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.
<PAGE> 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
<PAGE> 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
<PAGE> 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.
ITEM 1A. RISK FACTORS.
Not applicable for Small Reporting Company.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2.
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.
<PAGE> 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% ---------------- --------- ----- ----------- ---- ----- --------- ------
Producing 20,421 -- $1,854,188 $920,861 $213,232 $ 720,099 $276,597
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
<PAGE> $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.
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.
<PAGE> ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable
PART II
ITEM 5.
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.
<PAGE> 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.
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.
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
<PAGE> 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
<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.
<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.
<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
<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:
<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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable for Small Reporting Company.
<PAGE> ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CHANCELLOR GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012 Consolidated Financial Statements
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
<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
<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
<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
<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
<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
<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.
<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.
<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.
<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.
<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:
<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.
<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:
<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 ======== ======== ======== ========
<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
<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) ========== ==========
<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.
<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% ---------------- --------- ----- ----------- ---- ----- --------- ------
Producing 20,421 -- $1,854,188 $920,861 $213,232 $ 720,099 $276,597
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.
<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:
<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.
<PAGE> ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A(T).
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.
ITEM 9B. OTHER INFORMATION.
None
PART III
ITEM 10.
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
<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 $2,500 by reason of a temporary net capital violation of a broker dealer for which he was the regulatory operative contact with FINRA, such fine having been paid by the company with which he was then associated.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
No person who at any time during the fiscal year ended December 31, 2013 was a director, officer or beneficial owner of more than ten percent (10%) of our common stock failed to file on a timely basis the reports required by Section 16(a) of the Exchange Act during the fiscal year ended December 31, 2013.
CODE OF CONDUCT
Our board of directors has adopted a Code of Ethics that is applicable to our principal executive and financial officer, our principal accounting officer and our controller or to persons performing similar functions for the Company. The
<PAGE> Company will provide, free of charge, a copy of its Code of Ethics to any person who submits a written request for a copy of the Code of Ethics, such request to be submitted via first class or certified mail addressed to the Company at P.O. Box 509, Amarillo, TX 79105-0509.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Compensation paid to Officers is set forth in the Summary Compensation Table below. The Company may reimburse its Officers for any and all out-of-pocket expenses incurred relating to the business of the Company.
SUMMARY COMPENSATION TABLE
Non-Equity Nonqualified Name and Incentive Deferred Principal Stock Option Plan Compensation All Other Position Year Salary($) 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.
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
<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.
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.
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.
<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.
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).
<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
<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