SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
CHANCELLOR CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Nevada 91-1762285
- --------------------------------- ------------------------------
(STATE OR ORTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3030 Bridgeway, Suite 100
Sausalito, CA 94965
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 415-332-8880
------------------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
Class A Common NASDAQ Small Cap
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- ------------------------------------ ------------------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
- --------------------------------------------------------------------------------
(TITLE OF CLASS)
- --------------------------------------------------------------------------------
(TITLE OF CLASS)
ITEM 1. BUSINESS.
In mid-1996, US Heritage, an Oklahoma trust later incorporated as US
Heritage Capital Corporation in the state of Oklahoma in 1997, and
wholly-owned by Ron Sparks, chairman and chief executive officer of
Chancellor Corporation, acquired control of Technivision Inc., a Nevada
corporation having several hundred shareholders. US Heritage,
principally through the efforts of Mr. Sparks, was in the process of
negotiating terms and conditions of a joint venture with the Chinese
government for the purpose of establishing and operating a national
lottery in China. US Heritage contributed its rights in the joint
venture to Technivision, Inc. in exchange for 3,000,000 shares of common
stock and in November 1996, the name of Technivision Inc. was changed to
Chancellor Corporation (the "Company").
On April 29, 1997 the Company, through its wholly-owned subsidiary
Morceli Limited Corp., an Oklahoma corporation, entered into a Joint
Venture Contract with Beijing Zhida Development Company, China to form
the Beijing DaDu International Jockey Club Co. Ltd. ("DaDu") for the
principal purpose of establishing offices in China to sell social
welfare lotteries. The agreement originally provided for the Company to
have 90% ownership and a Chinese government agency to own the remaining
10%. Subsequently, in early 1998, 5% of the Chinese ownership interest
was acquired by China Southern Securities, a multi-billion (USD) dollar
broker/dealer investment firm in China. Subsequently, Mr. Sparks and Mr.
Du, senior representative of China Southern Securities and a director of
DaDu, negotiated financing for the project through the Bank of China
which is expected to be funded in May 1998.
In late 1997, Mr. Sparks and Peter Lynch, a director of the Company and
former Director of the New York Lottery, met with representatives of
Autotote Lottery Corporation ("Autotote"), an American Stock Exchange
traded company and an internationally recognized lottery management
company, to negotiate terms and conditions of an agreement for Autotote
to manage the Chinese lottery. Autotote is presently completing its
analysis and plan for management of the lottery and the Company expects
to agree on terms of a formal contract with Autotote in the near future.
Upon completion of funding by the Bank of China and execution of
the management agreement with Autotote, the Company intends to
move forward to put in place the elements necessary to commence
lottery operations under the Autotote plan.
ITEM 2. FINANCIAL INFORMATION.
(A). SELECTED FINANCIAL DATA.
YEAR ENDING QUARTER
12-31-97 ENDING
3-31-98
(UNAUDITED)
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Operating Revenues -0- -0-
Total Assets 136,612,000 135,222,000
Long-term Obligations 122,607,000 122,607,000
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(B) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The Company has had no operations to date. During the period from
December 31, 1996 to December 31, 1997, $14,004,950 of net cash was
provided to the Company by financing activities. Of that amount,
$2,500,000 was invested in a subsidiary, $1,203,800 was used for
development costs, there was a $5,000,000 increase in cash reserves and
a similar increase in restricted securities, and there was a $397,950
decrease in cash transfers.
The Company expects operations to commence in the second quarter of
1998.
ITEM 3. PROPERTIES
The Company owns no materially important physical properties. It leases
offices in the U.S. at 3030 Bridgeway, Sausalito, California and 5555
Grand Blvd., Oklahoma City, Oklahoma; outside the U.S. the company
leases offices in Hong Kong and Beijing, China.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(A) THE NAMES AND ADDRESSES OF THE KNOWN BENEFICIAL OWNERS OF MORE THAN
FIVE PERCENT OF THE COMPANY'S COMMON VOTING SHARES AS OF APRIL 15, 1998
WERE:
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND PERCENT
BENEFICIAL OWNER NATURE OF OF CLASS
BENEFICIAL
OWNERSHIP
- --------------------------------------------------------------------------------
Common Generation Capital Associates 400,000* 10.7%
333 Sandy Springs Circle, Ste. 230
Atlanta, GA 30328
" Radcliffe, Dennis & Sophie 175,000 5.3%
84 Clum Hill Road
Elka Park, NY 12427
" Radcliffe, Joseph & Kenneth 250,000 7.5%
237 Main Street
Tannersville, NY 12485
" US Heritage Capital Corp. 3,000,000 47.5%
3030 Bridgeway, #207
Sausalito, CA 94965
- --------------------------------------------------------------------------------
* These shares are available for acquisition at the election of
Generation Capital Associates to convert promissory notes to stock
and/or to exercise a purchase warrant.
2
(B) THE COMMON VOTING SHARES OF THE COMPANY BENEFICIALLY OWNED BY EACH
DIRECTOR AND EXECUTIVE OFFICER OF THE COMPANY AS OF APRIL 15, 1998, ARE
SET FORTH BELOW:
TITLE OF CLASS NAME OF AMOUNT AND PERCENT OF CLASS
BENEFICIAL OWNER NATURE OF
BENEFICIAL
OWNERSHIP
------------------------------------------------------------------------
COMMON RONALD SPARKS 25,000 0.8%
" MARTIN NEWMAN 10,000 0.2%
" PETER LYNCH 25,000 0.8%
" BRIAN CONDON 25,000 0.8%
" JANE KELLY 4,668 0.1%
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
RONALD SPARKS, CHAIRMAN & DIRECTOR. Mr. Sparks, 54 years of age, was
educated at the University of Southern California where he received a
degree in business in 1976. Mr. Sparks brings many years of business and
financial management experience to the board; since 1979 he has been
active in European financial markets and he has been an active principal
of Phoenix Financial, an international consulting firm since 1984.
Recently, Mr. Sparks has served as the Company's representative in
negotiating the joint venture contract between the Company and the
Chinese group, Zhida Development.
MARTIN NEWMAN, PRESIDENT & DIRECTOR. Mr. Newman, 54 years of age, was
born in England; he attended Ardingly College from 1957-62 and
subsequently matriculated at the A level at Oxford and Cambridge in
advanced mathematics and geography. From 1966 to the present, Mr. Newman
has been involved in a number of business enterprises, both as a
principal and as a manager. During the past ten years, he has been
involved in international financial consulting as a principal of Newman
Bros., GP. He has been president and a director of Chancellor
Corporation since 1997.
PETER LYNCH, DIRECTOR. Mr. Lynch, 48 years of age, is currently
president of PDL Consulting, an independent consulting firm specializing
in government affairs and finance for clients including manufacturers
and suppliers of lottery-related products and services for government
sponsored lotteries in the US and throughout the world. Mr. Lynch has 25
years of domestic and international experience in the operation of
lotterys. From 1986 - 1989 he was First Deputy Director, New York State
Lottery; thereafter, from 1989 - 1995, he was Director of the New York
State Lottery, the largest lottery in North America and fifth largest in
the world. During his tenure as Director, he oversaw increases in excess
of 100% in lottery total sales and net revenues which, in 1995 reached
$3.0 billion and $1.26 billion, respectively.
Mr. Lynch received a BS degree in Business Administration (management)
from Bryan College, Providence, Rhode Island, in 1970.
BRIAN CONDON, DIRECTOR. Mr. Condon, 42 years of age, received a degree
in Financial Management from the University of Wisconsin at Madison and
has 16 years of experience in all phases of banking with a major focus
on project management. During recent years he served as a Senior Bank
Analyst
3
and International Project Manager for a major European bank and
additionally directed the successful conversion and implementation of a
major software program for an American-based International Bank.
JANE KELLY, SECRETARY. Ms. Kelly, 46 years of age, received a Bachelor
of Science degree from Western Michigan University and has formal
training in Computer Systems Technology. She has had extensive
experience during the past seventeen years in the operating and
financial aspects of real estate and investment banking. Since 1995, Ms.
Kelly has been the Financial Operations Officer for Phoenix Financial
Trust, an investment banking company in Larkspur, California.
ITEM 6. EXECUTIVE COMPENSATION.
The Company has had no operating income to date; therefore, the officers
and directors have received no cash compensation. Each officer and
director has received common stock in the Company in the respective
amounts indicated in Item 4, above.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In mid-1996, US Heritage, an Oklahoma trust later incorporated as US
Heritage Capital Corporation in the state of Oklahoma in 1997, and
wholly-owned by Ron Sparks, chairman and chief executive officer of
Chancellor Corporation, acquired control of Technivision Inc., a Nevada
corporation having several hundred shareholders. US Heritage,
principally through the efforts of Mr. Sparks, was in the process of
negotiating terms and conditions of a joint venture with the Chinese
government for the purpose of establishing and operating a national
lottery in China. US Heritage contributed its rights in the joint
venture to Technivision, Inc. in exchange for 3,000,000 shares of common
stock and in November 1996, the name of Technivision Inc. was changed to
Chancellor Corporation (the "Company").
ITEM 8. LEGAL PROCEEDINGS.
None.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The range of high and low bids for the Company's common stock for each
full quarter since there has been a market for such stock is as follows:
QTR ENDING HIGH LOW
---------------------------------------------------
09-30-97 8 1/2 6 3/4
12-31-97 7 1/8 4
03-31-98 4 1/2 2 3/8
---------------------------------------------------
On March 23, 1998, the last reported sales price for the Company's
common stock was $2.50 per share.
4
There were approximately 567 holders of the Company's common voting
stock as of April 15, 1998.
The Company has had no operating income to date and has never paid any
cash dividends on its common stock. The board presently intends to
retain all earnings for use in the Company's business. Any future
determination as to payment of dividends will depend upon the
financial condition and results of operations of the Company and such
other factors as are deemed relevant by the board.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
In April 1997, the Company issued 800,000 shares of its common stock
to Columbia Trust, in consideration for the cancellation of a
promissory note executed by the Company in the amount of $25,000 and
payable to Columbia Trust as assignee of the promisee. The shares were
issued to Columbia Trust, a Vancouver, Canada entity, in reliance on
the exemption from registration under the 1933 Securities Act provided
by ss.4(2).
In June 1997, the Company sold 300,000 shares of common stock to
Carousel Consultants in consideration for financial consulting
services rendered and 100,000 shares of common stock to National
Employee Database in consideration for financial consulting services
rendered. Both sales were made in reliance on the exemption from
registration provided for in ss.4(2) of the 1933 Securities Act, as
amended.
In August 1987, the Company issued 500,000 shares of common stock to
Phoenix Financial Trust as payment in full of the principal and
interest due under a promissory note executed by the Company in favor
of Phoenix Financial Trust in the amount of $25,000. These shares were
issued under the exemption from registration provided under ss.4(2) of
the 1933 Securities Act, as amended.
In February 1998, pursuant to a Note and Warrant Purchase Agreement
("Agreement") between the Company and Generation Capital Associates
("GCA"), the Company issued 400,000 shares of common stock to be held
in escrow to be delivered to GCA upon the partial or total conversion
of one or more Convertible Promissory Notes ("Notes") executed by the
Company in favor of GCA pursuant to the Agreement. The Agreement
provides that, upon the election by GCA to convert some or all of the
Notes, the escrow agent will release to GCA the appropriate number of
shares at a conversion price equal to Two-Thirds (66.6667%) of the
Closing Bid Price of the Common Stock on the trading day immediately
preceding the Conversion Date.
Additionally, in February 1998, the Company issued a Warrant to GCA to
purchase 50,000 shares of common stock for each $100,000 (or portion
thereof) of Notes purchased from the Company at an exercise price of
$3.125 per share for the first 50,000 shares and at an exercise price
for any subsequent shares purchased which is the closing bid price on
the day prior to the Warrant issuance. The Warrant shall be
exercisable by GCA for five years.
The Note(s), Warrant(s), and the common stock to be issued upon
conversion of the Note(s) and exercise of the Warrant(s) were issued
pursuant to the exemption from registration provided under ss.4(2) of
the 1933 Securities Act, as amended.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The Company is authorized to issue 100,000,000 shares of common stock
having a par value of $0.001. As of April 15, 1998, there were
6,321,000 shares of the Company's stock issued and outstanding held
5
by approximately 567 shareholders.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The bylaws provide that any officer or director of the Company who was
or is a party or is threatened to be made a party to or is involved in
any action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of service as an officer or
director of the Company, shall be indemnified and held harmless to the
full extent permissible under Nevada law against all expenses,
liability and loss (including attorneys' fees, judgments, fines and
amounts paid or to be paid in settlement) reasonably incurred or
suffered by him in connection therewith. The expenses of officers and
directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the Company as they are incurred and in
advance of the final disposition of the action, suit or proceeding
upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court
of competent jurisdiction that he is not entitled to be indemnified by
the Company. The right of indemnification is a contract right
enforceable by any means desired by the director or officer and is not
exclusive of any other right such person may have or hereafter
acquire.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Financial Statements Attached.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
A. FINANCIAL STATEMENTS ATTACHED.
- as of December 31, 1996:
- Balance Sheet
- as of September 30, 1997
- Independent Auditor's Report
- Balance Sheet
- Cash Flows
- Statement of Stockholders' Equity
- as of December 31, 1997
- Independent Auditor's Report
- Balance Sheet
- Cash Flows
- Statement of Stockholders' Equity
- as of March 31, 1998
- Balance Sheet
6
CHANCELLOR CORPORATION
FINANCIAL
STATEMENTS
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Balance Sheet
December 31, 1996
ASSETS
Current Assets:
Cash $121,000
---------
Total Assets $121,000
=========
LIABILITIES & STOCKHOLDERS' EQUITY
Stockholders' Equity:
Common stock, 100,000,000 shares authorized
$0.001 par value, 3,500,000 shares issued and
outstanding. 3,500
Paid-in Capital 117,500
---------
Total stockholders' Equity $121,000
---------
Total Liabilities and Stockholders' Equity $121,000
=========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-1-
CHANCELLOR CORPORATION
(A Development Stage Company)
Statement of Cash Flows
Period from December 31, 1996 & 1997
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net Income profit or (loss) $ 0
Cash flows from investing activities:
Investment in subsidiary (2,500,000)
Increase in developoment costs (1,203,800)
Increase in cash reserves (5,000,000)
Increase in securities (restricted) (5,000,000)
Decrease in cash transfers ( 397,950)
-------------
Net cash used for Investment Activities ($14,101,750)
Cash flow from financing activities:
Increase in payables 91,000
Issuance of common stock 145,416
Issuance of preferred stock 2,500,000
Incrrease in paid-in capital 11,268,534
-------------
Net cash provided by financing activities $14,004.950
-------------
Net decrease in cash and cash equivalents (96,800)
Cash and Cash equivalents at beginning of period 398,000
-------------
Cash and cash equivalents at end of period $301,200
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
- 2 -
CHANCELLOR CORPORATION
(A Development Stage Company)
Comparative Balance Sheet
December 31, 1996 & 1997
Assets 1997 1996 Net Change
Debits (Credits)
Current assets:
Cash $ 301,200 $ 398,000 $ (96,800)
Non current assets:
Contract receivable 0 8,700,00 (8,700,000)
Other assets:
Subsidiary 2,500,000 0 2,500,000
Development costs 1,203,800 0 1,203,800
Stockholders'advances 970,000 0 (970,000)
Restricted assets:
Cash reserves 5,000,000 0 5,000,000
Securities 5,000,000 0 5,000,000
Discounted cash flows 122,606,644 0 122,606,644
Total assets $137,606,644 0 128,483,644
LIABILITIES & STOCKHOLDERS' EQUITY
Unearned revenues:
Revenues (Contracts) 0 8,700,000 8,700,000
Revenues (Cash flows) 122,606,644 0 (122,606,644)
Unclassified:
Cash transfer 0 397,950 397,950
Contributions by
shareholders' (Note ) 970,000 0 (970,000)
Current liabilities:
Accounts payable 91,000 0 (91,000)
Stockholders' equity:
Common stock 145,466 50 (145,416)
Preferred stock 2,500,000 0 (2,500,000)
Paid-in Capital 11,269,534 0 (11,268,534)
Total liabilities & stockholders'
equity $137,581,644 $ 9,098,000 $(128,483,644)
- 3 -
ROBERT G. TSCHIDA
Certified Public Accountant
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301 North Main
P.O. Box 5507
Pueblo, CO 81002
(719) 568-9700
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Chancellor Corporation
Oklahoma City, Oklahoma
I have audited the accompanying balance sheet of CHANCELLOR CORPORATION as of
September 30, 1997. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion based on my
audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. I
believe that my audit of the balance sheet provides a reasonable basis for my
opinion.
In my opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of CHANCELLOR CORPORATION as of
September 30, 1997 and the results of its operations and its cash flows for the
period ending September 30, 1997 in conformity with generally accepted
accounting principles.
/s/ Robert J. Tschida, CPA
- --------------------------
Robert G. Tschida, CPA
September 30, 1997
- --------------------------------------------------------------------------------
MEMBER OF THE AMERICAN AND COLORADO SOCIETIES OF CERTIFIED PUBLIC ACCOUNTANTS
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheet
September 30, 1997
ASSETS
Current Assets: $ 375,000
Cash
Other Assets:
Subsidiary (Note 2) 2,500,000
Development costs (Note 2) 1,130,000
------------
Total other assets 3,630,000
Restricted Assets:
Cash reserves (Note 4) 5,000,000
Securities deposited (Note 4) 5,000,000
Discounted cash-flows (Note 3) 122,606,644
------------
Total restricted assets 132,606,644
------------
Total Assets $136,611,644
============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 91,000
------------
Unearned Revenues (Note 3) 2,606,644
------------
Stockholders' Equity:
Common stock, 100,000,000 shares
authorized, $0.001 par value, 3,700,000
shares issued and outstanding 3,700
Preferred stock 5,000,000, $10.00 value
authorized, 250,000 shares issued and
outstanding 2,500,000
Paid-in capital 11,410,300
------------
TOTAL STOCKHOLDERS' EQUITY 13,914,000
Total Liabilities & Stockholders' Equity $136,611,644
============
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Cash Flows
September 30, 1997
Cash flows from operations:
Net Income $ 0
Cash flows from investing activities:
Increase in discounted cash flows (122,606,644)
Investment in subsidiary ( 2,500,000)
Investment in development costs ( 1,130,000)
Increase in unearned income 122,606,644
Issuance of preferred stock 2,500,000
Increase in paid capital 11,293,900
Cash flow from financing activities:
Investment of cash & securities in subsidiary ( 10,000,000)
Increase in payables 91,000
------------
Cash provided 254,000
Beginning Cash 121,000
------------
Ending Cash $ 375,000
============
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statement of Stockholders' Equity
For the period ending September 30, 1997
Common Preferred Paid-in Retained
Stock Stock Capital Earnings Total
Balance at
inception $ 3,700 $ 2,500,000 $ 117,300 $ 0 $ 121,000
Net income
from development -- -- 11,293,000 -- 13,793,000
----------- ----------- ----------- ----- -----------
Totals $ 3,700 $ 2,500,000 $11,410,300 $ 0 $13,914,000
=========== =========== =========== ===== ===========
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CHANCELLOR CORPORATION
( A DEVELOPMENT STAGE COMPANY)
Notes to the Financial Statements
September 30, 1997
Note 1: The company was incorporated in the State of Nevada in 1981.
The company main project is a joint venture gaming agreement with the
Beijing DaDu International Jockey Club. This agreement has been
approved by the Chinese government. The agreement may be seen at the
company corporate office.
Note 2: The company has acquired management control of a Fraternal
Insurance Society to market various services to member in exchange for
the issuance of preferred stock. The company is managed by the U.S.
Management Subsidiary of Chancellor.
Note 3: The company's share of the proposed income from the Beijing
DaDu International Jockey Club is projected by using the present
value of the cash-flow based on a 20% accrual to Chancellor over
12 years of the projected income of the project over the same 12
years as follows:
Total Income projected $1,542,576,295.00
20% accrual to Chancellor $ 308,515,259.00
Discounted @ 8% for 12 years
(factor is .3971)
$308,515,259.00 x .3971 = $ 122,606,644.00
Note 4: Cash and securities were placed as Registered Capital in China,
(for Morceli, Inc., a wholly owned subsidiary), and are restricted
as to usage in China. Entry consists of $5,000,000 cash and
$5,000,000 securities. Cash can be replaced by acceptable
securities at any time and total funds will be released on Dec. 1,
1998.
Note 5: Subsequent event: The company agreed to purchase property in
Guang Dong Province, China, approximate value $26,300,000. The
acquisition is to be financed 60% by a bank and 40% by the
company.
ROBERT G. TSCHIDA
Certified Public Accountant
- --------------------------------------------------------------------------------
301 North Main
P.O. Box 5507
Pueblo, CO 81002
(719) 568-9700
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Chancellor Corporation
Oklahoma City, Oklahoma
I have audited the accompanying balance sheet of CHANCELLOR CORPORATION as of
December 31, 1997. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion based on my
audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. I
believe that my audit of the balance sheet provides a reasonable basis for my
opinion.
In my opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of CHANCELLOR CORPORATION as of
December 31, 1997 and the results of its operations and its cash flows for the
period ending December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Robert J. Tschida, CPA
- --------------------------
Robert G. Tschida, CPA
January 30, 1998
- --------------------------------------------------------------------------------
MEMBER OF THE AMERICAN AND COLORADO SOCIETIES OF CERTIFIED PUBLIC ACCOUNTANTS
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheet
December 31, 1997
ASSETS
Current Assets: $ 301,200
Cash
Other Assets:
Subsidiary (Note 2) 2,500,000
Development costs (Note 2) 1,203,800
------------
Total other assets 3,703,800
Restricted Assets:
Cash reserves (Note 4) 5,000,000
Securities deposited (Note 4) 5,000,000
Discounted cash-flows (Note 3) 122,606,644
------------
Total restricted assets 132,606,644
------------
Total Assets $136,611,644
============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 91,000
------------
Unearned Revenues (Note 3) 122,606,644
------------
Stockholders' Equity:
Common stock, 100,000,000 shares
authorized, $0.001 par value, 15,778,829
shares issued and outstanding 157,788
Preferred stock 5,000,000, $10.00 value
authorized, 250,000 shares issued and
outstanding 2,500,000
Paid-in capital 11,256,212
------------
TOTAL STOCKHOLDERS' EQUITY 13,914,000
------------
Total Liabilities & Stockholders' Equity $136,611,644
============
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statement of Stockholders' Equity
For the period ending December 31, 1997
Common Preferred Paid-in Retained
Stock Stock Capital Earnings
Beginning
Balance $ 3,700 $ 2,500,000 $ 117,300 $ 0
Balance
12/31/97 $ 145,466 $ 2,500,000 $11,268,534 $ 0
=========== =========== =========== =====
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Cash Flows
December 31, 1997
Cash flows from operations:
Net Income
$ 0
Cash flows from investing activities:
Increase in discounted cash flows (122,606,644)
Investment in subsidiary ( 2,500,000)
Investment in development costs ( 1,203,800)
Increase in unearned income 122,606,644
Issuance of preferred stock 2,500,000
Issuance of common stock 141,766
Increase in paid capital 11,151,234
Cash flow from financing activities:
Investment of cash & securities in subsidiary ( 10,000,000)
Increase in payables 91,000
------------
Cash provided 254,000
Beginning Cash 121,000
------------
Ending Cash $ 301,200
============
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CHANCELLOR CORPORATION
( A DEVELOPMENT STAGE COMPANY)
Notes to the Financial Statements
December 31, 1997
Note 1: The company was incorporated in the State of Nevada in 1981.
The company main project is a joint venture gaming agreement with
the Beijing DaDu International Jockey Club. This agreement has
been approved by the Chinese government. The agreement may be seen
at the company corporate office.
Note 2: The company has acquired a Fraternal Insurance Society to
market various services to member in exchange for the issuance of
preferred stock. The company is managed by the U.S. Management, a
subsidiary of Chancellor.
Note 3: The company's share of the proposed income from the Beijing
DaDu International Jockey Club is projected by using the present
value of the cash-flow based on a 20% accrual to Chancellor over
12 years of the projected income of the project over the same 12
years as follows:
Total Income projected $1,542,576,295.00
20% accrual to Chancellor $ 308,515,259.00
Discounted @ 8% for 12 years
(factor is .3971)
$308,515,259.00 x .3971 = $ 122,606,644.00
Note 4: Cash and securities were placed as Registered Capital in China,
(for Morceli, Inc., a wholly owned subsidiary), and are restricted
as to usage in China. Entry consists of $5,000,000 cash and
$5,000,000 securities. Cash can be replaced by acceptable
securities at any time and total funds will be released on
December 1, 1998.
Note 5: Subsequent Events:
The company reached an agreement with Zhida Development Co. Ltd.
and America Saipan International Trading Inc., as follows:
A) Chancellor Corporation and Ron Sparks, Chairman agreed to
cancel 8,333,000 shares of common stock that was issued in
the name of Beijing Dadu International Jockey Club Co. Ltd.
B) Cancellation of 500,000 preferred shares issued in the name
of Zhida Development Co. Ltd.
C) The 3,000,000 shares of control shares held by NAFTA Trust
were canceled and re-issued as follows;
1. 1,470,000 American Saipan International Trading Inc.
2. 1,530,000 NAFTA Trust
Mr. Du, Lianlu of American Saipan was appointed to the Board of
Directors of Chancellor Corporation.
Note 6: The company reversed the acquisition of the Fraternal Insurance
Society and canceled the 250,000 shares of preferred stock used
for that acquisition. The company will proceed with an alternate
insurance program.
The net result of the above transaction leaves Chancellor
Corporation with only 6,321,000 shares outstanding, the
cancellation of debt for the real estate in Guang Dong Province
and the debt for the Fraternal company.
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Balance Sheet
March 31, 1998
ASSETS
Current Assets: $ 221,000
Cash
Other Assets:
Subsidiary (Note 2) 1,284,000
Development costs (Note 2) 1,110,000
------------
Total other assets 2,394,000
Restricted Assets:
Cash reserves (Note 4) 5,000,000
Securities deposited (Note 4) 5,000,000
Discounted cash-flows (Note 3) 122,606,644
------------
Total restricted assets 132,606,644
------------
Total Assets $135,221,644
============
LIABILITIES & STOCKHOLDERS' EQUITY
Unearned Revenues:
Revenues (Contracts) $122,606,644
Unclassified:
Contributions by shareholders 1,110,000
Current liabilities:
Accounts payable 91,000
Stockholders' Equity:
Common stock 145,466
Paid-in capital 11,268,534
------------
TOTAL STOCKHOLDERS' EQUITY 11,414,000
------------
Total Liabilities & Stockholders' Equity $135,221,644
============
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statement of Cash Flows
Period ending March 31, 1998
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net profit or (loss) $ 0
Cash flows from investing activities:
Increase in development costs ( 1,284,000)
Increase in cash reserves ( 5,000,000)
Increase in securities (restricted) ( 5,000,000)
Decrease in cash transfers ( 301,150)
------------
Net cash used for Investment Activities ($11,585,150)
------------
Cash flow from financing activities:
Increase in payables 91,000
Issuance of common stock 145,416
Increase in paid-in capital 11,268,534
------------
Net cash provided by financing activities $ 11,504,950
------------
Net decrease in cash and cash equivalents ( 80,200)
Cash and cash equivalents at beginning of period 301,200
------------
Cash and cash equivalents at end of period $ 221,000
============
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CHANCELLOR CORPORATION
( A DEVELOPMENT STAGE COMPANY)
Notes to the Financial Statements
March 31, 1998
Note 1: The company was incorporated in the State of Nevada in 1981.
The company's main project is a joint venture gaming agreement with
the Beijing DaDu International Jockey Club. This agreement has been
approved by the Chinese government. The agreement may be seen at the
company's corporate office.
Note 2: The companys will use the accrual basis of accounting and will
adhere to all IRS regulations.
Note 3: The company's share of the proposed income from the Beijing
DaDu International Jockey Club is projected to be by using the
present value of the cash-flow based on a 20% accrual to
Chancellor over 12 years of the projected income of the project
over the same 12 years as follows:
Total Income projected $1,542,576,295.00
20% accrual to Chancellor $ 308,515,259.00
Discounted @ 8% for 12 years
(factor is .3971)
$308,515,259.00 x .3971 = $ 122,606,644.00
Note 4: Cash and securities were placed as registered capital in China
for Morceli, Inc., a wholly owned subsidiary, and are restricted
as to usage in China. Entry consists of $5,000,000 cash and
$5,000,000 securities. Cash may be replaced by acceptable
securities at any time and total funds will be released on
December 31, 1998.
Note 5: The company reached an agreement with Zhida Development Co. Ltd. and
American Saipan International Trading Inc., as follows:
A) Chancellor Corporation and Ron Sparks, Chairman agreed to
cancel 8,333,000 shares of common stock that was issued in
the name of Beijing DaDu International Jockey Club Co. Ltd.
B) Cancellation of 500,000 preferred shares issued in the name
of Zhida Development Co. Ltd.
C) The 3,000,000 shares of control shares held by NAFTA Trust
were canceled and re-issued as follows:
1. 1,470,000 American Saipan International Trading Inc.
2. 1,530,000 NAFTA Trust
3. Mr. Du, Lianlu of American Saipan was appointed to the Board
of Directors of Chancellor Corporation.
B. EXHIBITS.
EXHIBIT DESCRIPTION
NUMBER AND
PAGE
- --------------------------------------------------------------------------------
3.1 Restated Articles of Incorporation
3.5 Bylaws of the Company
10.1 Material Contracts
21.1 Subsidiaries of the Registrant
23.1 Consent of Expert
27 Financial Data Schedule
8