10-Q 1 g7651.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2014 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File No. 000-30219 CHANCELLOR GROUP, INC. (Exact name of Registrant as Specified in Its Charter) Nevada 87-0438647 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 500 Taylor Street, Plaza Two - Suite 200, Amarillo, TX 79101 (Address of principal executive offices, including zip code) Issuer's Telephone Number, Including Area Code: (806) 322-2731 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Number of shares of Common Stock outstanding as of November 13, 2014: 74,460,030 CHANCELLOR GROUP, INC. INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: 3 Consolidated Balance Sheets, as of September 30, 2014 (unaudited) and as of December 31, 2013 4 Consolidated Statements of Operations, for the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited) 5 Consolidated Statements of Cash Flows, for the Nine Months Ended September 30, 2014 and 2013 (unaudited) 6 Notes to Unaudited Condensed and Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 25 Item 4. Controls and Procedures 25 PART II. OTHER INFORMATION Item 1. Legal Proceedings 26 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26 Item 6. Exhibits 26 SIGNATURES 28 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 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. 3 CHANCELLOR GROUP, INC. Consolidated Balance Sheets

See Notes to Unaudited Consolidated Financial Statements 4 CHANCELLOR GROUP, INC. Consolidated Statements of Operations Three and Nine Months Ended September 30, 2014 and 2013 (Unaudited)

---------- * Less than $0.01 per share See Notes to Unaudited Consolidated Financial Statements 5 CHANCELLOR GROUP, INC. Consolidated Statements of Cash Flows Nine Months Ended September 30, 2014 and 2013 (Unaudited)

See Notes to Unaudited Consolidated Financial Statements 6 CHANCELLOR GROUP, INC. 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. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Throughout this report, we make statements that may be deemed "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, that address activities, events, outcomes and other matters that Chancellor plans, expects, intends, assumes, believes, budgets, predicts, forecasts, projects, estimates or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. These forward-looking statements are based on management's current belief, based on currently available information, as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report. We caution you that these forward-looking statements are subject to all of the risks and uncertainties, many of which are beyond our control, incident to the exploration for and development, production and sale of oil and gas. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of goods and services, environmental risks, operating risks, regulatory changes, the uncertainty inherent in estimating proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures and other risks described herein, 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. The proceeds from the asset sale to LCB were used to provide working capital to Chancellor and for future corporate purposes, including but not limited to 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. Since the sale of substantially all of the assets of Gryphon to LCB, the Company had 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 continued to operate the Hood Leases itself until July 1, 2014. Effective as of July 1, 2014, Gryphon sold its interest in the Hood Lease and all of its remaining wells to S&W Oil & Gas, LLC for a purchase price of $95,000 in cash. After deducting agent's commissions, the net proceeds to Gryphon were $87,875. Following this sale of substantially all of the Company's remaining oil and gas assets, our primary focus will be on developing the operations of our subsidiaries, Pimovi and Fuelist, although we expect to continue to explore strategic opportunities in the oil and gas business. On November 16, 2012, a certificate of incorporation was filed with the state of Delaware for the formation of 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 18 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 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 contributed to Fuelist a total of $271,200 in cash payable in 12 monthly installments of $22,600, beginning in August 2013. The contribution was paid in full as of September 30, 2014. 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 November 13, 2014, there were 74,460,030 shares of our common stock issued and outstanding. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2014 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2013. OIL SEGMENT REVENUES AND PRODUCTION: During the three months ended September 30, 2014, we produced and sold 127 barrels of oil and produced and sold no gas due to the timing of oil deliveries, generating $12,211 in gross revenues net of royalties paid as compared with 134 barrels of oil, generating $13,464 in gross revenues for the same period in 2013. We had no wells actually producing oil and none producing gas at September 30, 2014 and had 4 wells actually producing oil and none producing at September 30, 2013. During the quarter ended September 30, 2014, the Company had no producing wells and no water disposal wells. Effective July 1, 2014, we sold all of our oil wells to S & W Oil & Gas, LLC. The proceeds from the asset sale will be used to provide working capital and for future corporate purposes including, but not limited to, exploring strategic opportunities in the oil and gas business and managing and developing the operations of our technology segment. The following table summarizes our production volumes and average sales prices for the periods ended September 30: 2014 2013 -------- -------- Oil Sales: Oil Sales (Bbl) 127 134 Average Sales Price: Oil, per Bbl $96.00 $100.26 The decrease in net sales of oil during the period ended September 30, 2014 (as compared to the period ended September 30, 2013) resulted primarily from the timing of deliveries related to the sale of all of our oil wells to S & W Oil and Gas, LLC. TECHNOLOGY SEGMENT REVENUES AND DEVELOPMENT: During the quarters ended September 30, 2014 and 2013, we did not generate any revenues as our operations focused solely on the development of our web-based and mobile application technologies. 19 DEPRECIATION AND AMORTIZATION: Expense recognized for depreciation and amortization of property and equipment increased $277 or approximately 100% in the three months ended September 30, 2014 compared to the same period in 2013. This increase was attributable to office equipment purchased by Fuelist. OPERATING EXPENSES AND ADMINISTRATIVE EXPENSES: During the three months ended September 30, 2014, our general and administrative expenses decreased $57,897, or approximately 42% compared to same period in 2013. Significant components of these expenses include professional and consulting fees, travel expenses, and insurance expense. Professional and consulting fees decreased approximately $36,175, or approximately 58%, during the three months ending September 30, 2014 compared to the same period in 2013, primarily the result of large investor relations expenses and consultation costs with third parties in the third quarter of 2013 related to Fuelist. Travel expenses decreased approximately $13,500 compared to same period in 2013, primarily the result of travel expenses during the third quarter of 2013 related to the Company's investment in Fuelist. During the three months ended September 30, 2014, approximately $27,000 of investment related professional and consulting expenses were incurred by Pimovi, Inc. compared to approximately $154,000 for the same period in 2013. The majority of this expense incurred was for the financing of Pimovi's general business purpose related to the initial development of technology and mobile applications fields. During the three months ended September 30, 2014, approximately $2,800 of investment related professional and consulting expenses were incurred by Fuelist compared to $38,101 in the for the same period in 2013. This decrease is due to Fuelist's expenses being higher in 2013 when it was first beginning to develop its technologies. The majority of this expense was incurred for the financing of Fuelist's general business purpose related to the initial development of technology and mobile applications fields. Our gross revenues from oil production for the three months ended September 30, 2014 were $12,608 compared to $13,464 during the same period in 2013. 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 three months ended September 30, 2014, Pimovi incurred a loss of $27,115 compared to $154,129 for the same period in 2013 mostly related to consulting fees and general and administrative expenses, as it continues to develop its product line. Chancellor recorded a $16,540 loss from Pimovi during the three months ended September 30, 2014, representing its 61% share of Pimovi compared to $94,019 for the same period during 2013. During the third quarter of 2013, Chancellor acquired a 51% ownership interest in The Fuelist, LLC. For the three months ended September 30, 2014, Fuelist incurred a loss of $19,257 compared to $45,528 for the same period during 2013 mostly related to consulting fees and general and administrative expenses as it continues to develop its technologies. Chancellor recorded a $2,626 loss from Fuelist for the three months ended September 30, 2014 representing its 51% share of Fuelist compared to $23,219 for the same period during 2013. Therefore, the Company reported a consolidated net loss of $430,062 during the three months ended September 30, 2014, compared to a net loss $251,295 reported for the same period in 2013. NINE MONTHS ENDED SEPTEMBER 30, 2014 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2013. OIL SEGMENT REVENUES AND PRODUCTION: During the nine months ended September 30, 2014, we produced and sold 375 barrels of oil, generating $34,895 in gross revenues net of royalties paid, with a one month lag in receipt of revenues for the prior months sales, as compared with 479 barrels of oil generating $43,285 in gross revenues net of royalties paid during the same period in 2013. During the nine months ended September 30, 2014, the Company also recorded $0 of other income compared to $53,337 for the same period during 2013 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. We had no wells producing oil at September 30, 2014 and 4 wells producing at September 30, 2013. Until July 1, 2014, the Company maintained (4) producing wells and (1) water disposal well. Effective July 1, 2014, we sold all of our oil wells to S & W Oil & Gas, LLC. The proceeds from the asset sale will be used to provide working capital and for future corporate purposes including, but not limited to, exploring strategic opportunities in the oil and gas business and managing and developing the operations of our technology segment. The following table summarizes our production volumes and average sales prices for the six months ended September 30: 20 2014 2013 -------- -------- Oil Sales: Oil Sales (Bbl) 375 479 Average Sales Price: Oil, per Bbl $93.02 $90.40 The decrease in revenues of oil during the nine months ended September 30, 2014 (as compared to the period ended September 30, 2013) resulted primarily from the sale of all of the Company's oil wells effective July 1, 2014. TECHNOLOGY SEGMENT REVENUES AND DEVELOPMENT: During the quarters ended September 30, 2014 and 2013, 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 $833, or approximately 100% in the nine months ended September 30, 2014 compared to the same period in 2013. This increase was primarily attributable to an increase in capitalized computer equipment for the technology segment. OPERATING EXPENSES AND ADMINISTRATIVE EXPENSES: During the nine months ended September 30, 2014, our general and administrative expenses decreased $68,167, or approximately 17% compared to same period in 2013. Significant components of these expenses include professional and consulting fees, travel expenses, and insurance expense. Professional and consulting fees decreased approximately $67,231, or approximately 22%, during the nine months ending September 30, 2014 compared to the same period in 2013, primarily the result of large investor relations expenses and consultation costs with third parties in the first quarter of 2013 related to the formation of Pimovi. Travel expenses decreased approximately $6,488 compared to same period in 2013, primarily the result of no travel expenses being incurred related to the Company's investment in Pimovi, Inc. during the third quarter 2014. During the nine months ended September 30, 2014, approximately $98,250 of investment related professional and consulting expenses were incurred by Pimovi, Inc. compared to approximately $488,370 for the same period in 2013. The majority of this expense incurred was for the financing of Pimovi's general business purpose related to the initial development of technology and mobile applications fields. During the nine months ended September 30, 2014, approximately $177,030 of investment related professional and consulting expenses were incurred by Fuelist compared to $38,101 in the for the same period in 2013. The majority of this expense was incurred for the financing of Fuelist's general business purpose related to the initial development of technology and mobile applications fields. Until July 1, 2014, we continued with the ongoing production and maintenance of our 4 producing wells in Gray County. As a result of these efforts, our gross revenues from oil production for the nine months ended September 30, 2014 were $35,293. 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 nine months ended September 30, 2014, Pimovi incurred a loss of $98,150, compared to $488,370 for the same period in 2013 mostly related to consulting fees and general and administrative expenses, as it continues to develop its product line. Chancellor recorded a $59,872 loss from Pimovi during the nine months ended September 30, 2014, representing its 61% share of Pimovi compared to $297,906 for the same period during 2013. During the third quarter of 2013, Chancellor acquired a 51% ownership interest in The Fuelist, LLC. During the nine months ended September 30, 2014, Fuelist incurred a loss of $263,271, compared to $45,529 for the same period in 2013 mostly related to consulting fees and general and administrative expenses, as it continues to develop its technologies. Chancellor recorded a $102,134 loss from Fuelist for the nine months ended September 30, 2014 compared to $23,219 for the same period during 2013 representing its 51% share of Fuelist. Therefore, the Company reported a consolidated net loss of $842,610 during the nine months ended September 30, 2014, compared to a net loss $664,385 reported for the same period in 2013. 21 LIQUIDITY AND CAPITAL RESOURCES OVERVIEW: The following table highlights certain information relation to our liquidity and capital resources at: September 30, 2014 December 31, 2013 ------------------ ----------------- Working Capital $ 107,996 $ 465,115 Current Assets 249,073 657,854 Current Liabilities 141,077 192,739 Stockholders' Equity 112,908 924,846 Our working capital at September 30, 2014, decreased by $357,119 or approximately 77% from December 31, 2013, primarily from the loss from operations during first three quarters of 2014 related to Pimovi and Fuelist which consists mostly of third party consulting expenses as our technology segment continues to develop its technologies. Current assets decreased by $408,781 or approximately 62%, while current liabilities decreased $51,662 or approximately 27%, primarily as a result of the timing of cash disbursements related to Pimovi and Fuelist operating expenses and Chancellor's fulfillment of its capital contributions to Fuelist during the quarter ended September 30, 2014. Our capital resources consist primarily of cash from operations and permanent financing, in the form of capital contributions from our stockholders. As of September 30, 2014, the Company had $202,923 of unrestricted cash on hand. Our capital expenditures related to our oil and gas operations for the nine months ended September 30, 2014, were approximately $16,000, which consisted primarily of repair and maintenance of our four producing oil wells and one water disposal well. Following our sale of those assets effective July 1, 2014, we do not currently expect to make any significant capital expenditures on oil and gas assets for the remainder of fiscal year 2014. 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 $15,000 a month. Based on current cash availability Chancellor should be able to provide this for the next 3 - 5 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 went live 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 the nine months ended September 30, 2014 was $386,978 compared to net cash used of $789,815 during same period in 2013. The most significant factor causing the decrease in net cash used during the nine months ended September 30, 2014 relates to cash disbursements for the formation of Pimovi in the first six months 2013 and initial cash contributions to Fuelist in the third quarter of 2013. Cash used for operations decreased by $275,665, or approximately 34% during the nine months ended September 30, 2014, compared to the same period in 2013, primarily resulting from the loss from operations attributable to both Pimovi and Fuelist through the third quarter of 2013. This operating loss was mostly related to consulting fees and general and administrative expenses, as Pimovi and Fuelist continued to develop their technologies. Cash provided by investing activities increased $118,803, or approximately 100% during the nine months ended September 30, 2014 compared to cash provided by investment activities of $0 for the same period during 2013, mainly attributable to proceeds from the sale of securities by Fuelist and the sale of all of the Company's oil and gas property and equipment on July 1, 2014. Cash provided by financing activities increased $14,900, or approximately 92% during the nine months ended September 30, 2014 compared to the same period in 2013 related to note payable advances from related party entities during the second and third quarter of 2014. 22 EQUITY FINANCING: As of September 30, 2014, included in our stockholders equity was a total of $3,924,063 in equity financing from stockholders and stock compensation. We do not anticipate that significant equity financing will take place in the foreseeable future. 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. 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 ending 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. CRITICAL ACCOUNTING POLICIES The Securities and Exchange Commission (the "SEC") recently issued "FINANCIAL REPORTING RELEASE NO. 60 CAUTIONARY ADVICE REGARDING DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES" ("FRR 60"), suggesting companies provide additional disclosures, discussion and commentary on those accounting policies considered most critical to its business and financial reporting requirements. FRR 60 considers an accounting policy to be critical if it is important to the Company's financial condition and results of operations, and requires significant judgment and estimates on the part of management in the application of the policy. For a summary of the Company's significant accounting policies, including the critical accounting policies discussed below, please refer to the accompanying notes to the financial statements provided in this Quarterly Report on Form 10-Q. 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 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 $664,384 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 23 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. 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 probability-weighted approach to weigh the likelihood of those possible outcomes. As of September 30, 2014 we do not believe any of our long-lived assets are impaired. 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. 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. INCOME TAXES As part of the process of preparing the consolidated financial statements, we are required to estimate federal and state income taxes in each of the jurisdictions in which Chancellor operates. This process involves estimating the 24 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: * 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. At September 30, 2014, a deferred tax asset of $599,765 has been offset by a valuation allowance of approximately $599,765, due to federal net operating loss 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for Small Reporting Company. ITEM 4. CONTROLS AND PROCEDURES As required by Rule 13a-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of the design and operation of our Company's disclosure controls and procedures as of the end of the period covered by this quarterly report, being September 30, 2014. This evaluation was carried out under the supervision and with the participation of our Company's management, including our Company's chief executive officer and principal financial offer, Maxwell Grant. Our Company's disclosure controls and procedures are effective as 25 at the end of the period covered by this report. There have been no significant changes in our Company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date we carried out our evaluation. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our Company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our Company's reports filed under the Exchange Act is accumulated and communicated to management, including our Company's chief executive officer as appropriate, to allow timely decisions regarding required disclosure. PART II. OTHER INFORMATION ITEM 1. 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. ITEM 2. 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.

(1) The issuances to advisors are viewed by the Company as exempt from registration under the Securities Act of 1933, as amended ("Securities Act"), alternatively, as transactions either not involving any public offering, or as exempt under the provisions of Regulation D promulgated by the SEC under the Securities Act. 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. EXHIBITS 10.1 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). 10.2 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). 10.3 Assignment and Bill of Sale, dated July 21, 2014, by and between Gryphon Production Company, LLC and S & W Oil & Gas, LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 25, 2014). 26 31 Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of The Sarbanes Oxley Act of 2002.* 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.** SEC Ref.No. Title of Document ------- ----------------- 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Label Linkbase Document 101.PRE XBRL Taxonomy Presentation Linkbase Document ---------- * Filed herewith. ** Furnished herewith. 27 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 November 13, 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 November 13, 2014. By: /s/ Maxwell Grant -------------------------------------- Maxwell Grant, Chief Executive Officer 28 EXHIBIT INDEX 10.1 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). 10.2 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). 10.3 Assignment and Bill of Sale, dated July 21, 2014, by and between Gryphon Production Company, LLC and S & W Oil & Gas, LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 25, 2014). 31 Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of The Sarbanes Oxley Act of 2002.* 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.** SEC Ref.No. Title of Document ------- ----------------- 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Label Linkbase Document 101.PRE XBRL Taxonomy Presentation Linkbase Document ---------- * Filed herewith. ** Furnished herewith.

CHANCELLOR GROUP INC. 10-Q