-----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, EPVklKAq3TtqNWFlPDhV6Kpd3uDXeibEOY+BjwYG5fLJ6Ztd+kwnhC0XRy1auaE3 8gWiURrvEDz7XRZGSMTDdA== 0000908737-98-000515.txt : 19980518 0000908737-98-000515.hdr.sgml : 19980518 ACCESSION NUMBER: 0000908737-98-000515 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-11663 FILM NUMBER: 98623654 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 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10QSB (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, 1998 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, 1998, 25,404,156 shares of Common Stock, $.01 par value per share; 8,000,000 shares of Series AA Convertible Preferred Stock, $.01 par value per share (with a liquidation preference of $.50 per share or $4,000,000); and 710,526 shares of Series A Convertible Preferred Stock, $.01 par value per share (with a liquidation preference of $1.90 per share, or $1,350,000), were outstanding. As of April 30, 1998, 2,000,000 shares of Series B Convertible Preferred Stock were authorized. Aggregate market value of the voting stock held by non-affiliates of the issuer as of April 30, 1998 was approximately $1,201,000. Aggregate market value of the total voting stock of the issuer as of April 30, 1998 was approximately $8,129,000. Chancellor Corporation and Subsidiaries Page Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 2 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 1998 and 1997 3 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 4 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information 11 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 12 1
Chancellor Corporation and Subsidiaries Condensed Consolidated Balance Sheets (In Thousands, Except per Share Data) March 31, December 31, 1998 1997 -------------- ------------ (unaudited) Assets Cash and cash equivalents $ 244 $ 97 Cash - restricted and escrowed 212 2,419 Receivables, net 297 667 Leased equipment held for underwriting 502 502 Net investment in direct finance leases 618 521 Equipment on operating lease, net of accumulated depreciation of $3,804 642 232 Residual values, net 448 465 Furniture and equipment, net of accumulated depreciation of $1,363 905 937 Other investments 1,000 1,000 Intangibles, net 122 122 Other assets, net 1,746 117 --------- -------- $ 6,736 $ 7,091 ========= ======== Liabilities and Stockholders' Equity Accounts payable and accrued expenses $ 5,656 $ 5,921 Indebtedness: Nonrecourse 440 528 Recourse 383 415 --------- -------- Total liabilities 6,479 6,864 --------- -------- Stockholders' equity: Prefered Stock, $.01 par value, 20,000,000 shares authorized: Convertible Series A, 710,526 shares issued and outstanding 7 7 Convertible Series AA, 8,000,000 shares issued and outstanding 80 80 Convertible Series B, 2,000,000 shares issued and outstanding -- -- Common stock, $.01 par value; 75,000,000 shares authorized, 25,404,156 shares issued and outstanding 254 254 Additional paid-in capital 28,371 28,426 Accumulated deficit (28,455) (28,540) --------- -------- 257 227 --------- -------- $ 6,736 $ 7,091 ========= ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Chancellor Corporation and Subsidiaries Condensed Consolidated Statements of Operations (In Thousands, Except Per Share Data) Three Months Ended March 31, 1998 1997 ------------ ------------ (unaudited) (unaudited) Revenues: Rental income $ 96 $ 278 Lease underwriting income 9 15 Direct finance lease income 36 40 Interest income 18 12 Gains from portfolio remarketing 82 172 Fees from remarketing activities 423 140 Other income 18 -- ----------- ----------- 682 657 ----------- ----------- Costs and expenses: Selling, general and administrative 530 1,941 Interest expense 21 101 Depreciation and amortization 104 90 ----------- ----------- 655 2,132 ----------- ----------- Net income (loss) $ 27 $ (1,475) =========== =========== Basic net income (loss) per share $ .00 $ (.29) =========== =========== Shares used in computing basic net income (loss) per share 25,403,127 5,136,391 =========== =========== The accompanying notes are an integral part of these condensed consolidated financial statements. 3
Chancellor Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (In Thousands) Three Months Ended March 31, 1998 1997 ------------ ----------- (unaudited) (unaudited) Cash flows from operating activities: Net income (loss) $ 27 ($1,475) ------- ------- Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation and amortization 104 90 Residual value estimate realizations and reductions, net of additions 17 181 Changes in assets and liabilities: Decrease in receivables 370 2,361 Decrease in accounts payable and accrued expenses (265) (2,767) ------- ------- 226 (135) ------- ------- Net cash used by operating activities 253 (1,610) ------- ------- Cash flows from investing activities: Leased equipment held for underwriting -- 848 Net investments in direct finance leases (97) 471 Equipment on operating lease (442) 127 Net change in cash restricted 2,207 546 Additions to furniture and equipment, net (40) 3 Increase in other assets (1,614) (308) ------- ------- Net cash provided by investing activities 14 1,687 ------- ------- Cash flows from financing activities: Increase in indebtedness - recourse -- 175 Repayments of indebtedness - nonrecourse (88) (378) Repayments of indebtedness - recourse (32) (730) Issuance of preferred stock, net -- 900 ------- ------- Net cash used by financing activities (120) (33) ------- ------- Net increase in cash and cash equivalents 147 44 Cash and cash equivalents at beginning of period 97 21 ------- ------- Cash and cash equivalents at end of period $ 244 $ 65 ======= ======= Cash paid for interest $ 21 $ 74 ======= =======
The accompanying notes are an integral part of thesecondensed consolidated financial statements. 4 CHANCELLOR CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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, 1997. The balance sheet at December 31, 1997 has been derived from the audited consolidated financial statements included in the Annual Report on Form 10-K. The results for the interim period ended March 31, 1998 are not necessarily indicative of the results to be expected for the entire year. 2. BUSINESS COMBINATION During the first quarter of 1998, the Company formed the following wholly-owned subsidiaries and issued the following shares: Chancellor International Corporation ("CIL"), a Delaware corporation, formed as the parent holding company for diversified financial services companies specializing in international commercial and consumer financing. The Company issued 2,000,000 shares of Series B Convertible Preferred Stock ("Series B Preferred") for 100% ownership of CIL. Chancellor Africa Corporation ("CAC"), a Mauritius corporation, formed as the parent holding company for a diversified financial services company specializing in commercial and consumer financing in Africa. CIL transferred 1,500,000 shares of its Series B Preferred of the Company to CAC in exchange for 100% ownership of CAC. Africa Financial Corporation ("AFC"), a Mauritius corporation, formed as the operating company providing lease and commercial financing services in Africa. CAC transferred 1,000,000 shares of its Series B Preferred of the Company to AFC in exchange for 100% ownership of AFC. On December 12, 1997, the Company, Afinta Motor Corporation (Pty) Ltd ("AMC"), its wholly owned subsidiary Afinta Financial Services (Pty) Ltd. ("AFS"), and New Africa Opportunity Fund, LP ("NAOF"), entered into a letter of intent, under which a diversified financial services company, specializing in commercial and consumer financing in Africa will be formed. On March 27, 1998, the parties entered into a second agreement that described the responsibilities of the parties upon the closing of the transaction and execution of the definitive closing. The Company will provide, through CAC, $5,000,000 of capital to AFC and 1,000,000 shares of the Company's Series B Preferred. NAOF and AMC will receive up to a combined 50% ownership interest in AFC. In consideration of this ownership interest, NAOF will infuse $10,000,000 of cash in two $5,000,000 tranches. AMC will grant exclusive distribution rights for AMC products in North America, Eastern Europe, the Russian Federation and Commonwealth of Independent States, and Asia-Pacific; nonexclusive distribution rights for AMC products in South America; and discounted pricing for the purchase of AMC products to be sold and/or leased through AFC or its assignee. Additionally, AFC will issue to 5 NAOF and AMC up to 1,000,000 shares of the Company's Series B Preferred at $20 per share. The Series B Preferred converts into 10 shares of the Company's Common Stock for each one share of preferred stock at the holders option reflecting a price per share of Common Stock of $2.00 per share. Additionally, the Series B Preferred has a liquidation preference of $2.00 per share. In anticipation of the successful completion of this transaction, the Company commenced its investment in the operation of AFC. Accordingly, the Company infused approximately $450,000 in cash to transact certain leasing transactions. The funds were used to purchase vehicles from AMC which were then leased to end user customers. The following is the proforma effect on stockholder's equity if the transactions as contemplated above are executed and includes estimated transaction related cost of approximately $1 million:
Per Shares Financial To Be Statements Issued Proforma ---------- ------ -------- (In Thousands) Preferred Stock, Series AA Convertible, $.01 par value, authorized 8,000,000 shares, issued and outstanding 8,000,000 shares $ 80 $ -- $ 80 Preferred Stock, Series A, Convertible, $.01 par value, authorized 710,526 shares, issued and outstanding 710,526 shares 7 -- 7 Preferred Stock, Series B Convertible, $.01 par value, authorized 2,000,000 shares, issued and outstanding 1,000,000 shares -- 20 20 Common Stock, $.01 par value, authorized 75,000,000 shares, issued and outstanding 25,404,156 shares 254 -- 254 Additional Paid in Capital 28,371 18,980 47,351 Accumulated Deficit (28,455) -- (28,455) -------- -------- -------- $ 257 $ 19,000 $ 19,257 ======== ======== ========
6 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, 1998 were $682,000 as compared to $657,000 for the corresponding period of 1997, an increase of $25,000 or 3.8%. For the three month period ended March 31, 1998, rental income decreased by $182,000 or 65.5% as compared to the corresponding prior year period. The decrease in rental income is attributable primarily to the expiration of several leases. Rental income will continue to decrease until the Company is able to begin adding new equipment to its portfolio. For the three month period ended March 31, 1998, lease underwriting income decreased by $6,000 or 42.2% as compared to the corresponding prior year period. Lease underwriting income decreased due to origination of $450,000 of equipment leases, at cost, for the three month period ended March 31, 1998 as compared to origination of $848,000 of equipment leases during the same period last year. For the three month period ended March 31, 1998, gains from portfolio remarketing decreased by $90,000 or 52.3% as compared to the corresponding prior year period. The decrease in gains from portfolio remarketing is attributable to the sale of portfolio assets of $342,000, at original cost, during the three month period ended March 31, 1998 as compared to sales of portfolio assets with an original cost of $736,000 for the corresponding prior year period. In contrast, for the three month period ended March 31, 1998, fees from remarketing activities increased by $283,000 or 202.1% as compared to the corresponding prior year period. This increase is attributable to a continued focus by management on the remarketing of trust assets as they become available for sale. The increase is also attributable to management's decision to enter into in-house Buy/Sell arbitrage transactions of used transportation equipment. As a result, the Company generated Buy/Sell transaction fees of approximately $184,000 during the three month period ended March 31, 1998. Fees for remarketing performed for third parties other than trust investors represented approximately $5,000. This increase in fees for remarketing performed for third parties is consistent with management's plans to utilize the Company's remarketing expertise to provide such services to third parties. The Company will continue to place emphasis on expanding revenues generated from fees from remarketing to third parties and Buy/Sell transactions. For the three month period ended March 31, 1998, other income increased by $18,000 or 100.0% as compared to the corresponding prior year period. Costs and Expenses. Selling, general and administrative expenses for the three month period ended March 31, 1998 were $530,000 as compared to $1,941,000 for the corresponding period of 1997, a decrease of $1,411,000 or 72.7%. The first quarter of 1997 was burdened with significant legal, accounting and consulting fees incurred in connection with the corporate restructuring and transition plans. As a result of the implementation of these focused and fundamentally sound strategies, the Company has brought its cost structure in line in order to operate in the most effective and efficient manner. Depreciation and amortization expense for the three month period ended March 31, 1998 was $104,000 as compared to $90,000 for the corresponding period of 1997, an increase of $14,000 or 15.6%. The increase is primarily a result of additional depreciation and amortization on furniture, fixtures, computer equipment and leasehold improvements added in connection with the Company's move to its new facilities in the latter half of fiscal 1997. Interest expense for the three month period ended March 31, 1998 was $21,000 as compared to $101,000 for the corresponding period of 1997, a decrease of $80,000 or 79.2%. The decrease is due in part to the repayment in 1997 of the intercreditor and secured inventory loans. Additionally, the expiration of several leases resulted in a decrease in interest on associated non-recourse debt. 7 Net Income. Net income for the three month period ended March 31, 1998 was $27,000 as compared to a net loss of $1,475,000 for the corresponding period of 1997, an increase of $1,502,000 or 101.8%. This is attributable to the decrease in total costs, specifically described above. Net income per share for the three month period ended March 31, 1998 was $.00 per share as compared to a net loss of $.29 per share for the corresponding prior year period, an increase of $.29 per share or 100.0%. LIQUIDITY AND CAPITAL RESOURCES The Company generated cash flow from operations of $253,000 during the three month period ended March 31, 1998, in part, due to collections of receivables and overall improved operating performance. Investing activities provided $14,000 during the three month period ended March 31, 1998. Financing activities in the three month period used $120,000, due to repayments of aggregate nonrecourse and recourse debt. The net result of the above activity for the three month period was an increase in cash and cash equivalents of $147,000. Cash and cash equivalents amounted to $244,000 at March 31, 1998 as compared to $65,000 at March 31, 1997. In August 1997, the Company committed to make a $1,000,000 equity investment in the New Africa Opportunity Fund, LP ("NAOF"). NAOF is a $120,000,000 investment fund composed of $40,000,000 from equity participants including the Company, and $80,000,000 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, 1998, the Company had funded approximately $230,000 and is obligated to provide additional funding in the approximate amount of $770,000. During the first quarter of 1998, the Company formed the wholly-owned subsidiaries of (i) Chancellor International Corporation ("CIL"), a Delaware corporation, formed as the parent holding company for diversified financial services companies specializing in international commercial and consumer financing, (ii) Chancellor Africa Corporation ("CAC"), a Mauritius corporation, formed as the parent holding company for a diversified financial services company specializing in commercial and consumer financing in Africa, and (iii) Africa Financial Corporation ("AFC"), a Mauritius corporation, formed as the operating company providing lease and commercial financing services in Africa. On December 12, 1997, the Company, Afinta Motor Corporation (Pty) Ltd ("AMC"), its wholly owned subsidiary Afinta Financial Services (Pty) Ltd. ("AFS"), and New Africa Opportunity Fund, LP ("NAOF"), entered into a letter of intent, under which a diversified financial services company, specializing in commercial and consumer financing in Africa will be formed. On March 27, 1998, the parties entered into a second agreement that described the responsibilities of the parties upon the closing of the transaction and execution of the definitive closing. The Company will provide, through CAC, $5,000,000 of capital to AFC and 1,000,000 shares of the Company's Series B Preferred. NAOF and AMC will receive up to a combined 50% ownership interest in AFC. In consideration of this ownership interest, NAOF will infuse $10,000,000 of cash in two $5,000,000 tranches. AMC will grant exclusive distribution rights for AMC products in North America, Eastern Europe, the Russian Federation and Commonwealth of Independent States, and Asia-Pacific; nonexclusive distribution rights for AMC products in South America; and discounted pricing for the purchase of AMC products to be sold and/or leased through AFC or its assignee. Additionally, AFC will issue to NAOF and AMC up to 1,000,000 shares of the Company's Series B Preferred at $20 per share. The Series B Preferred converts into 10 shares of the Company's Common Stock for each one share of preferred stock at the holders option reflecting a price per share of Common Stock of $2.00 per share. Additionally, the Series B Preferred has a liquidation preference of $2.00 per share. The proforma effect on stockholder's equity, net of estimated transaction related costs, if all the transactions described above are executed, would result in an increase in stockholders' equity from $257,000 to $19,257,000 as of March 31, 1998. In anticipation of the successful completion of the above transaction, the Company commenced its investment in the operation of AFC. Accordingly, the Company infused approximately $450,000 in cash to successfully transact certain leasing transactions. The funds were used to purchase vehicles from AMC which were then leased to end user customers. 8 The Company's ability to underwrite equipment lease transactions is dependent upon the availability of short-term warehouse lines of credit. Management is engaged in continuing dialogue with several inventory lenders that can provide 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 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. Delays in remarketing caused by various market conditions reduce the profitability of the remarketing. The Company anticipates it will continue to dedicate substantial resources toward the further development and improvement of its remarketing capabilities and believes that remarketing will continue to be a profit center for the Company. 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 and also to create a dealer capability under which the Company would buy and resell fleet equipment. The Company is also implementing a plan to expand its brokerage activities through the Internet and the use of other information technologies. The Company's renewal or replacement of recently 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 nonrecourse), 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 replace its recently expired lines of credit, 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. 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, net income to the extent sales proceeds exceeds net book value, during the quarter in which the sale occurs. Furthermore, any such sale may result in the reduction of revenue, and net 9 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 the following legal proceedings: The Company was named as a defendant along with the Chairman of the Board and an affiliate of the Chairman in a suit brought by Ernest Rolls, the former Vice-Chairman, on February 5, 1998. The suit brought by Mr. Rolls alleges that the Company is in default on the payment of $2.7 million, which Mr. Rolls claims he loaned to the Company. It is the Company's position that $1.5 million of the loan has been repaid to Mr. Rolls and that the balance is subject to offsets and counterclaims by the Company. The Company has removed the case to federal court and has filed an answer. The Company intends to file a counterclaim against Mr. Rolls. The Board of Directors of Chancellor Corporation voted to remove Mr. Ernest L. Rolls as a Director and Vice Chairman of the Board effective March 10,1998. The reasons cited by the Board for removing Mr. Rolls included breach of his fiduciary duties of care and loyalty, Mr. Rolls' suspected self-dealing and his failure to provide a total of $7.5 million in financing that he represented to the Board he would provide. The Board also believed that a suit filed by Mr. Rolls was an attempt by Mr. Rolls to jeopardize the Company's strategic alliances and other activities that are currently being negotiated, including, but not limited to, the Company's international expansion plans. The Company is also 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 - None (b) Reports on Form 8K - None. Chancellor Corporation 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 Brian M. Adley Chairman of the Board and Director (Principle Executive Officer) /s/ Jonathan C. Ezrin Jonathan C. Ezrin Corporate Controller (Principle Accounting Officer) DATE: May 14, 1998 EX-27 2
5 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 456 0 297 0 0 0 2,268 (1,363) 6,736 5,656 0 0 87 170 0 6,736 682 682 0 655 0 0 21 27 0 27 0 0 0 27 0.00 0.00
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