Certain information and footnote disclosures required under accounting
principles generally accepted in the United States of America have been
condensed or omitted from the following consolidated financial statements
pursuant to the rules and regulations of the Securities and Exchange Commission.
It is suggested that the following consolidated financial statements be read in
conjunction with the year-end consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2013.
The results of operations for the three and nine months ended September 30, 2014
and 2013 are not necessarily indicative of the results for the entire fiscal
year or for any other period.
Notes to Unaudited Consolidated Financial Statements
September 30, 2014
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. 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. Throughout
most of the Company's history, our primary business purpose has been to explore
for, develop and produce oil and gas. Effective as of July 1, 2014, we sold
substantially all of our oil and gas assets. Although the Company expects to
continue to explore strategic opportunities in the oil and gas business, our
primary focus going forward will be to manage and develop the operations of our
subsidiaries, Pimovi, Inc. ("Pimovi") and The Fuelist, LLC ("Fuelist").
Pimovi was incorporated in Delaware on November 16, 2012, and subsequently
reincorporated in Nevada. Chancellor owns 61% of the equity in Pimovi in the
form of Series A Preferred Stock, and therefore maintains significant financial
control over Pimovi. As a result, Pimovi's financial statements have been
consolidated with Chancellor's consolidated financial statements since the
fourth quarter of 2012.
On August 15, 2013, Chancellor Group, Inc. entered into a binding term sheet
with 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 contributed to Fuelist a total of $271,200 in cash. 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 September 30, 2014, Fuelist had
not commenced principal operations and had no sales or operating revenues
through September 30, 2014. 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 are expected to enable users to quickly find values, track valuations over
time, and to identify investment and arbitrage opportunities in this lucrative
market.
GOING CONCERN
These condensed and 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 $842,610 and $664,385 for the nine months ended
September 30, 2014 and 2013, respectively, and retained earnings deficits of
$3,616,268 and $2,773,659 as of September 30, 2014 and December 31, 2013,
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 condensed and consolidated financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
OPERATIONS
Until July 1, 2014, the Company and its wholly-owned subsidiary, Gryphon
Production Company, LLC , owned 5 wells in Gray County, Texas, of which 1 is a
water disposal well and 4 are oil wells.
We produced a total of 127 and 375 barrels of oil in the three and nine months
ended September 30, 2014, respectively, and a total of 134 and 479 barrels of
oil in the three and nine months ended September 30, 2013, respectively. The oil
is light sweet crude. Effective July 1, 2014, we sold all of our oil wells to S
& W Oil & Gas, LLC.
7
Both Pimovi and Fuelist as of September 30, 2014, had no significant operations
other than the ongoing development of their respective technologies.
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Chancellor Group, Inc. have been
prepared pursuant to the rules and regulations of the SEC for Quarterly Reports
on Form 10-Q and in accordance with US GAAP. Accordingly, these consolidated
financial statements do not include all of the information and footnotes
required by US GAAP for annual consolidated financial statements. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes in the Chancellor Group, Inc. Annual
Report on Form 10-K for the year ended December 31, 2013.
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". 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 The Fuelist, LLC, which
Chancellor acquired 51% of the equity of Fuelist and maintains significant
financial control. All material intercompany accounts and transactions have been
eliminated in the condensed and consolidated financial statements.
The consolidated financial statements are unaudited, but, in management's
opinion, include all adjustments (which, unless otherwise noted, include only
normal recurring adjustments) necessary for a fair presentation of such
financial statements. Financial results for this interim period are not
necessarily indicative of results that may be expected for any other interim
period or for the year ending December 31, 2014.
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 (U.S.).
USE OF ESTIMATES
The preparation of consolidated 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 consolidated
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
For our oil segment, the Company's major customers during the nine months ended
September 30, 2014, to which substantially all oil production was sold, were
Plains Marketing and XTO Energy. Given the number of readily available
purchasers for out 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.
The Company sold substantially all of its oil and gas assets effective July 1,
2014. We expect to continue to explore strategic opportunities in the oil and
gas business in the future. 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.
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
8
any), are not included in the computation if the effect would be anti-dilutive
and would increase the earnings or decrease loss per share.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
CONCENTRATION OF CREDIT RISK
Some of the Company's operating cash balances are maintained in accounts that
currently exceed federally insured limits. The Company believes that the
financial strength of depositing institutions mitigates the underlying risk of
loss. To date, these concentrations of credit risk have not had a significant
impact on the Company's financial position or results of operations.
RESTRICTED CASH
Included in restricted cash at September 30, 2014 and December 31, 2013 are
deposits totaling $25,000, in the form of a 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 collectability,
establishes an allowance for doubtful accounts and records bad debt expense when
deemed necessary. Based on review of accounts receivable by management at period
end, including credit quality and subsequent collections from customers, an
allowance for doubtful accounts was not considered necessary or recorded at
September 30, 2014 or December 31, 2013.
PREPAID EXPENSES
Certain expenses, primarily consulting fees and insurance, 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 annual impairment
testing during the last quarter of each year. However, during the quarter ended
September 30, 2014, based on both qualitative and quantitative factors
surrounding Fuelist including limitations to further needed capital sufficient
to continue work on its app and technologies, losses to date aggregating
approximately $263,000 for the nine month ended September 30, 2014, and an
accumulated negative deficit of approximately $72,000 as of September 30, 2014,
the Company recognized full impairment of its $427,200 of goodwill related to
Fuelist. This impairment was determined under the two-step process for
identifying and determining impairment which included both the estimation of
fair value for Fuelist and its implied fair value of goodwill. Goodwill
impairment was recorded in other expense in the statement of operations during
the quarter ended September 30, 2014.
PROPERTY AND DEPRECIATION
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. Equipment is depreciated over the estimated useful lives of the assets,
which ranged from 5 to 7 years, using the straight-line method.
9
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.
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 September 30, 2014 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 TAXES
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 September 30, 2014.
REVENUE RECOGNITION
For our oil segment, revenue was 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
September 30, 2014 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
10
brokers in active markets. Valuations are obtained from readily
available pricing sources for market transactions involving identical
assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are
corroborated by market data. Valuations for assets and liabilities
traded in less active dealer or broker markets. Valuations are
obtained from third party pricing services for identical or similar
assets or liabilities.
Level 3: Unobservable inputs that are not corroborated by market data.
Valuations for assets and liabilities that are derived from other
valuation methodologies, including option pricing models, discounted
cash flow models and similar techniques, and not based on market
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including cash and
cash equivalents, accounts receivable and accounts payable and long term debt,
as reported in the accompanying consolidated balance sheet, approximates fair
values.
EMPLOYEE STOCK-BASED COMPENSATION
Compensation expense is recognized for performance-based stock awards if
management deems it probable that the performance conditions are or will be met.
Determining the amount of stock-based compensation expense requires us to
develop estimates that are used in calculating the fair value of stock-based
compensation, and also requires us to make estimates of assumptions including
expected stock price volatility which is derived based upon our historical stock
prices.
BUSINESS COMBINATIONS
The Company accounts for business combinations in accordance with FASB ASC Topic
805 "Business Combinations". This standard modifies certain aspects of how the
acquiring entity recognizes and measures the identifiable assets, the
liabilities assumed and the goodwill acquired in a business combination. The
Company entered into a business combination with The Fuelist, LLC on August 15,
2013 (See Note 7 for further disclosure).
DISCONTINUED OPERATIONS
The Company complies with guidance related to when the results of operations of
a component of an entity that either has been disposed of or is classified as
held for sale should be reported as a discontinued operations as provided by
(ASC) Subtopic 205-20, Presentation of Financial Statements - Discontinued
Operations. A component of an entity comprises operations and cash flows that
can be clearly distinguished, operationally and for financial reporting
purposes, from the rest of the entity. A component of an entity may be a
reportable segment or an operating segment, a reporting unit, a subsidiary, or
an asset group. To qualify for presentation as a discontinued operation, both
conditions must be met, including (1) the operations and cash flows of the
component have been (or will be) eliminated from the ongoing operations of the
entity as a result of the disposal transaction, and (2) the entity will not have
any significant continuing involvement in the operations of the component after
the disposal transaction.
SUBSEQUENT EVENTS
Events occurring after September 30, 2014 were evaluated through the date this
quarterly report was issued, in compliance FASB ASC Topic 855 "SUBSEQUENT
EVENTS", to ensure that any subsequent events that met the criteria for
recognition and/or disclosure in this report have been included.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2014, FASB issued ASU No. 2014-15, PRESENTATION OF FINANCIAL
STATEMENTS - GOING CONCERN (SUBTOPIC 205-40): DISCLOSURE OF UNCERTAINTIES ABOUT
AN ENTITY'S ABILITY TO CONTINUE AS A GOING CONCERN. This ASU is effective for
11
the interim and annual periods beginning after December 15, 2016. Early
application is permitted. The amendments in this update provide guidance in GAAP
about management's responsibility to evaluate whether there is substantial doubt
about an entity's ability to continue as a going concern and to provide related
footnote disclosures. This accounting pronouncement did not have any material
effect on our condensed and consolidated financial statements.
In May 2014, FASB issued ASU No. 2014-09, REVENUE FROM CONTRACTS WITH CUSTOMERS
(TOPIC 606). This ASU is effective for interim and annual periods beginning
after December 15, 2016. Early application is not permitted. This ASU is a
result of a joint project initiated by the FASB and the International Accounting
Standards Board (IASB) to clarify the principles for recognizing revenue and to
develop a common revenue standard for U.S. GAAP and IFRS that would remove
inconsistencies and weaknesses in revenue requirements, provide a more robust
framework for addressing revenue issues, improve comparability of revenue
recognition practices, provide more useful information to users of the financial
statements through disclosure requirements, and simplify the preparation of
financial statements by reducing the number of requirements to which an entity
must refer. This accounting pronouncement did not have any material effect on
our condensed and consolidated financial statements.
In June 2014, FASB issued ASU No. 2014-10, DEVELOPMENT STAGE ENTITIES (TOPIC
915): ELIMINATION OF CERTAIN FINANCIAL REPORTING REQUIREMENTS, INCLUDING AN
AMENDMENT TO VARIABLE INTEREST ENTITIES GUIDANCE IN TOPIC 810, CONSOLIDATION.
The presentation and disclosure requirements in Topic 915 will no longer be
required effective for annual periods beginning after December 15, 2014. The
revised consolidation standards are effective one year later, in annual periods
beginning after December 15, 2015. The new guidance is intended to reduce the
overall cost and complexity associated with financial reporting for development
stage entities, such as startup companies, without compromising the availability
of relevant information. The new guidance removes the requirement to present the
additional inception-to-date information. This accounting pronouncement did not
have any material effect on our condensed and consolidated financial statements.
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. This accounting pronouncement did not have any material
effect on our condensed and 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
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 September 30, 2014, the Company had a federal net operating loss
carry-forward of approximately $2,999,000 compared to $2,639,000 at December 31,
2013. A deferred tax asset of $599,765 at September 30, 2014 and $527,915 at
December 31, 2013 has been offset by a valuation allowance of approximately
$599,765 and $524,414 at September 30, 2014 and December 31, 2013, respectively,
due to federal net operating loss carry-back and carry-forward limitations.
The Company also had approximately $0 and $3,501 in deferred income tax
liability at September 30, 2014 and December 31, 2013, respectively,
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.
12
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.
NOTE 3. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has authorized 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 have been issued.
COMMON STOCK
The Company has 250,000,000 authorized shares of common stock, par value $.001,
with 74,600,030 and 73,760,030 shares issued and outstanding as of September 30,
2014 and December 31, 2013, respectively.
STOCK BASED COMPENSATION
For the three and nine months ended September 30, 2014, the Company issued 0 and
840,000 shares of common stock, respectively and recognized $0 and $36,450
respectively in consulting fees expense, which is recorded in general and
administrative expenses.
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 the
three and nine months ended September 30, 2014, 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. These warrants were extended in May 2014 to December 31, 2017
to purchase 5,000,000 shares at an exercise price of $.020 per share, and
warrants to purchase 1,000,000 shares at an exercise price of $.025 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 September 30, 2014, the Company had the following outstanding warrants:
Exercise Weighted
Remaining Price times Average
Exercise Number of Contractual Life Number of Exercise
Price Shares (in years) Shares Price
----- ------ ---------- ------ -----
$0.125 420,000 .75 $ 52,500
$0.025 1,000,000 3.25 $ 25,000
$0.020 5,000,000 3.25 $100,000
--------- --------
6,420,000 $177,500 $0.028
========= ========
13
|
Weighted
Average Remaining
Number of Exercise Contractual Life
Warrants Shares Price (in years)
-------- ------ ----- ----------
Outstanding at December 31, 2013 6,920,000 $0.035
--------- ------
Issued -- --
Exercised -- --
Expired/Cancelled 500,000 $0.007
--------- ------
Outstanding at September 30, 2014 6,420,000 $0.028 2.67
--------- ------ ----
Exercisable at September 30, 2014 6,420,000 $0.028 2.67
========= ====== ====
|
NOTE 4. PROPERTY AND EQUIPMENT
A summary of fixed assets at:
Balance Balance
December 31, September 30,
2013 Additions Deletions 2014
-------- --------- --------- --------
Equipment $ 4,454 $1,201 $ -- $ 5,655
------- ------ ------- -------
Total Cost $ 4,454 $1,201 $ -- $ 5,655
======= ====== ======= =======
Less: Accumulated
Depreciation $ 159 $ 834 $ -- $ 993
------- ------ ------- -------
Total Property and
Equipment, net $ 4,295 $ 367 $ -- $ 4,662
======= ====== ======= =======
|
NOTE 5. CONTRACTUAL OBLIGATIONS
On February 25, 2013, the Company entered into a twelve month agreement with a
new investor relations consultant, which paid the consultant a fee of $9,000
monthly for the period from February 2013 through July 2013. The agreement was
not renewed. In addition, the Company granted 1,000,000 shares of common stock
to the consultant upon execution of the agreement. The Company recognized $0 and
$9,500 in consulting fees for the three and nine months ended September 30, 2014
related to this agreement, respectively compared to $27,500 and $76,000 in
consulting fees for the three and nine months for the same period during 2013,
respectively.
On May 1, 2013, Fuelist entered into a lease agreement with a related party
limited liability company for its main office, located in Berkeley, California.
The lease term was for one year beginning on May 1, 2013 and ended May 1, 2014.
The agreement was subsequently renewed through October 31, 2015. The Company is
obligated to pay a minimum amount of rent of $32,400 per year in equal monthly
installments of $2,700 payable on the 1st of each month. The Company
subsequently entered into a sub-lease agreement with another related party
entity in which it was not legally relieved of its primary obligation for the
lease agreement. The Company recognized $600 and $8,160 in sub-lease rent
revenue in other income and $0 and $16,200 in rent expense in other operating
expenses, related to these agreements during the three and nine months ended
September 30, 2014, respectively.
NOTE 6. RELATED PARTY TRANSACTIONS
The Company has used the services of a consulting company owned by the Chairman
of the Board. The Company paid $27,000 and $81,000 for those services during the
three and nine months ended September 30, 2014, respectively. The Company paid
$27,000 and $81,000 for those services during the three and nine months ended
September 30, 2013, respectively. The Company has paid directors fees to a
company owned by the chairman of the board in the amount of $3,000 and $18,000
during the three and nine months ended September 30, 2014, respectively,
14
compared to $7,500 and $22,500 for the same period during 2013, respectively.
The Company also paid one other director in the amount of $5,000 and $20,000
during the three and nine months ended September 30, 2014, respectively and
$7,500 and $22,500 during the three and nine months ended September 30, 2013,
respectively.
On April 28, 2014, Chancellor received an interest-free loan of $5,000 from a
related party company owned by the chairman of the board with no specific
repayment terms. On May 23, 2014, Chancellor received a second interest-free
loan of $9,000 from the same related party company owned by the chairman of the
board. On July 2, 2014, Chancellor received a second interest-free loan of
$9,000 from a second related party company owned by the chairman of the board.
Interest on the loans is imputed at 5.25% for a one year term.
NOTE 7. 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:
September 30, December 31,
2014 2013
---------- ----------
Cash contributions paid by Chancellor to Fuelist $ 271,200 $ 180,800
Cash contributions paid by others to Fuelist 32,400 24,300
Net loss prior to acquisition by Chancellor
attributable to non-controlling interest (29,006) (29,006)
Net loss subsequent to acquisition by Chancellor
attributable to non-controlling interest (189,174) (91,045)
Proceeds from Fuelist sales of Chancellor stock 32,129 --
---------- ----------
Total non-controlling interest in Fuelist $ 117,549 $ 85,049
========== ==========
|
The following is a summary of changes in non-controlling interest in Fuelist
during the nine months ended September 30, 2014:
Non-controlling interest in Fuelist at December 31, 2013 $ 85,049
Cash contributions paid by Chancellor to Fuelist 90,400
Cash contributions paid by others to Fuelist 8,100
Net losses attributable to non-controlling interest in Fuelist (98,129)
Proceeds from Fuelist sales of Chancellor stock 32,129
----------
Non-controlling interest in Fuelist at September 30, 2014 $ 117,549
==========
|
All non-controlling interest of Chancellor related to Pimovi is a result of
results of operations. Cumulative results of these activities result in:
September 30, December 31,
2014 2013
---------- ----------
Cumulative net loss attributable to
non-controlling interest in Pimovi $ (312,436) $ (274,157)
---------- ----------
Total non-controlling interest in Pimovi $ (312,436) $ (274,157)
========== ==========
|
The following is a summary of changes in non-controlling interest in Pimovi
during the nine months ended September 30, 2014:
Non-controlling interest in Pimovi at December 31, 2013 $ (274,157)
Net loss attributable to non-controlling interest in Pimovi (38,279)
----------
Non-controlling interest in Pimovi at September 30, 2014 $ (312,436)
==========
|
15
NOTE 8. FOREIGN CURRENCY TRANSACTIONS
On April 28, 2014, Chancellor received an interest-free loan of $5,000 from a
related party company owned by the chairman of the board with no specific
repayment terms. On May 23, 2014, Chancellor received a second interest-free
loan of $9,000 from the same related party company owned by the chairman of the
board with no specific repayment terms. These loans are fixed in terms of
Australian dollars and therefore resulted in foreign transaction gains of $1,394
and $480, respectively, for the three and nine ended September 30, 2014, due to
the change in exchange rates from the time of the loans and the balance sheet
date of September 30, 2014. Such gains and losses are recorded in other income
in the period incurred.
NOTE 9. NOTES PAYABLE RELATED PARTY
The Company issued an unsecured note payable with a face amount of $5,000 from a
related party company owned by the chairman of the board as discussed in Note 6.
The balance of the note payable is non-interest bearing with no specific
repayment terms. As a result the note payable has been recorded net of
unamortized discount of $267 imputed at the rate of 5.25% and assuming a term of
one year. At September 30, 2014, the total unpaid balance of this note payable,
net of the unamortized discount of $156, is $5,112.
The Company issued an unsecured note payable with a face amount of $9,000 from a
related party company owned by the chairman of the board as discussed in Note 6.
The balance of the note payable is non-interest bearing with no specific
repayment terms. As a result the note payable has been recorded net of
unamortized discount of $482 imputed at the rate of 5.25% and assuming a term of
one year. At September 30, 2014, the total unpaid balance of this note payable,
net of the unamortized discount of $313, is $9,169.
The Company issued an unsecured note payable with a face amount of $9,000 from a
related party company owned by the chairman of the board as discussed in Note 6.
The balance of the note payable is non-interest bearing with no specific
repayment terms. As a result the note payable has been recorded net of
unamortized discount of $483 imputed at the rate of 5.25% and assuming a term of
one year. At September 30, 2014, the total unpaid balance of this note payable,
net of the unamortized discount of $365, is $9,118.
NOTE 10. DISCONTINUED OPERATIONS
On July 1, 2014, Chancellor sold its remaining oil and gas leases located in
Gray County, Texas, owned by its subsidiary Gryphon Production Company, LLC. In
accordance with (ASC) Subtopic 205-20, Presentation of Financial Statements -
Discontinued Operations, at September 30, 2014 all of the related assets
(primarily leasehold costs) and liabilities to Chancellor's oil and gas segment
were classified as held for sale, and presented separately in current assets and
liabilities in the condensed and consolidated balance sheets. Assets held for
sale consisted of $62,940 in capitalized leasehold costs and $32,740 of related
accumulated depreciation. These assets held for sale were sold on July 1, 2014
for gross proceeds of $95,000 net of $7,125 in commissions resulting in a gain
of $64,800. In addition, the net income (losses) related to Chancellor's oil and
gas segment were reported in discontinued operations in the condensed and
consolidated statements of income. Total revenues for Chancellor's oil and gas
segment were approximately $12,600 and $13,500 for the three months ended
September 30, 2014 and 2013, respectively, and were approximately $35,300 and
$43,300 for the nine months ended September 30, 2014 and 2013, respectively.
Chancellor had no other operating income related to its oil and gas segment for
the three and nine months ended September 30, 2014 compared to $0 and $53,337
for the three and nine months ended September 30, 2013, respectively. Expenses
related to the Company's oil and gas segment were $1,762 and $19,429 for the
three and nine months ended September 30, 2014, respectively, compared to
$14,106 and $41,362 for the same periods in 2013, respectively. Net cash used
for operating activities related to discontinued operations was $2,213 for the
nine months ended September 30, 2014 compared to net cash provided by operating
activities related to discontinued operations of $4,318 for the same period in
2013.
NOTE 11. GOODWILL
The changes in the carrying amount of goodwill and accumulated impairment losses
for our technology segment for the nine months ended September 30, 2014, twelve
months ended December 31, 2013, are as follows:
16
Balance as of January 1, 2013
Goodwill $ --
Accumulated impairment losses --
----------
Carrying amount $ --
==========
Goodwill recognized during the period $ 427,200
Impairment recognized during the period $ --
Balance as of December 31, 2013
Goodwill $ 427,200
Accumulated impairment losses --
----------
Carrying amount $ 427,200
==========
Goodwill recognized during the period $ --
Impairment recognized during the period $ 427,200
Balance as of September 30, 2014
Goodwill $ 427,200
Accumulated impairment loss (427,200)
----------
Carrying amount $ --
==========
|
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 annual impairment
testing during the last quarter of each year. However, during the quarter ended
September 30, 2014, based on both qualitative and quantitative factors
surrounding Fuelist including limitations to further needed capital sufficient
to continue work on its app and technologies, losses to date aggregating
approximately $263,000 for the nine month ended September 30, 2014, and an
accumulated negative deficit of approximately $72,000 as of September 30, 2014,
the Company recognized full impairment of its $427,200 of goodwill related to
Fuelist. This impairment was determined under the two-step process for
identifying and determining impairment which included both the estimation of
fair value for Fuelist and its implied fair value of goodwill. Goodwill
impairment was recorded in other expense in the statement of operations during
the quarter ended September 30, 2014.
NOTE 12. SUBSEQUENT EVENTS
Events occurring after September 30, 2014 were evaluated through the date the
Form 10Q 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 October 24, 2014, the Company issued 200,000 total shares to two unrelated
individuals for their engineering expertise and advice related to Pimovi. The
Company will recognize $1,400 in professional and consulting fee expense in the
fourth quarter of 2014 related to these shares.
On October 28, 2014, the Company cancelled 340,000 shares which had been issued
to an independent consultant on February 25, 2014, at a price of $0.055.
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