-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U+2ebMxbExb5sVh6/+9aMbdZLNx5sot1nfod0yZ4+Z3BysBuaXXuSrKFbK0DwJrR Hcg/cxeo/bAsZH49SoudNA== 0000724051-96-000002.txt : 19960816 0000724051-96-000002.hdr.sgml : 19960816 ACCESSION NUMBER: 0000724051-96-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHANCELLOR CORP CENTRAL INDEX KEY: 0000724051 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 042626079 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11663 FILM NUMBER: 96612167 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6177288500 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 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 registrant as specified in its charter) Massachusetts 04-2626079 (State or other jurisdiction of (I.R.S. Employer I.D. No.) incorporation or organization) 745 Atlantic Avenue, Boston, Massachusetts 02111 (Address of principal executive offices) Zip Code Registrant's telephone number, including area code (617) 728-8500 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at July 22, 1996 Common Stock, $.01 par value per share 5,136,391 Series AA Convertible Preferred Stock, $.01 5,000,000 par value per share
CHANCELLOR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands Except Share Amounts) June 30, 1996 December 31, 1995 (Unaudited) (Audited)
ASSETS Cash and cash equivalents $ 235 $ 185 Cash - restricted and escrowed 3,019 4,513 Receivables, net 175 1,889 Leased equipment held for underwriting 7,344 1,859 Net investment in direct finance lease 1,155 1,421 Equipment on operating lease (net of accumulated depreciation of $11,170 and $17,020) 440 1,683 Residual values, net 3,266 3,340 Furniture and equipment (net of accumu- lated depreciation of $2,477 and $2,453) 184 179 Investment in TruckScan 350 Other assets, net 1,040 1,019 _____ _____ $ 17,208 $16,088 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses $ 5,045 $ 6,842 Indebtedness: Nonrecourse 6,361 3,167 Recourse 3,660 4,314 Deferred income taxes 400 400 ______ ______ Total liabilities 15,466 14,723 Commitments and contingencies Stockholders' equity (deficit): Convertible Preferred stock - $.01 par value, Authorized: 10,000,000 shares; Issued: 5,000,000 shares: 1,021 0 Common stock - $.01 par value, Authorized 30,000,000 shares; Issued 6,567,302 shares: 65 65 Additional paid-in capital 23,638 23,638 Deficit (22,446) (21,802) Less treasury stock - 1,430,911 shares at cost ( 536) ( 536) _______ ________ Total stockholders' equity 1,742 1,365 ________ ________ $ 17,208 $16,088
See notes to condensed consolidated financial statements -1- CHANCELLOR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands except Share Amounts) (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 1996 1995 1996 1995 1996 1995 1996 1995 Revenues: Rental income $ 631 $ 1,258 $ 1,211 $2,657 Lease underwriting income 191 258 324 326 Direct finance lease income 41 40 79 108 Interest income 17 21 31 36 Gains from portfolio remarketing 400 195 649 663 Fees from remarketing activities 217 163 424 374 Other 24 22 143 128 _____ _____ _____ _____ 1,521 1,957 2,861 4,292 _____ _____ _____ _____ Costs and expenses: Selling, general and administrative 1,314 1,325 2,589 2,748 Interest expense 149 311 278 769 Depreciation and amortization 298 998 637 2,161 Lease rental - - - - _____ _____ _____ _____ 1,761 2,634 3,504 5,678 _____ _____ _____ _____ Loss before income tax expense and cumulative effect of change in accounting principle ( 240) ( 677) ( 643) (1,386) Income tax expense - - - - Net loss ($ 240) ($ 677) ($ 643) ($1,386) Net loss per share ($ .05) ($ .11) ($ .13) ($ .22) Weighted average number of common shares 5,136,391 6,382,077 5,136,391 6,382,077
See notes to condensed consolidated financial statements. -2- CHANCELLOR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (In Thousands Except Share Amounts) (Unaudited)
Additional Preferred Stock Common Stock paid-in Treasury Stock Shares Amount Shares Amount capital Deficit Shares Amount BALANCE, JANUARY 1, 1995 0 $ 0 6,566,712 $ 65 $19,475 ($20,581) 184,635 ($380) Net Loss - - - - - ( 1,386) - - _____ _____ _________ ___ ______ _________ _______ ______ BALANCE, JUNE 30, 1995 0 $ 0 6,566,712 $ 65 $19,475 ($21,967) 184,635 ($380) BALANCE, JANUARY 1, 1996 0 $ 0 6,567,302 $ 65 $23,638 ($21,803) 1,430,911 ($536) Net Loss - - - - - ( 643) - - Stock Purchase by Vestex 5,000,000 1,021 - - - - - - _________ _____ ________ ____ ______ _________ _________ ______ BALANCE, JUNE 30, 1996 5,000,000 $1,021 6,567,302 $ 65 $23,638 ($22,446) 1,430,911 ($536)
See notes to condensed consolidated financial statements. -3- CHANCELLOR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited) (Amounts in Thousands)
Six Months Ended June 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net loss ( 643) ($1,386) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization 637 2,161 Residual value estimate realizations and reductions, net of additions 74 ( 70) Changes in assets and liabilities: Receivables 1,714 1,488 Other assets ( 21) ( 17) Accounts payable and accrued expenses ( 1,797) ( 1,979) ________ ________ Total adjustments 607 1,583 ________ ________ Net cash provided by (used for) operating activities ( 36) 197 ________ ________ CASH FLOWS FROM INVESTING ACTIVITIES: Leased equipment held for underwriting ( 5,485) (2,247) Net investments in direct finance leases 266 227 Equipment on operating lease 630 1,437 Investment in Truckscan ( 350) Net change in cash restricted and escrowed 1,494 2,330 Additions to furniture and equipment, net ( 29) 4 _________ ______ Net cash provided by (used in) investing activities ( 3,474) 1,751 _________ ______ CASH FLOWS FROM FINANCING ACTIVITIES: Additions to indebtedness - non-recourse 3,873 1,670 Repayments of indebtedness - nonrecourse ( 680) ( 1,818) Repayments of indebtedness - recourse ( 654) ( 1,669) Preferred stock issued, net 1,021 - _______ ______ Net cash used for financing activities 3,560 ( 1,817) _______ ________ NET INCREASE IN CASH AND CASH EQUIVALENTS 50 131 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 185 79 _______ ______ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 235 $ 210
See notes to condensed consolidated financial statements. -4- CHANCELLOR CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) A. Financial Presentation In the opinion of Management, the accompanying interim unaudited condensed consolidated financial statements contain all adjustments considered necessary to present fairly the Company's financial position, results of operations and cash flows for the periods presented. All accounting adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1995 Annual Report to shareholders on Form 10-K for the year ended December 31, 1995 and subsequent quarterly filing on Form 10-Q . The results of operations for the periods presented are not necessarily indicative of the operating results expected for the full year. Certain amounts in prior periods have been reclassified to conform with the presentation at June 30, 1996. B. Acquisition Activity On June 21, 1996, the Company acquired a 50% interest in TruckScan, L.L.C. ("TruckScan"), a newly-formed company organized by the Company and TeleScan Technologies, L.L.C. of Bloomfield Hills, Michigan ("Telescan") to market and sell an electronic truck and trailer inventory management and networking program. The Company paid $350,000 for its interest in TruckScan. The purchase price may be adjusted upwards based on certain subsequent events. TruckScan has contractual rights to market and license software and had negligible tangible assets at acquisition. The Company accounts for its investment in accordance with the equity method. Reference is made to the Company's report on Form 8-K dated June 21, 1996 concerning the above-described transaction. -5- CHANCELLOR CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) Results of Operations Revenues for the three months and six months ended June 30, 1996 decreased to $1.5 million and $2.9 million from $2.0 million and $4.3 million for the comparable periods of 1995. The Company reported net losses of $240,000 and $643,000 ($.05 and $.13 per share) for the three months and six months ended June 30, 1996 as compared with net losses of $677,000 and $1.4 million ($.11 and $.22 per share) for the same periods last year. Rental Income Rental income, primarily from the Company's portfolio of leased equipment, was $631,000 and $1.2 million for the three months and six months ended June 30, 1996 versus $1.3 million and $2.7 million for the comparable periods last year. The majority of the decrease is the result of the expiration of several leases and subsequent disposition of $22.1 million of equipment (based on its original cost) from the Company's portfolio during the twelve months ended June 30, 1996. Most rental income is used to service non-recourse debt secured by lease transactions. Lease Underwriting Income Lease underwriting resulted in income of $191,000 and $324,000 for the three months and six months ended June 30, 1996 versus $258,000 and $326,000 for the same periods in 1995. This income was derived from sales of $9.5 million of equipment leases, at cost, to third party investors of leased equipment in the six months ended June 30, 1996 as compared with $7.7 million in such sales during the same period last year. At June 30, 1996, the Company held in its inventory $7.3 million (original cost) of lease transactions for sale to third parties as compared to $1.9 million at December 31, 1995. The Company's strongest quarter for sales of inventory is the fourth quarter. Consequently the inventory balance at December 31, 1995 is usually the lowest of the year. The Company's ability to generate new profitable transactions is constrained by competitive pressures from other leasing companies and the difficulty the Company has in persuading investors to translate -6- the Company's remarketing success into more aggressive residual pricing when soliciting bids for transactions. Under the terms of its intercreditor agreement, discussed below under "Liquidity and Capital Resources", the Company's available warehouse financing with its senior lender group is approximately $1.8 million as of June 30, 1996. The Company's warehouse facility with a bank provides an additional $10.0 million in warehouse financing capacity, subject to the lender's credit approval of the lessee. The bank lends the Company the discounted rental stream of certain lease transactions as well as a portion of the residual value of the equipment subject to those leases. The balance of the equipment cost is furnished by the senior lenders. Residuals. Lease underwriting income includes the present value of the Company's share of the estimated future residual values expected to be realized from lease transactions sold to investors. For the three months and six months ended June 30, 1996, $53,000 and $98,000 of residual fee income was recognized, representing 30% of lease underwriting income year to date. During the same periods in 1995, $224,000 and $277,000 of residual fee income was recognized, representing 85% of lease underwriting income. Gains from Portfolio Remarketing. The Company recognized $400,000 and $649,000 of gains from the sale of portfolio assets with an original cost of $5.8 million and $7.5 million, respectively, in the three months and six months ended June 30, 1996 versus $195,000 and $663,000 of gains from the sale of portfolio assets with an original cost of $2.3 million and $8.3 million in the same periods last year. Gains decreased 2% on decreased portfolio equipment sales of 10% in the six months of 1996 as compared with the same period in 1995. The reduced sales and gains in sales for the six-month periods are the result of a decreasing number of assets and leases in the Company's portfolio. Fees from Remarketing Activities. Fees from remarketing activities were $217,000 and $424,000 for the three months and six months ended June 30, 1996 versus $163,000 and $374,000 in the same periods last year. During the second quarter of 1996, $27,000 was attributable to remarketing performed for third parties other than trust investors with which the Company entered into remarketing agreements at the time of the related leases were sold to trust investors. During the same period in 1995, $124,000 in fees were attributable to remarketing performed for -7- third parties other than trust investors with which the Company entered into remarketing agreements at the time the related leases were sold to trust investors. Other Income. Other income was $24,000 and $143,000 for the three and six months ended June 30, 1996 versus $22,000 and $128,000 for the three months and six months ended June 30, 1995. Expenses. Selling, general and administrative expenses for the three months and six months ended June 30, 1996 amounted to $1.3 million and $2.6 million versus $1.3 million and $2.7 million for the three months and six months ended June 30, 1995. Interest expense for the three months and six months ended June 30, 1996 was $149,000 and $278,000 versus $311,000 and $769,000 million for the same periods in 1995. The decrease from 1995 to 1996 resulted largely from a reduction of subordinated debt guaranteed by the Company's former majority shareholder. Other causes were due to reductions in the amount of leased equipment in the Company's portfolio, and lower interest rates on the Company's recourse debt. The provision for income taxes for the three months and six months ended June 30, 1996 is nominal. During the same periods in 1995, the provision for income taxes was also nominal. Liquidity and Capital Resources Since 1990, the Company's ability to sustain its operations and meet its ongoing working capital requirements has been exclusively dependent upon the continued availability of internally generated cash arising primarily from lease underwriting and brokerage fees and residual value realization. External funds such as short-term warehouse financing and non-recourse debt to finance leases have been consistently available in amounts adequate to support both the Company's origination and syndication activities. During the first six months of the year the Company used $36,000 cash for operations which includes a seasonal reduction of receivables of $1.7 million. Effective April 12, 1996, the Company issued and sold to Vestex Capital Corporation 5,000,000 shares of its Series AA Convertible Preferred Stock for $1,350,000 in cash, less reimbursement of $312,000 of due diligence and other transactions costs to Vestex Capital Corporation (the "Preferred Stock Placement"). On April 12, 1996, the Company also announced that it had commenced a private offering of up to 4,000,000 shares of -8- its Common Stock (the "Common Stock Offering") to a select group of investors. The Company's management and Board of Directors are exploring alternative ways to raise new capital, which is considered essential in order for the Company to achieve and sustain future profitability. A significant portion of the Company's assets is pledged as collateral for the Company's non-recourse indebtedness. As of June 30, 1996, approximately $3.7 million (or 37%) of indebtedness represented a direct liability of the Company; the remainder, approximately $6.4 million (or 63%), was non-recourse. Amounts due under non-recourse notes are obligations of the Company which are secured only by the leased equipment and assignments of lease receivables, with no recourse to any other assets of the Company. The significant near-term maturities of this non-recourse debt are not expected to affect the Company's liquidity because the debt is expected to be fully amortized by the assignment of the collateral leases and payment by the related lessees of lease rentals directly to the non-recourse lenders. Restricted balances represent mainly the equipment cash collateral account under the intercreditor agreement and funds collected by the Company on behalf of trust investors consisting of rental income and sales proceeds related to leases in which they have an equity interest. A related liability exists on the balance sheet until the funds have been distributed to the appropriate investors. The same amount is included in "Accounts Payable and Accrued Expenses." -9- Part II. - Other Information Item 5. Exhibits and Reports on Form 8-K: (a) Exhibits - None (b) Reports on Form 8-K: On May 17, 1996, the Company filed a Form 8-K dated May 16, 1996 reporting that it had issued a press release on May 16, 1996 in which it announced the Company's financial results for the three months ended March 31, 1996. On July 17, 1996, the Company filed a Form 8-K dated June 21, 1996 reporting that it had issued a press release on June 28, 1996 in which it announced that the Company acquired a 50% interest in TruckScan, L.L.C. ("TruckScan"), a newly- formed company organized by the Company and TeleScan Technologies, L.L.C. of Bloomfield Hills, Michigan ("Telescan") to market and sell an electronic truck and trailer inventory management and networking program. -10- SIGNATURE Pursuant to the requirements 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. CHANCELLOR CORPORATION Dated August 13, 1996 /s/ Stephen G. Morison ______________________________ Stephen G. Morison Vice Chairman, President and Chief Executive Officer /s/ William J. Guthlein _______________________________ William J. Guthlein Vice President and Chief Financial Officer -11- EX-27 2
5 This Schedule contains summary financial information extracted from 10-Q and is qualified in its entirety by reference to such financial statement. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 235 0 175 0 0 410 2,661 2,477 17,208 15,466 0 0 1021 721 0 17,208 0 2,861 0 0 3,226 0 278 (643) 0 (643) 0 0 0 (643) (.13) 0
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