UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 number 0-11663
CHANCELLOR CORPORATION
(Exact name of Small Business Issuer)
MASSACHUSETTS 04-2626079
(State or other jurisdiction of (I.R.S. Employer I.D.
No.)
incorporation or organization)
210 SOUTH STREET, BOSTON, MASSACHUSETTS 02111
(Address of principal executive offices) (Zip Code)
(617) 368 - 2700
(Issuer's telephone number, including area code)
Check mark whether the Issuer: (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 Issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [ X ] No [ ]
As of April 30, 1999, 43,365,536 shares of Common Stock, $.01 par value per
share and 5,000,000 shares of Series AA Convertible Preferred Stock, $.01 par
value per share (with a liquidation preference of $.50 per share or $2,500,000)
were outstanding. Aggregate market value of the voting stock held by
non-affiliates of the issuer as of April 30, 1999 was approximately $9,060,000.
Aggregate market value of the total voting stock of the issuer as of April 30,
1999 was approximately $27,103,000.
1
CHANCELLOR CORPORATION AND SUBSIDIARIES
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as
of March 31, 1999 and December 31, 1998 2
Condensed Consolidated Statements of Operations for
the Three Months Ended March 31, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II. Other Information 10
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 11
The accompanying notes are an integral part
of these condensed consolidated financial statements.
2
CHANCELLOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except per Share Data)
MARCH 31, DECEMBER 31,
1999 1998
----------- --------------
(unaudited)
ASSETS
Cash and cash equivalents $ 1,738 $ 644
Receivables, net 4,053 3,255
Inventory 10,201 10,758
Net investment in direct finance leases 306 359
Equipment on operating lease, net of accumulated depreciation
of $2,344 and $2,351 2,154 702
Residual values, net 205 219
Furniture and equipment, net of accumulated depreciation
of $1,380 and $1,290 917 999
Other investments 3,685 3,681
Intangibles, net 7,473 7,541
Other assets, net 1,902 1,411
----------- --------------
$ 32,634 $ 29,569
=========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 6,771 $ 6,366
Deferred reimburseable expenses 848 1,068
Indebtedness:
Revolving credit line 8,720 9,063
Notes -payable 740 942
Nonrecourse 765 889
Recourse 7,590 4,234
Total liabilities 25,434 22,562
----------- --------------
Stockholders' equity:
Prefered Stock, $.01 par value, 20,000,000 shares authorized:
Convertible Series AA, 5,000,000 shares issued and outstanding 50 50
Convertible Series B, 2,000,000 shares authorized,
none issued and outstanding --- ---
Common stock, $.01 par value; 75,000,000 shares authorized,
43,344,493 and 43,041,895 shares issued and outstanding 433 430
Additional paid-in capital 34,280 34,217
Accumulated deficit (27,563) (27,690)
7,200 7,007
----------- --------------
$ 32,634 $ 29,569
=========== ==============
The accompanying notes are an integral part
of these condensed consolidated financial statements.
3
CHANCELLOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
THREE MONTHS ENDED MARCH 31,
1999 1998
------------------------------ -----------
(unaudited) (unaudited)
Revenues:
Transportation equipment sales $ 12,268 $ ----
Rental income 458 96
Lease underwriting income 10 9
Direct finance lease income 15 36
Interest income 80 18
Gains from portfolio remarketing 251 82
Fees from remarketing activities 237 423
Other income 71 18
13,390 682
------------------------------ -----------
Costs and expenses:
Cost of transportation equipment sales 9,871 ----
Selling, general and administrative 2,807 530
Interest expense 183 21
Depreciation and amortization 360 104
13,221 655
------------------------------ -----------
169 27
Provision for income taxes 42 ----
------------------------------ -----------
Net income $ 127 $ 27
============================== ===========
Basic net income per share $ .00 $ .00
============================== ===========
Diluted net income per share $ .00 $ .00
============================== ===========
Shares used in computing basic net income per share 43,240,194 25,403,127
============================== ===========
Shares used in computing diluted net income per share 59,403,596 25,403,127
============================== ===========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
4
CHANCELLOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
THREE MONTHS ENDED MARCH 31,
1999 1998
------------------------------ --------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 127 $ 27
------------------------------ --------
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization 360 104
Residual value estimate realizations and
reductions, net of additions 14 17
Changes in assets and liabilities:
(Increase) decrease in receivables (797) 370
Decrease in inventory 557 ----
Increase (decrease) in accounts payable and accrued
expenses 405 (265)
Decrease in deferred reimburseable expenses (220) ----
------------------------------ --------
319 226
------------------------------ --------
Net cash provided by operating activities 446 253
------------------------------ --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net investments in direct finance leases 52 (97)
Equipment on operating lease (1,444) (442)
Net change in cash restricted ---- 2,207
Additions to furniture and equipment, net (24) (40)
Increase in intangibles, net (229) ----
Net change in other assets (459) (1,614)
Net cash provided (used) by investing activities (2,104) 14
------------------------------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit (343) ----
Increase in notes payable 200 ----
Increase in indebtedness - recourse 3,746 ----
Repayments of notes payable (287) ----
Repayments of indebtedness - nonrecourse (124) (88)
Repayments of indebtedness - recourse (505) (32)
Issuance of common stock, net 65 ----
Net cash provided (used) by financing activities 2,752 (120)
------------------------------ --------
Net increase in cash and cash equivalents 1,094 147
Cash and cash equivalents at beginning of period 644 97
Cash and cash equivalents at end of period $ 1,738 $ 244
============================== ========
Cash paid for interest $ 197 $ 21
============================== ========
CHANCELLOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CHANCELLOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and the
rules and regulations of the Securities and Exchange Commission for interim
financial statements. Accordingly, the interim statements do not include all of
the information and disclosure required for annual financial statements. In the
opinion of the Company's management, all adjustments (consisting solely of
adjustments of a normal recurring nature) necessary for a fair presentation of
these interim results have been included. Intercompany accounts and
transactions have been eliminated. These financial statements and related notes
should be read in conjunction with the audited consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998. The balance sheet at December 31, 1998 has been
derived from the audited consolidated financial statements included in the
Annual Report on Form 10-KSB. The results for the interim period ended March
31, 1999 are not necessarily indicative of the results to be expected for the
entire year.
2. LOAN AGREEMENT
In connection with the purchase of certain transportation equipment (the
"Equipment") on lease to certain lessees, the Company entered into a $2,500,000
loan agreement (the "Loan") with a financial institution (the "Lender"). The
Loan provides for the payment of twenty-four equal monthly installments,
beginning May 1, 1999, of principal in the approximate amount of $104,000 and
interest at 3.75% plus the average of the one (1) and two (2) month London
Interbank Offered Rates. In addition, proceeds from the sale of the Equipment
will be paid to the Lender as additional principal reduction up to $1,034,000.
In connection with the Loan, the lender retained $300,000 as a security deposit
to secure repayment of the Loan. The Loan is secured by all of the Equipment
and the lease contracts specifically associated with this transaction.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues. Total revenues for the three-month period ended March 31, 1999
was $13,390,000 as compared to $682,000 for the corresponding prior period, an
increase of $12,708,000 or 1,863.3%. For the three-month period ended March 31,
1999, transportation equipment sales were $12,268,000 as compared to no sales
for the corresponding prior period. This significant revenue stream from
transportation equipment sales is primarily attributable to significant sales of
used transportation equipment through the operating activities of the Company's
wholly owned subsidiary, Chancellor Asset Management Inc. ("CAM"). CAM's used
transportation equipment retail and wholesale business unit accounted for
approximately $10,797,000 of used transportation equipment sales. CAM's
revenues from the sales of used transportation equipment for the three month
period ended March 31, 1999 increased by $2,434,000 or 22.5% as compared to the
corresponding period for 1998. The increase in revenues provided by CAM is
primarily a result of the full ramp-up of its Richmond, Virginia retail center,
the addition of its Kansas City, Missouri retail center in late 1998, and
increased lines of credit in the latter half of 1998 enabling increased purchase
of inventory for both wholesale and retail sales. Through CAM, the Company
seeks to continue to expand its retail centers geographically. The Company also
seeks to utilize the competitive advantage provided by its access to retail
pricing for residual values of its leased equipment to increase competitiveness
within the Company's lease origination business unit. For the three-month
period ended March 31, 1999, rental income increased by $362,000 or 377.1% as
compared to the corresponding prior period. The increase in rental income is
attributable primarily to the addition to the Company's portfolio of certain
equipment acquired in connection with the purchase of several leases from trust
portfolios administered by the Company. For the three month period ended March
31, 1999, lease underwriting income increased by $1,000 or 11.1% and direct
finance lease income decreased by $21,000 or 58.3%, both as compared to the
corresponding prior period. This resulted in a net decrease in lease
origination activity of $20,000 or 44.4%. The Company is in the final phase of
its lease origination rebuilding process, having completed the addition of key
senior management and sales personnel, and development of strategic alliances to
provide future growth in this area. For the three-month period ended March 31,
1999, interest income increased by $62,000 or 344.4% as compared to the
corresponding prior period. The increase is primarily attributable to interest
earned in connection with the Company's investment of approximately $1,475,000
in a South Africa based manufacturer and lessor of transportation equipment.
For the three-month period ended March 31, 1999, gains from portfolio
remarketing increased by $169,000 or 206.1% as compared to the corresponding
prior period. The increase in gains from portfolio remarketing is attributable
to the increase in portfolio assets acquired in connection with the purchase of
several leases from trust portfolios administered by the Company, which were
made available for sale upon termination of certain leases. For the three-month
period ended March 31, 1999, fees from remarketing activities decreased by
$186,000 or 44.0% as compared to the corresponding prior period. This decrease
is attributable, in part, to a diminishing level of trust portfolio assets
available for remarketing from which the Company derives a significant portion
of its remarketing fees. For the three-month period ended March 31, 1999, other
income increased by $53,000 or 294.4% as compared to the corresponding prior
period. The increase is primarily attributable to the recovery of approximately
$67,000 of fees from a former lessee of the Company.
Costs and Expenses. Total costs and expenses for the three-month period
ended March 31, 1999 was $13,221,000 as compared to $655,000 for the
corresponding prior period, an increase of $12,566,000 or 1,918.5%. The
significant increase is primarily a result of the costs associated with sales of
transportation equipment. The cost of transportation equipment sales was
$9,871,000 for the three-month period ended March 31, 1999 and resulted in an
overall gross margin of 19.5%. Selling, general and administrative expenses for
the three-month period ended March 31, 1999 was $2,807,000 as compared to
$530,000 for the corresponding prior period, an increase of $2,277,000 or
429.6%. For the three-month period ended March 31, 1999, selling, general and
administrative expenses included recovered reimbursable trust administration
costs of approximately $547,000 as compared to $415,000 for the corresponding
prior period. Approximately $1,595,000 of the increase in selling, general and
administrative expenses for the three-month period ended March 31, 1999 is a
result of normal operating expenses incurred by CAM and CAM's newly acquired
retail and wholesale business unit, Tomahawk, whose operations were consolidated
with the Company's as of the August 1, 1998 acquisition date. Net of the
reimbursable trust administration costs and the effect of the CAM expenses,
selling, general and administrative expenses increased to $1,759,000 for the
three-month period ended March 31, 1999 as compared to $944,000 for the
corresponding prior period, an increase of $815,000 or 86.3%. The increase in
selling, general and administrative expenses reflects the effect of the
Company's growth strategy implementation that included, in part, significant
costs associated with the addition of senior management, sales and staff
personnel.
Interest expense for the three-month period ended March 31, 1999 was $183,000 as
compared to $21,000 for the corresponding prior period, an increase of $162,000
or 771.4%. This increase is primarily a result of increased interest expense
associated with CAM's revolving credit line with a financial institution
utilized for inventory floor planning and interest accrued on the Company's
recourse debt.
Depreciation and amortization expense for the three-month period ended
March 31, 1999 was $360,000 as compared to $104,000 for the corresponding prior
period, an increase of $256,000 or 246.2%. The increase is primarily due to the
amortization of intangible assets associated with the acquisition of Tomahawk by
CAM.
Net Income. Net income for the three-month period ended March 31,
1999 was $127,000 as compared to $27,000 for the corresponding prior period, an
increase of $100,000 or 370.4%. The increase in net income is attributable to
the significant increase in revenues, primarily from the retail and wholesale of
used transportation equipment, the buy-out of leases from trust portfolios, and
continued improvements in the containment of costs. Net income per share (basic
and diluted) was $0.00 per share for the three-month periods ended March 31,
1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company recognized a net increase in cash and cash equivalents for the
three-month period ended March 31, 1999 of $1,094,000. Operating activities
provided cash of $446,000 during the three-month period ended March 31, 1999 and
is primarily a result of increased sales of used transportation equipment
inventory, normal increases in accounts payable associated with inventory and
operating purchases, and offset by increases in accounts receivables. Investing
activities used cash of $2,104,000 during the three-month period ended March 31,
1999 and is primarily a result of the acquisition of approximately $1,444,000 of
net operating leases that were bought out from a trust and a $300,000 security
deposit with a bank in connection with a loan agreement for $2,500,000 entered
into between the Company and a financing institution. Financing activities
provided cash of $2,752,000 during the three-month period ended March 31, 1999
and is primarily a result of net increases of approximately $835,000 in recourse
debt provided by Vestex Capital Corporation, the Company's majority stockholder,
and a loan from a financing institution in the amount of $2,500,000. Cash and
cash equivalents were $1,738,000 at March 31, 1999 as compared to $644,000 at
December 31, 1998, an increase of $1,094,000 or 169.9%.
The Company undertook a review of its trust portfolio, including
consultation with legal counsel and industry consultants, and determined that it
had not been recovering costs associated with administering the trusts.
Management's review determined that approximately $22,000,000 of costs for
periods prior to 1997 had not been recovered from the trusts. The Company has
recorded approximately $547,000 and $415,000 of cost recoveries in the
three-month periods ended March 31, 1999 and 1998, respectively.
In connection with the purchase of certain transportation equipment (the
"Equipment") on lease to certain lessees, the Company entered into a $2,500,000
loan agreement (the "Loan") with a financial institution (the "Lender"). The
Loan provides for the payment of twenty-four equal monthly installments,
beginning May 1, 1999, of principal in the approximate amount of $104,000 and
interest at 3.75% plus the average of the one (1) and two (2) month London
Interbank Offered Rates. In addition, proceeds from the sale of the Equipment
will be paid to the Lender as additional principal reduction up to $1,034,000.
In connection with the Loan, the lender retained $300,000 as a security deposit
to secure repayment of the Loan. The Loan is secured by all of the Equipment
and the lease contracts specifically associated with this transaction.
The Company also maintains a revolving line of credit agreement with a financial
institution whereby CAM can borrow up to $7,500,000 to floor plan used
transportation equipment inventory. The balance outstanding under this
revolving line of credit agreement is approximately $5,375,000 as of March 31,
1999. In addition, during 1998, CAM entered into a special purpose financing
agreement with the same institution to floor plan additional used transportation
equipment inventory in the approximate amount of $4,500,000. The balance
outstanding under this special purpose financing agreement is approximately
$2,780,000 as of March 31, 1999.
The Company's ability to underwrite equipment lease transactions is
largely dependent upon the availability of short-term warehouse lines of credit.
Management is engaged in continuing dialogue with several inventory lenders
which appear to be interested in providing the Company with warehouse financing.
If the Company experiences delays in putting warehouse facilities in place, the
Company transacts deals by coterminous negotiation of lease transactions with
customers and financing with institutions upon which it obtains a fee as the
intermediary of up to 3% of the amount of financing.
The remarketing, retailing and wholesaling of equipment has played and will
continue to play a vital role in the Company's operating activities. In
connection with the sale of lease transactions to investors, the Company
typically is entitled to share in a portion of the residual value realized upon
remarketing. Successful remarketing of the equipment is essential to the
realization of the Company's interest in the residual value of its managed
portfolio. It is also essential to the Company's ability to recover its
original investment in the equipment in its own portfolios and to recognize a
return on that investment. The Company has found that its ability to remarket
equipment is affected by a number of factors. The original equipment
specifications, current market conditions, technological changes, and condition
of the equipment upon its return all influence the price for which the equipment
can be sold or re-leased.
The Company plans to dedicate substantial resources toward the further
development and improvement of its remarketing, retailing and wholesaling
capabilities. The Company's strategy is to further exploit its remarketing
expertise by continuing to develop its ability to sell remarketing services to
other lessors, fleet owners, and lessees. The Company plans also to create a
dealer capability under which the Company would buy and resell fleet equipment.
The Company anticipates expanding its used transportation equipment retail and
wholesale capabilities through the addition of retail centers geographically
through internal growth and acquisitions. The Company's retail and wholesale
capabilities have been greatly improved through CAM's strategic acquisition of
Tomahawk. This improved capability will be used as a competitive advantage that
will enable the Company to provide a "total holding cost" concept when competing
for new lease origination deals. The Company's retail and wholesale business
unit will provide improved outlets for other lessors, financial institutions,
and fleet owners to dispose of used transportation equipment and sources of
quality used transportation equipment for fleet owners and owner-operators. The
Company will also aggressively promote its Internet capabilities to further
promote its business activities and as an e-commerce tool.
In August 1997, the Company committed to make a $1 million equity
investment in the New Africa Opportunity Fund, LP ("NAOF"). NAOF is a $120
million investment fund composed of $40 million from equity participants
including the Company, and $80 million in debt financing provided by the
Overseas Private Investment Corporation ("OPIC"), an independent U.S. government
agency. The purpose of the fund is to make direct investments in emerging
companies throughout Africa. As of March 31, 1999, the Company had funded
approximately $350,000 and is obligated to provide additional funding in the
approximate amount of $650,000. The Company has additionally invested
approximately $1,475,000 into one of NAOF's portfolio investee companies. The
Company continues to negotiate further strategic opportunities with this
investee company.
The Company's renewal or replacement of expired lines, its expected
access to the public and private securities markets, both debt and equity,
anticipated new lines of credit (both short-term and long-term and recourse and
non-recourse), anticipated long-term financing of individual significant lease
transactions, and its estimated cash flows from operations are anticipated to
provide adequate capital to fund the Company's operations for the next twelve
months. Although no assurances can be given, the Company expects to be able to
renew or timely replace expired lines of credit, to expand currently existing
lines for inventory floor planning, to continue to have access to the public and
private securities markets, both debt and equity, and to be able to enter into
new lines of credit and individual financing transactions.
IMPACT OF THE YEAR 2000 ISSUE
The Company has commenced efforts to assess and where required, remediate,
issues associated with Year 2000 ("Y2K") issues. Generally defined, Y2K issues
arise from computer programs which use only two digits to refer to the year and
which may experience problems when the two digits become "00" in the year 2000.
In addition, imbedded hardware microprocessors may contain time and two-digit
year fields in executing their functions. Much literature has been devoted to
the possible effects such programs may experience in the Year 2000, although
significant uncertainty exists as to the scope and effect the Y2K issues will
have on industry and the Company.
The Company has recognized the need to address the Y2K issue in a comprehensive
and systematic manner and has taken steps to assess the possible Y2K impact on
the Company. Although the Company has not completed a 100% assessment of all
its information technology ("IT") and non-IT systems for Y2K issues, the Company
has completed its assessment of all mission-critical systems. All
mission-critical systems and most of the major applications and hardware have
been assessed to determine the Y2K impact and a plan is in place for timely
resolution of potential issues.
In 1998, the Company developed a strategic plan to identify the IT systems
needed to accomplish the Company's overall growth plans. As part of this
process, Y2K issues were considered and addressed by the Company's senior
management and MIS personnel. Although this plan was intended to modernize the
IT systems, compliance with Y2K requirements were incorporated.
The cost of bringing the Company in full compliance should not result in a
material increase in the recent levels of capital spending or any material
one-time expenses. The Company has spent approximately $160,000 in modernizing
its IT system, including compliance with Y2K requirements. The Company
anticipates spending approximately $200,000 during fiscal 1999 to complete the
modernization of its IT system.
The failure of either the Company, its vendors or clients to correct the systems
affected by Y2K issues could result in a disruption or interruption of business
operations. The Company uses computer programs and systems in a vast array of
its operations to collect, assimilate and analyze data. Failure of such
programs and systems could affect the Company's ability to track assets under
lease and properly bill. Although the Company does not believe that any of the
foregoing worst-case scenarios will occur, there can be no assurance that
unexpected Y2K problems of the Company's and its vendors' and customer's
operations will not have a material adverse effect on the Company.
While it is difficult to classify our state of readiness, we believe that
our internal plans should have the Company ready by the end of 1999 to avoid any
material Y2K issues. We are in the process of completing the assessment,
testing systems and developing contingency plans. Management is in constant
communication with its IT personnel and has made and will continue to make
reports to the Company's Board of Directors.
The preceding discussion contains forward looking information within
the meaning of Section 21E of the Exchange Act. This disclosure is also subject
to protection under the Year 2000 Information and Readiness Disclosure Act of
1998, Public Law 105-271, as a "Year 2000 Statement" and "Year 2000 Readiness
Disclosure" as defined therein. Actual results may differ materially from such
projected information due to changes in the underlying assumptions.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's future quarterly operating results and the market price of
its stock may fluctuate. In the event the Company's revenues or earnings for
any quarter are less than the level expected by securities analysts or the
market in general, such shortfall could have an immediate and significant
adverse impact on the market price of the Company's stock. Any such adverse
impact could be greater if any such shortfall occurs near the same time of any
material decrease in any widely followed stock index or in the market price of
the stock of one or more public equipment leasing companies or major customers
or vendors of the Company.
The Company's quarterly results of operations are susceptible to
fluctuations for a number of reasons, including, without limitation, as a result
of sales by the Company of equipment it leases to its customers. Such sales of
equipment, which are an ordinary but not predictable part of the Company's
business, will have the effect of increasing revenues, and, to the extent sales
proceeds exceeds net book value, net income, during the quarter in which the
sale occurs. Furthermore, any such sale may result in the reduction of revenue,
and net income, otherwise expected in subsequent quarters, as the Company will
not receive lease revenue from the sold equipment in those quarters.
Given the possibility of such fluctuations, the Company believes that
comparisons of the results of its operations to immediately succeeding quarters
are not necessarily meaningful and that such results for one quarter should not
be relied upon as an indication of future performance.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This Quarterly Report on Form 10-QSB contains certain "Forward-Looking"
statements as such term is defined in the Private Securities Litigation Reform
Act of 1995 and information relating to the Company and its subsidiaries that
are based on the beliefs of the Company's management as well as assumptions used
in this report, the words "anticipate," "believe," "estimate," "expect," and
"intend" and words or phrases of similar import, as they relate to the Company
or its subsidiaries or the Company management, are intended to identify
forward-looking statements. Such statements reflect the current risks,
uncertainties and assumptions related to certain factors including, without
limitation, competitive factors, general economic conditions, customer
relations, relationships with vendors, the interest rate environment,
governmental regulation and supervision, seasonality, distribution networks,
product introduction and acceptance, technology changes and changes in industry
conditions. Should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended. The Company does not intend to update these
forward-looking statements.
10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in routine legal proceedings incidental to the
conduct of its business. Management believes that none of these legal
proceedings will have a material adverse effect on the financial condition or
operations of the Company.
Item 2. Changes in Securities
None
Item 3. Defaults Under Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Loan and Security Agreement No. 7622, dated March 31, 1999, by and
between Phoenixcor, Inc., Chancellor Corporation and Chancellor Fleet
Corporation.
10.2 Pledge and Security Agreement, dated March 31, 1999, by and between
Phoenixcor, Inc., Chancellor Corporation and Chancellor Fleet Corporation.
10.3 Promissory Note to Loan and Security Agreement No. 7622, dated March
31, 1999, in the original principal amount of $2,500,000 from Chancellor
Corporation to Phoenixcor, Inc.
THE ENCLOSED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF CHANCELLOR CORPORATION FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
27 Financial Data Schedule for period ended March 31, 1999.
(b) Reports on Form 8-K:
Current Report on Form 8-K, dated February 10, 1999
Current Report on Form 8-K, dated March 4, 1999
Current Report on Form 8-K/A, dated March 22, 1999
Current Report on Form 8-K/A, dated April 13, 1999
CHANCELLOR CORPORATION
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, issuer
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CHANCELLOR CORPORATION
/s/ Brian M. Adley
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Brian M. Adley
Chairman of the Board and Director
(Principle Executive Officer)
/s/ Franklyn E. Churchill
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Franklyn E. Churchill
President
/s/ Jonathan C. Ezrin
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Jonathan C. Ezrin
Corporate Controller
(Principle Accounting Officer)
DATE: May 13, 1999