBA in Accounting and Industrial Relations from the
University of California Los Angeles in 1963, and a JD from the University of
Southern California School of Law in 1966. Mr. Muth began his career with Arthur
Andersen & Co. in their tax department specializing in oil and gas taxation in
Los Angeles. He has worked in the securities industry since the early 1970's, as
an attorney and compliance director. From 1977 to 1979 he served as a compliance
officer with the Pacific Stock Exchange. He has served as president of two
listed REIT's and since 1975 as a Director of Ojai Oil Company, a small oil and
gas and real estate company in Camarrilo, California. Mr. Muth was previously a
member of our Board of Directors, and had resigned from our Board in November,
2008. In connection with the preparation of our Annual Report on Form 10-K for
our fiscal year ended December 31, 2007, filed on April 7, 2008, he informed the
Company that, he had inadvertently neglected to advise the Company as to a
Financial Industry Regulatory Authority ("FINRA") regulatory disciplinary action
within the past several years in which he was fined $2,500 by reason of a
temporary net capital violation of a broker dealer for which he was the
regulatory operative contact with FINRA, such fine having been paid by the
company with which he was then associated.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
No person who at any time during the fiscal year ended December 31, 2013 was a
director, officer or beneficial owner of more than ten percent (10%) of our
common stock failed to file on a timely basis the reports required by Section
16(a) of the Exchange Act during the fiscal year ended December 31, 2013.
CODE OF CONDUCT
Our board of directors has adopted a Code of Ethics that is applicable to our
principal executive and financial officer, our principal accounting officer and
our controller or to persons performing similar functions for the Company. The
36
<PAGE>
Company will provide, free of charge, a copy of its Code of Ethics to any person
who submits a written request for a copy of the Code of Ethics, such request to
be submitted via first class or certified mail addressed to the Company at P.O.
Box 509, Amarillo, TX 79105-0509.
ITEM 11. EXECUTIVE COMPENSATION.
Compensation paid to Officers is set forth in the Summary Compensation Table
below. The Company may reimburse its Officers for any and all out-of-pocket
expenses incurred relating to the business of the Company.
SUMMARY COMPENSATION TABLE
Non-Equity Nonqualified
Name and Incentive Deferred
Principal Stock Option Plan Compensation All Other
Position Year Salary($) Bonus($) Awards($) Awards($) Compensation($) Earnings($) Compensation($) Totals($)
-------- ---- --------- -------- --------- --------- --------------- ----------- --------------- ---------
Maxwell Grant, 2012 -- -- -- -- -- -- $148,500 $148,500
Chairman of 2013 -- -- -- -- -- -- $138,000 $138,000
the Board of
Directors (1)
----------
(1) Mr. Grant owns 100% of the equity interests in Koala Pictures Proprietary
Ltd. ("Koala") and Axis Network Proprietary Ltd. In 2012 and 2013, Koala
was paid $104,000 and $108,000, respectively, annually in consulting fees.
In addition, Mr. Grant was paid $30,000 in cash, and $14,500 in stock awards, in
2012 in director's fees. Mr. Grant was paid $30,000, in cash in 2013 in
director's fees.
Compensation paid to Directors is set forth in the Director Compensation Table
below. The Company may reimburse its Directors for any and all out-of-pocket
expenses incurred relating to the business of the Company.
DIRECTOR COMPENSATION
Fees Non-Equity Nonqualified
Earned Incentive Deferred
Paid in Stock Option Plan Compensation All Other
Name Cash($) Awards($) Awards($) Compensation($) Earnings($) Compensation($) Total($)
---- ------- --------- --------- --------------- ----------- --------------- --------
Maxwell Grant $30,000 -- -- -- -- -- $30,000
Dudley Muth $30,000 -- -- -- -- -- $30,000
The Board of Directors has discussed and analyzed risks associated with the
Company's compensation policies and practices for executive officers and all
employees generally including, but not limited to, eligibility, effects on
retention, balance of objectives, alignment with stockholders, affordability,
possible unintended consequences and governance. The Board of Directors did not
identify any risks arising from these policies or practices reasonably likely to
have a material adverse effect on the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth, as of March 27, 2014, on which date 74,250,030
shares of common stock were outstanding, the ownership of each person known by
37
<PAGE>
the Registrant to be the beneficial owner of five percent or more of the
Company's common stock, each Officer and Director individually and all Directors
and Officers of the Registrant as a group.
No. of % of
Name Shares Class(1)
---- ------ --------
Maxwell Grant (2) Chairman and Director 24,813,800 31.91%
Dudley Muth Director 3,275,000 4.21%
Directors and Executive
Officers as a Group 28,088,800 33.13%
----------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to options or conversion rights that are currently exercisable or
exercisable within 60 days of March 25, 2013, are deemed to be beneficially
owned by the person holding such securities for the purpose of computing
the percentage of ownership of such person, but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Mr. Grant owns 100% of the equity interests in Koala Pictures Proprietary
Ltd. ("Koala") which owns 21,803,800 shares of common stock. Mr. Grant's
address is c/o the Company, P.O. Box 509, Amarillo, TX 79105-0509. As
previously reported, Koala holds warrants expiring December, 2014, to
purchase 2,500,000 shares of common stock at an exercise price of $.02 per
share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The Company has used the services of a consulting company owned by the Chairman
of the Board. The Company has paid $108,000 and $104,000 annually for those
services during the years ending December 31, 2013 and December 31, 2012. The
Company has paid directors fees to a company owned by the chairman of the board
in the amounts of $30,000 and $44,500 during the years ended December 31, 2013
and December 31, 2012, respectively, and to one other director in the amounts of
$30,000 and $44,500 in total during the years ended December 31, 2013 and
December 31, 2012, respectively. During 2013, the Company has paid $2,400 in
professional services to a company owned by the Chairman of Board for the
supervision and storage of company documents. Also during the year a private
company owned and controlled by the Chairman purchased 5% of Pimovi Inc. from
Co-Founder, Kasian Franks, for $50,000.
DIRECTOR INDEPENDENCE
As noted above, the Company's stock is not listed on a national securities
exchange or in an inter-dealer quotation system which has requirements that a
majority of the board of directors be independent. The Board of Directors has
determined, using the independence requirements established by the NASDAQ Stock
Market and the SEC, that all of the current members of the Board of Directors
other than Maxwell Grant are independent. The Board of Directors has considered
and applied all facts and circumstances relating to a director in making this
determination.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(1) Audit Fees.
The aggregate fees billed by our current independent auditors, StarkSchenkein,
LLP., for professional services rendered for the audit of our financial
statements for the year ending December 31, 2013 and for review of our quarterly
financial statements during 2013 was approximately $30,000.
38
<PAGE>
The aggregate fees billed by our current independent auditors, StarkSchenkein,
LLP., for professional services rendered for the audit of our financial
statements for the years ending December 31, 2012 and for review of our
quarterly financial statements during 2012 was $32,000.
(2) Audit-Related Fees.
There have been no audit-related fees billed by our auditors in each of the last
two fiscal years of our Company.
(3) Tax Fees.
There have been no tax fees billed by our auditors in each of the last two
fiscal years of our Company.
(4) All Other Fees.
There have been no other fees billed by our auditors in each of the last two
fiscal years of our Company.
(5) It is the policy of our Board of Directors that before the accountant is
engaged to render audit or non audit services, the engagement is approved by the
Board of Directors that is at present acting as the Audit Committee. All of the
services described above under the caption "Audit Fees" were approved by the
Board of Directors.
(6) Not applicable.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)(3) Exhibits
2.1 Plan of Reorganization dated March 1, 2008, filed with the United
States Bankruptcy Court for the Northern District of Texas, Amarillo
Division, filed herewith.
3.1 Certificate of Incorporation of Nighthawk Capital, Inc. (Utah)
(incorporated by reference to Exhibit 2.1 to the Company's Registration
Statement on Form 10-SB12G, filed with the Securities and Exchange
Commission on April 5, 2000).
3.2 Articles on Incorporation on Nighthawk Capital, Inc. (Nevada)
(incorporated by reference to Exhibit 2.2 to the Company's Registration
Statement on Form 10-SB12G, filed with the Securities and Exchange
Commission on April 5, 2000).
3.3 Articles of Merger of Nighthawk Capital, Inc. (Utah) into Nighthawk
Capital, Inc. (Nevada) (incorporated by reference to Exhibit 2.3 to the
Company's Registration Statement on Form 10-SB12G, filed with the
Securities and Exchange Commission on April 5, 2000).
3.4 By-Laws (incorporated by reference to Exhibit 2.4 to the Company's
Registration Statement on Form 10-SB12G, filed with the Securities and
Exchange Commission on April 5, 2000).
3.5 Amendments to the Articles of Incorporation of Nighthawk Capital, Inc.,
dated as of March 26, 1996.
3.6 Certificate of Amendment of Articles of Incorporation of Chancellor
Group, Inc., dated as of February 25, 2000.
10.1 Agreement and Plan of Reorganization, dated October 19, 2000, between
Chancellor Group, Inc. and Southwin financial, Ltd. (incorporated by
reference to Exhibit No. 10.1 to the Company's Current Report on Form
8-K, filed with the Securities and Exchange Commission on November 21,
2000).
10.2 Term Sheet for Investment in Pimovi, Inc. (incorporated by reference to
Exhibit 10.2 to the Annual Report on Form 10-K filed by the Company on
March 25, 2013 with the Securities and Exchange Commission).
39
<PAGE>
10.3 Binding Term Sheet for Investment in The Fuelist, LLC, dated August 15,
2013 (incorporated by reference to Exhibit No. 10.1 to the Company's
Current Report on Form 8-K, filed with the Securities and Exchange
Commission on August 20, 2013).
21 Subsidiaries of the Registrant (Incorporated by reference to page 1 of
this Annual Report on Form 10-K)*
23.1 Report and Consent of GSM, Inc.*
31 Certification of Chief Executive Officer and Principal Financial
Officer Pursuant to Section 302 of The Sarbanes Oxley Act of 2002.
Filed herewith.
32 Certification of Chief Executive Officer and Principal Financial
Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
99.1 Evaluation of Oil and Gas Reserves as of December 31, 2013, prepared by
GSM, INC., a registered petroleum engineering firm located in Amarillo,
Texas.*
99.2 Evaluation of Oil and Gas Reserves as of December 31, 2012, prepared by
GSM, INC., a registered petroleum engineering firm located in Amarillo,
Texas (incorporated by reference to Exhibit 99.1 to the Annual Report
on Form 10-K filed by the Company on March 29, 2013 with the Securities
and Exchange Commission).
101* Interactive Data Files pursuant to Rule 405 of Regulation S-T.
----------
* Filed herewith
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12(g) 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, on March 27, 2014.
CHANCELLOR GROUP, INC.
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 in
the capacities indicated, on March 27, 2014.
/s/ Maxwell Grant
-----------------------------------------
Maxwell Grant
Chief Executive Officer and Director
/s/ Dudley Muth
-----------------------------------------
Dudley Muth
Director
41
EXHIBIT 31
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
CERTIFICATION
I, Maxwell Grant, certify that:
1. I have reviewed this Annual Report on Form 10-K of Chancellor Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
me by others within those entities, particularly during the period in
which this report is being prepared;
b. designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c. evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report my conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth quarter in the
case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting;
DATE: March 27, 2014
/s/ Maxwell Grant
--------------------------------------
Maxwell Grant, Chief Executive Officer
and Principal Financial Officer
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Chancellor Group, Inc. (the "Company")
on Form 10-K for the year ended December 31, 2013 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Maxwell Grant,
Chief Executive Officer and Principal Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and (2) The information contained in the Report fairly
presents, in all material respects, the financial condition and result of
operations of the Company.
/s/ Maxwell Grant
--------------------------------
Maxwell Grant
Chief Executive Officer
and Principal Financial Officer
March 27, 2014
.?O05LVD:I