SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB

Commission File Number 0-11663

Chancellor Corporation
(Name of Small Business Issuer in its Charter)

Issuer's Telephone Number, Including Area Code (617) 368-2700

Securities registered under Section 12(g) of the Exchange Act:

(Title of Class)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]

Check if there is no disclosure of delinquent filers pursuant in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]

Issuer's revenues for the year ended December 31, 1999 were approximately $62,272,000.

Aggregate market value of the registrant (inclusive of Series B shares) was approximately $51,082,000 as of March 30, 2000.

As of March 30, 2000, 58,795,000 shares of Common Stock, $.01 par value per share and 350,000 shares of Series B Convertible Preferred Stock ("Series B"), $.01 par value per share were outstanding. The Series B shares convert into common on a 1 for 10 basis (3,500,000 in total) and have a liquidation preference of $20.00 per preferred share or $7,000,000 in the aggregate. Market value of the voting stock held by non-affiliates of the registrant as of March 30, 2000 was approximately $10,183,000.

Proxy Statement for the Annual Meeting of Stockholders to be held at 2:00 p.m. on June 30, 2000 at the offices of Bingham Dana, LLP, 150 Federal Street, Boston, MA 02109 - Part III

This Annual Report on Form 10-KSB 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.

ITEM 1. Description of Business.

Chancellor Corporation ("Chancellor" or the "Company") was incorporated in Massachusetts in January 1977. It is principally engaged in (1) wholesale and retail used transportation equipment sales through its wholly owned subsidiary, Chancellor Asset Management. (CAM), which was incorporated in Massachusetts in 1998, (2) buying, selling, leasing and remarketing new and used transportation equipment, (3) managing equipment on and off-lease, and (4) arranging equipment-related financing through its principal subsidiary, Chancellor Fleet Corporation ("Fleet") which was incorporated in Massachusetts in January 1980.

The Company originates lease transactions directly with equipment users and in most cases sells those leases to investors and/or may hold for its own account. The Company also manages most of the leases it sells to investors and, when the original leases expire or terminate, remarket the equipment for the benefit of the investors and the Company. The Company originates leases involving primarily transportation equipment, but also leases other equipment including material handling equipment and construction equipment. Investors who purchase equipment subject to a lease may receive the tax and most of the economic benefits associated with the lease transaction. In certain cases, the Company has retained leases for its own account. The Company also arranges non-recourse financing for some of the leases which it sells and for most leases which it has retained for its own account. Typically, when the Company originates leases, the investors or buyers of those leases are not known. Therefore, the Company at the time of entering into the lease transaction is "underwriting" the lease. At the expiration or early termination of the original lease, the Company typically sells or releases the equipment on behalf of the investor. To date, the Company has leased, re-marketed, or re-sold equipment with an original cost of over $1,500,000,000 ($1.5 Billion U.S.).

During the period 1989 through 1997, the Company incurred cumulative losses in excess of $56 million. The Company recorded a loss of $1,802,000 during fiscal 1997. This continued decline from 1989 through 1996 (inclusive of such losses) led the Company to the development and implementation of a restructuring and transition plan. This plan was developed and implemented under the direction of Vestex Capital Corporation, the Company's majority shareholder. The continued, but decreasing loss in 1997 was due primarily to the lack of sufficient cash flow to add new leases to the Company's own lease portfolio and continued costs that occurred in the first half of 1997 in connection with the Company's restructuring efforts. The Company virtually broke-even for Q3, 1997 with a loss of approximately $9,000, and the Company posted a profit for Q4, 1997. For the year ended December 31, 1998, the Company recorded a profit of $524,000, the first full year of profitability since 1988. The Company's return to profitability in 1998 reflects the culmination of new management's efforts and strategies to maximize remarketing of off lease transportation equipment and continued implementation of its strategy to expand its operations to retail used transportation equipment. The Company continues to develop and attempts to implement innovative financing and fleet management programs in the transportation equipment finance industry to further the Company's continued growth.

Chancellor Asset Management Inc. ("CAM"), a wholly owned subsidiary of the Company, entered into a Management Agreement, dated August 1, 1998, as amended August 17, 1998, with M.R.B. Inc., a Georgia corporation d/b/a Tomahawk Truck Sales; Tomahawk Truck & Trailer Sales, Inc., a Florida corporation; and Tomahawk Truck & Trailer Sales of Virginia, Inc., a Virginia corporation; and Tomahawk Truck & Trailer Sales of Missouri, a Missouri Company, and the management agreement provided CAM with effective control of Tomahawk's operations as of August 1, 1998. Subsequently, CAM acquired all of the outstanding capital stock of Tomahawk from the two (2) sole shareholders (the "Selling Shareholders") pursuant to a Stock Purchase Agreement (the "Agreement") dated January 29, 1999.

Tomahawk is engaged in a similar line of business as CAM. Tomahawk retails and wholesales used transportation equipment consisting primarily of tractors and trailers. Tomahawk operates seven (7) retail centers in Conley, Georgia; Richmond, Virginia; Pompano Beach, Florida; Orlando, Florida; Elizabeth, New Jersey; Dallas, Texas; and Kansas City, Missouri. Tomahawk also operates its wholesale division from the Conley, Georgia facility. Tomahawk operates as a wholly owned subsidiary of CAM, coordinating many operations with the Company to achieve operating efficiencies and synergies.

The purchase price paid by CAM consisted of 4,500,000 shares of Common Stock of Chancellor (valued at $.65 per share) and future cash consideration pursuant to an earn-out (the "Earn-Out") as provided for in the Agreement. The Earn-Out provides that each of the Selling Shareholders will be paid an amount equal to seven and one-half percent (7.5%) of the Adjusted Pre-Tax Earnings of Tomahawk. The Earn-Out, which is paid on a quarterly basis, begins in the fiscal year ended December 31, 1999 and ends in the fiscal year ended December 31, 2004. In connection with this Agreement, CAM loaned the Selling Shareholders a total of $300,000 pursuant to certain promissory notes payable that are payable in full on January 29, 2004. Additionally, Vestex Capital Corporation, the largest shareholder of the Company, is to receive up to $3,250,000 plus expenses, not to exceed $50,000, payable over the next six years for services rendered in finding, negotiating and arranging financing on the transaction as well as ongoing management and development of long-term growth strategies including initiation of possible acquisition and/or merger candidates. The final fee is based principally upon the financial impact and profitability that Tomahawk adds to the Company's operating results. Through 1999, Vestex received approximately $1,109,000 in fees, plus repayment of debt advanced to the Company, as well as fees for granting a line of credit advanced for the CAM subsidiary of up to $1,000,000 at prime plus 2%.

The Agreement also: i) nominates one of the Selling Shareholders as a director of Chancellor's Board of Directors; ii) elects both of the Selling Shareholders as directors of CAM's Board of Directors; iii) provides for Employment Agreements for the Selling Shareholders over a period of five years with base salaries of $200,000 per annum; iv) prohibits the Selling Shareholders from competing against CAM or Tomahawk, or soliciting former employees and customers of Tomahawk; v) provides for Tomahawk to lease from the Selling Shareholders the Conley, Georgia facility at fair market value rents of approximately $8,500 per month; and vi) provides CAM an option to purchase from the Selling Shareholders the Conley, Georgia facility for an amount not to exceed $950,000. Subsequent to year- end, the Company and the shareholders have entered into a definitive agreement. Final details are being confirmed and/or reviewed by legal counsel, however the purchase price is believed to be less than the $950,000 as discussed above. The Company plans to own the real estate, when closed, through a new subsidiary incorporated in 2000.

This Tomahawk acquisition was recorded in accordance with the purchase method of accounting as of January 29, 1999. In connection with this transaction, CAM assumed liabilities of approximately $11,200,000 and incurred acquisition costs of approximately $155,000. The excess of the purchase price over net assets of approximately $3,142,000 at December 31, 1999, including additional consideration since closing, has been recorded in intangibles and allocated between a covenant not to compete, customer database files and goodwill in 1999 and will be amortized over periods of five (5) to fifteen (15) years beginning February, 1999.

In August 1997, the Company committed to make a $1,000,000 ($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. In addition to Chancellor, some of the limited partners within the fund include, but are not limited to, Sun America, Northwestern, Citicorp, and others. The purpose of the fund is to make direct investments in emerging companies throughout Africa. As of December 31, 1999, the Company had funded approximately $469,000 and is obligated to provide additional funding in the approximate amount of $531,000. As further described in footnote 13, the company has additionally invested up to 15.1% into one of NAOF's investee companies. The Company continues to negotiate further strategic opportunities with this investee company.

During a prior year, the Company undertook a review of its trust portfolio, including consultation with legal counsel, an International "Big Five (5)" Independent public accounting firm, and industry consultants and determined that it had not been recovering costs associated with administering the trusts. Management's initial 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 $972,000 and $1,498,000 of cost recoveries in the years ended December 31, 1999 and 1998, respectively. For periods prior to 1998, $2,862,000 was recovered. Thus, to date, the Company has recovered in excess of $5,300,000. Management makes no representations concerning the Company's ability to recover any further costs for periods prior to 1997. Further recoveries for periods prior to 1997 and thereafter are contingent upon the current status of the specific trusts and the Company's level of recovery efforts.

The ability of the Company to profitably operate its lease origination business unit in the future will depend largely on the amount of new capital available to the Company and the cost of that capital. In addition, the success of the Company's remarketing and retailing of used transportation equipment will result, in part, from its ability to locate sources of quality used transportation equipment and expansion of its distribution channel through siting of potential new retail facilities. The Company continues to explore possible sources of new capital including, for example, obtaining new or additional recourse debt, obtaining new equity capital, securitizing lease transactions, obtaining equity capital from private investors, purchases of equipment leases originated by the Company and/or entering into strategic alliances/joint ventures with other leasing or financial services companies and the sale of ancillary business units and/or assets as considered appropriate. The Company also utilizes an expansive database of over 75,000 sources and customers of used transportation equipment. This effort is on going and includes a fully staffed telemarketing group to continually upgrade and add new sources and users of transportation equipment. Additionally, the Company's management has established a retail facility expansion program which investigates potential new sites that can be developed internally as well as acquisition candidates. The Company intends on investing any new capital that it obtains in leases for its own portfolios (if practical), expansion of its remarketing and retail/wholesale operations, general working capital purposes, and other activities or operations as determined by management and/or the board of Directors.

The majority of the Company's leases are noncancelable "net" leases which contain provisions under which the customer must make all lease payments regardless of any defects in the equipment and which require the customer to insure the equipment against casualty loss, and pay all related property, sales and other taxes. Some of the leases written by the Company provide for early termination options. Generally, these options may be exercised at specified times upon receipt by the Company of an amount at least equal to the discounted present value of remaining rent payments. The Company intends to collect all termination payments. Other leases allow the lessee at certain times to require the Company to attempt to sell or sublease the equipment for the lessee, with the Company sharing in any losses or gains should a decrease or increase in revenue streams occur as a result.

Leases are generally originated for private third party purchasers of equipment. The Company's lease origination marketing strategy is transaction driven. With each lease origination opportunity, the Company evaluates both the prospective lessee and the equipment to be leased. With respect to each potential lessee, the Company evaluates the lessee's credit worthiness. With respect to the equipment, the Company evaluates the remarketing potential.

The Company currently concentrates on leasing transportation equipment, such as tractors, trailers and trucks. The Company also leases construction equipment, aircraft, material handling equipment and other equipment. The Company's long term business plan will also consider diversification of the equipment available to be financed. This potential diversification will provide for the financing of low-obsolescence, hard-asset equipment with predictable and dependable residual values, including but not limited to, plastics, printing, construction and general manufacturing equipment. Further, the Company will seek to syndicate transactions not meeting these criteria or the Company's credit risk profile.

The Company leases equipment to lessees in diverse industries throughout the United States. Although the Company's direct solicitation efforts involving leases of new equipment have shifted from Fortune 100 companies to include smaller business entities, most of the Company's lessees of new equipment are still of substantial creditworthiness, with minimum net worth in excess of $25 million. Some of the Industries the Company participates in include; aircraft/aerospace, agricultural, automotive, beverage/bottling, chemical/pharmaceutical, consumer goods, electronics, food distribution, hotels & entertainment, industrial, paper & textiles, petroleum, retail/apparel, and transportation. Customers within these industries include; Purdue, Tyson Farms, Ford Motor, Daimlerbenz, Coors, Coca-Cola, Dow, Walmart, Whirlpool, Texaco, Alliant Food Service, and others.

During 1999, the Company continued its lease originating activities, including brokering of new lease transactions. The Company also transacted several significant buyouts of portfolios held by certain trust investors. During 1999, 67% (based on original equipment cost) of the new lease transactions originated by the Company were with one large lessee. During 1998, 31% (based on original equipment cost) of the new lease transactions originated by the Company were with the one largest lessee (Wal-Mart). In addition, approximately 40% and 31% (based on original equipment cost) of equipment sold to investors in 1998 were purchased by the two largest investors.

The Company acquired $4.2 million of equipment under 40 leases during 1999. The Company acquired $5.5 million of equipment under 40 leases during 1998.

In 1999, the Company disposed of $1.1 million of portfolio equipment (measured by its original cost) on operating leases and disposed of $310,000 on direct finance leases. The total equipment (net of depreciation, pay-down and write-downs) on operating leases and direct finance leases increased in 1999 to $4.2 million and $376,000, respectively. In 1998, the Company disposed of $6.8 million of the Company's portfolio equipment (measured by its original cost) on operating leases and disposed of $139,000 on direct finance leases, reducing the total equipment (net of depreciation, pay-down and write-downs) on operating leases and direct finance leases to $702,000 and $359,000, respectively.

The remarketing of equipment plays a vital role in the operations of the Company. The Company's remarketing efforts are directed through Chancellor Asset Management, Inc. ("CAM"), the Company's wholly owned subsidiary.

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 not only to the realization of the Company's interest in the residual value but also for the Company to recover its original investment in the equipment in its portfolios and to recognize a return on that investment.

The Company continues to dedicate substantial resources towards the development and improvement of its remarketing capabilities, which is a significant profit center for the Company. The Company's strategy is to exploit its remarketing expertise by providing fee-based remarketing services to fleet equipment owners and lessees and also to create a dealer capability under which the Company would buy and re-sell fleet equipment. The Company continually explores the potential for financing relationships enabling the remarketing group to enter into transactions to purchase used transportation equipment which can be quickly and profitably remarketed.

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 remarketing.

Remarketing efforts are pursued on a direct retail sale, wholesale or lease basis. The Company's fleet equipment remarketing experience has shown that generally the greatest residual value is realized by initially re-leasing equipment, rather than immediately selling it. Therefore, the Company has concentrated its remarketing efforts on re-leasing, although re-leasing involves more risks than selling because lessees of used equipment are generally smaller, less creditworthy enterprises than the Company's initial lessees. The Company sells fleet equipment through its retail sales center located in Elizabeth, New Jersey. Additionally, the Company uses indirect retail sales centers in California, Georgia, Illinois, Florida, Missouri, and Texas.

As previously mentioned, CAM acquired Tomahawk for purposes of enhancing its remarketing of used transportation equipment. The acquisition of Tomahawk provides the Company with six (6) additional retail centers in Conley, Georgia; Pompano Beach and Orlando, Florida; Richmond, Virginia; Dallas, Texas; and Kansas City, Missouri, in addition to its previously existing location in Elizabeth, New Jersey. The Dallas, Texas location was opened in Q3, 1999 and the Kansas City location was opened in Q4, 1998. Tomahawk also provides additional wholesale opportunities from its Conley, Georgia headquarters. The Company will derive significant revenues from the retail and wholesale of used transportation equipment through CAM's Tomahawk business unit. In addition, the Company's ability to utilize retail pricing to establish residual values on lease transactions will provide the Company with a competitive advantage in its retail centers throughout the domestic marketplace. CAM maintains an extensive database of used equipment sources and customers and continually updates this information through a fully staffed telemarketing group.

The principal methods by which the Company competes are its ability to underwrite the lease transactions which it originates; its knowledge of the equipment used by its lessees; the training and experience of its personnel; the relationships and reputation it has established with lessees, equipment suppliers and financial institutions; its ability to adapt to changing regulations and tax laws; and its experience in successfully remarketing the equipment at lease termination. Additionally, the Company's ability to provide in-house retail distribution channels provides advantages in establishing pricing for lease origination transactions and improving overall fleet management and total holding costs for the customer.

The equipment leasing business, on a global basis, is a highly competitive, fragmented marketplace with thousands of competitors. The Company has identified emerging markets such as Russia, the Commonwealth of Independent States, the Republic of South Africa, the Kingdom of Swaziland, and other sub-Saharan countries. These emerging markets hold significant opportunity to provide financial services, such as leasing, that the Company will continue to explore as resources and opportunities permit, however, the primary focus remains within the United States. The Company is aggressively pursuing the transacting of lease deals and negotiation of strategic alliances in these markets. Chancellor's competitors include (1) large diversified financial services companies, (2) other leasing companies and (3) vendor financing programs. Many of these organizations have greater financial resources than the Company and, therefore, may be able to obtain funds or equipment on more favorable terms than those available to the Company. Additionally, the Company competes against other financing alternatives available to lessees for the purchase of equipment.

The Company's strategy is to continue in a profitable manner, increase market share, and create growth opportunities by expanding its core business through servicing of investment grade and middle market clients, joint ventures with financial institutions, expanding its used transportation equipment retail and wholesale distribution channel, expanding into new transportation and equipment markets and seeking strategic financial partnerships and joint ventures domestically and internationally.

Historically, the Company focused its efforts on Fortune 100 companies. The Company implemented a plan to broaden the focus of its transportation equipment and remarketing expertise by expanding the number of customers within its target market. The Company will broaden its scope of lease origination activities to include middle market clients with a variety of transportation equipment requirements. The strategic decision to target middle market origination activities is expected to result in higher gross margins while utilizing the Company's twenty years of historical equipment residual performance. The Company will leverage off of its expertise allowing entry into emerging international markets seeking these basic financial services in their economic development.

The Company enjoys a reputation as one of the premier transportation equipment remarketers in the industry. The Company believes there is a significant opportunity to offer lease and rental companies, finance companies, utilities, financial institutions, municipalities, and transportation companies an outlet for their used equipment other than the traditional low-end auction channels. The Company further believes the acquisition of Tomahawk will enhance the distribution of this equipment at lease expiration.

The Company also perceives significant opportunities for its services in international markets. Additionally, the Company can benefit from higher margins in less competitive international markets. The Company has completed certain lease transactions in the Russian Federation and the Commonwealth of Independent States ("Russia and the CIS"). In addition, the Company has made investments with certain parties that both invest in and operate companies in the Republic of South Africa ("RSA"), the Kingdom of Swaziland and other sub-Saharan countries. The Company continues to evaluate the potential for providing additional financial services in the RSA as a result of the strategic alliances established.

Since the change in management and Board control on December 3, 1996 the Company closely scrutinizes transactions to maximize profitability. As a result of the restructuring, which was completed in 1997, and a move towards concentrating on profit centers, the Company has established a foundation upon which future profitable business expansion can be achieved. As an outgrowth of the Company's core transportation leasing business, several acquisitions are being evaluated that provide for vertical and horizontal integration into businesses that utilize similar back office operations.

The expansion of the Company's core business through the acquisition of and merger with complementary businesses within the financial services and transportation industries will be an ongoing strategic focus. The implementation of this strategy involves members of senior management and outside professionals reporting to a Mergers and Acquisitions subcommittee of the Board of Directors. This group is constantly evaluating a variety of domestic and international leasing companies and related opportunities, for potential alliances and/or business combinations.

The Company, through an affiliate acquired from Afinita Motor Corporation (Pty) Ltd., ("AMC) the exclusive worldwide distribution rights for products manufactured/assembled by AMC, excluding Africa, England, Scotland and Wales. AMC is one of South Africa's largest manufacturer/assembler of trucks, tractor-trailers, buses, automobiles, sport utility vehicles ("SUV), motorcycles, and other products supplied by AMC. The Company is currently evaluating various methods to utilize these rights, along with direct and indirect commissions the Company may receive with these products. A long-term plan is to directly re-sell/market these rights and/or products within this exclusive territory.

The Company has completed 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.

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. To date, the Company has spent approximately $400,000 in modernizing its IT system, including compliance with Y2K requirements. The Company anticipates spending approximately $300,000 during fiscal 2000 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. No significant operational deficiencies have arisen from the Y2K issue.

Through implementation of a strategy allowing for penetration of investment grade and middle market, as well as Fortune 100 customers, the Company will broaden its target market to a less competitive and price sensitive arena. The Company will focus its energies domestically and internationally on the multi-billion dollar leasing marketplace. The ability of the Company to originate and remarket equipment in underdeveloped and inefficient markets translates into higher potential rates of return. Additionally, the willingness of the Company's strategic financial partners to augment the Company's deal underwriting capabilities provides financial strength to execute transactions.

The used transportation equipment market also presents one of the most fragmented markets available. Dominated by local dealers and manufacturer remarketers, the used transportation equipment market presents Chancellor an opportunity for consolidation in this industry. The Company's management believes that a significant opportunity exists to offer lease and rental companies, finance companies, utilities, municipalities, and transportation companies a retail outlet for their used equipment as opposed to the current wholesale and auction outlets currently used.

The Company also views its efforts to be a global originator/remarketer of transportation and non-transportation equipment as an element to its corporate growth strategy over the next 5 to 7 years. The additional international revenue streams, where margins are significantly higher than the domestic market, will help facilitate the Company's goal of increasing profitability. Exposure on these transactions will be mitigated through the use of credit enhancement, letters of credit and other similar instruments. The Company's management is committed to a strategy providing for international diversification within emerging global markets.

Additionally, the Company has made significant progress in establishing a presence in the Republic of South Africa ("RSA") as a premier financial services company in this region. The Company's efforts as a key contributor in the economic development of the RSA are demonstrated indirectly through an investment in the New Africa Opportunity Fund, LP ("NAOF.) Additionally, during 1999, the Company invested in and acquired up to 15.1% of one of NAOF's investee companies as well as obtained worldwide distribution rights excepting certain countries for its products..

As a result of its strength in the management of assets, the Company has a unique opportunity to originate and/or remarket long-lived assets in the international marketplace. As continued emphasis is placed on projects to rebuild and improve infrastructure, the need for capital equipment in these international markets is expected to grow.

The Company's fully integrated sales and marketing departments are headquartered in Boston, Massachusetts, with a satellite office located in New York City, New York. The Company maintains retail used transportation equipment centers in Conley, Georgia; Pompano Beach, Florida; Orlando, Florida; Richmond, Virginia; Dallas, Texas; Kansas City, Missouri; and Elizabeth, New Jersey. A direct sales staff and telemarketing program supports a national network of sales representatives.

Because of tax and investment considerations, investors frequently defer their decisions to purchase lease transactions until after the first half of the calendar year.

In April 1999, the Company employed approximately 90 persons on a full time basis. As of March 30, 2000, the Company employed approximately 107 persons on a full time basis. Pending adequate financial resources, the Company expects to hire a number of sales and marketing people to support its plan to re-establish its origination business and service planned development or acquisition of additional dealerships.

ITEM 2. Description of Property.

The Company leases an office facility in Boston, Massachusetts. This facility houses the Company's administrative, financing and marketing operations. The Boston, Massachusetts lease is for a non-cancelable period of five years, with a five-year renewable period at fair market value. The lease has two and a half years remaining in the original term as of December 31, 1999, with a base rent of approximately $11,000 per month. The Boston, Massachusetts facility adequately provides for present and future needs, as currently planned. The Company also leases offices in New York and Nevada on a month to month basis.

The Company also leases seven (7) other retail locations in the following states; Florida, Georgia, New Jersey, Texas, Missouri, and Virginia. Total lease commitments at December 31, 1999 wre aproximately $33,000 per month. Subsequent to year- end, the Company and the former Tomahawk shareholders have entered into a definitive agreement to purchase the Conley, Georgia location. Final details are being confirmed and/or reviewed by legal counsel, however the purchase price is believed to be less than $950,000. The Company plans to own the real estate, when closed, through a new subsidiary incorporated in 2000.

ITEM 3. Legal Proceedings.

As of 12/31/99, all material litigation involving the Company has been settled and grievances have been resolved. 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 4. Submission of Matters to a Vote of Security Holders

None.

ITEM 5. Market for Common Equity and Related Stockholder Matters.

The Company's Common Stock has traded on the NASDAQ OTC Electronic Bulletin Board under the symbol "CHLR" since August 21, 1996 and under the symbol "CHCR" between January 28, 1994 and August 21, 1996 on the basis of actual trading prices. The Company's Common Stock had traded from June 30, 1992 to January 28, 1994 on the Small Cap Market of the Automated Quotation System of NASDAQ on the basis of actual trading prices.

The following table sets forth the high and low sales prices of the Company's Common Stock for the periods indicated, according to published sources.

On March 30, 2000, there were approximately 700 beneficial owners of the Company's common stock. The Company has not paid or declared cash dividends on its common stock during the periods indicated and does not currently intend to pay cash dividends on its common stock for the foreseeable future.

Revenues. Total revenues for the year ended December 31, 1999 was $62,272,000 as compared to $10,708,000 for the prior year, an increase of $51,564,000 or 482.0%. For the year ended December 31, 1999, transportation equipment sales were $54,528,000 as compared to $6,165,000 sales for the corresponding prior year. The increase in revenue is attributable in part to the acquisition of Tomahawk, as well as the ongoing efforts of purchasing and selling of transportation portfolios. The Company will also utilize the competitive advantage provided by its access to retail pricing for residual values to aid in the ability to improve competitiveness within the Company's lease origination business unit. For the year ended December 31, 1999, rental income increased by $813,000 or 86.3% as compared to the prior year. The increase in rental income is attributable primarily to the addition of certain equipment acquired in connection with the purchase of several portfolios. For the year ended December 31, 1999, lease-underwriting income decreased by $47,000 or 63.5% as compared to the prior year. Lease underwriting income decreased due to a higher concentration of broker related activity that results in a lower overall revenue stream. The Company, however, continues to rebuild its lease origination process and plans the addition of key senior management and sales personnel, and development of strategic alliances to provide future growth in this area. For the year ended December 31, 1999, direct finance lease income decreased by $1,000 or 0.9%, as compared to the prior year. The decrease in direct finance lease income is attributable primarily to the lack of additions to its portfolio of direct finance leases in 1999. For the year ended December 31, 1999, gains from portfolio remarketing decreased by $501,000 or 36.5% as compared to the prior year. The decrease in gains from portfolio remarketing is attributable to the shift in revenue to sales of transportation equipment. For the year ended December 31, 1999, fees from remarketing activities increased by $2,848,000 or 164.8% as compared to the prior year. This significant increase is attributable, in part, to management's efforts to increase the level of activity in the sales of used transportation equipment. For the year ended December 31, 1999, other income increased by $67,000. Other comprehensive income was $49,000 for 1999 and $0 for 1998.

Costs and Expenses. Total costs and expenses for the year ended December 31, 1999 was $61,442,000 as compared to $10,184,000 for the prior year, an increase of $51,258,000 or 503.3%. The increase is primarily a result of the costs associated with sales of transportation equipment. The cost of transportation equipment sales was $43,802,000 for the year ended December 31, 1999 and resulted in an overall gross margin of 19.7%. Selling, general and administrative expenses for the year ended December 31, 1999 was $15,217,000 as compared to $3,949,000 for the corresponding prior year, an increase of $11,268,000 or 285.3%. For the year ended December 31, 1999, selling, general and administrative expenses included reimbursable administration costs of $972,000 as compared to $1,498,000 for the corresponding prior year. Before netting out the reimbursable administration costs, selling, general and administrative costs increased to $16,189,000 for the year ended December 31, 1999 as compared to $5,447,000 for the corresponding prior year, an increase of $10,742,000. The increase in selling, general and administrative expenses is due, in part, to the operating expenses of Tomahawk, as well as increases in technology spending and expenses incurred in start up operations in Missouri and Texas as well as costs incurred in acquiring investments in Tomahawk and South Africa in accordance with S.O.P 98.5.

Interest expense for the year ended December 31, 1999 was $802,000 as compared to $111,000 for the prior year, an increase of $691,000 or 622.5%. This increase is due primarily to the continued expansion of the Company's retail platform, and the floor planning lines of credit required to finance its equipment inventory as well as the cost to finance the operating lease portfolios purchased from the trusts and other financial institutions during 1999.

Depreciation and amortization expense for the year ended December 31, 1999 was $1,621,000 as compared to $477,000 for the prior year, an increase of $1,144,000 or 239.8%. This increase is primarily due to the amortization of excess purchase price of the Tomahawk acquisition, amortization of distribution rights acquired from AMC, depreciation on assets from operating leases, and the amortization of prepaid fees on the trust recovery and buyout projects. These costs are being amortized over periods from three (3) to fifteen (15) years.

Net Income. Net income after taxes for the year ended December 31, 1999 was $1,074,000 as compared to of $524,000 for the prior year, an increase of $550,000 or 105%. 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, the utilization of tax benefits generated from prior years net operating losses, and continued improvements in the containment of corporate overhead costs. Basic net income per share for the year ended December 31, 1999 remained at $0.02 per share. The earnings per share remains fairly constant due to the issuance of additional equity interests and/or an increase in the number of shares outstanding.

The Company recognized a net increase in cash and cash equivalents for the year ended December 31, 1999 of $492,000. Operating activities provided cash of $2,785,000 during the year ended December 31, 1999. Investing activities used cash of $9,441,000 during the year ended December 31, 1999. Financing activities provided cash of $7,148,000 during the year ended December 31, 1999 and is primarily a result of conversion of stock options and warrants and increases in debt required to finance its used equipment inventory as well as debt incurred to finance the buyout of certain lease portfolios. Cash and cash equivalents amounted to $1,104,000 at December 31, 1999 as compared to $612,000 at December 31, 1998, an increase of $492,000 or 80.4%.

The Company is provided management and consulting services by VMI, Corporation ("VMI") an affiliate of the Company's majority stockholder, pursuant to a consulting agreement approved by the shareholders at the 1995 Annual Meeting of the Stockholders, as amended in July 1998. VMI provides specified services including, but not limited to, general business consulting, the development and implementation of the Company's 1997 transition and turnaround strategies, development of domestic and international business opportunities and growth strategies, identification and development of strategic alliances, and support of merger and acquisition activity. VMI was paid approximately $1.1 million for consulting fees including reimbursement for expenses paid on behalf of the Company in the approximate amount of $170,000.

Vestex Capital Corporation ("VCC"), the major shareholder of the Company, provided specified services including debt and equity raising efforts, due diligence related to major acquisitions, and other services related to financing and investing activities. VCC is paid fees related to debt and equity transactions up to 3.0% and 7.5%, respectively, of the amount of financing raised in addition to related expenses. VCC provides additional services to the Company on operational and other matters for which it is compensated at levels negotiated with the Company.

During 1999, VCC investigated numerous strategic alliances and merger and acquisition opportunities on behalf of the Company. VCC was instrumental in the negotiation and management of the Company's financing, acquisition and investment efforts in the Republic of South Africa and other international opportunities. VCC was also instrumental in the development and implementation of the strategy to buy-out and acquire investment grade transportation equipment portfolios. As a result of this strategy, the Company acquired portfolios valued at an original equipment cost of approximately $35,000,000. The acquisition of these portfolios was further facilitated by VCC assisting in arranging approximately $8,000,000 of financing to effect the portfolio buy-out. VCC was also instrumental in recruiting and attracting key employees to the Company. Additionally, VCC provided these key employees warrants to purchase Chancellor common stock, beneficially owned by VCC and valued at approximately $1,752,300. VCC's activities provided sources of funding to the Company of approximately $6,500,000, and $300,000 for fees for services and reimbursable expenses, respectively, and converted into debt and equity instruments of the Company. In 1998, this included the purchase of 1,946,146 shares of the Company's common stock at a price of $.69 per share. During 1999 VCC infused directly over $3,250,000 into the Company in the form of cash and of stock purchases, and paid over $450,000 of expenses on behalf of the Company. VCC also exercised stock options valued at $2,000,000 during 1999. Vestex also guaranteed the debt of up to $1,000,000 for a line of credit with a financial institution for one of the Company's subsidiaries. VCC infused approximately $2,385,000 of cash and paid expenses of approximately $670,000 on behalf of the Company during 1998. As a result, in part, of VMI and VCC's activities and services provided, the Company's net worth increased to approximately $9,500,000 at December 31, 1999, to $2,362,000 at December 31, 1998, from $227,000 as of December 31, 1997 and from a negative net worth of approximately $9,446,000 as of December 31, 1996, as adjusted for stock issuance, direct equity infusions, contributions of related parties, and the results of discussion regarding the initial Vestex recapitalization of the Company during 1995.

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. 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 and retailing capabilities and believes that this business unit 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 will also expand its used transportation equipment retail and wholesale capabilities through addition of retail centers through internal growth and acquisitions. 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 both an improved outlet for other lessors, financial institutions, and fleet owners to dispose of used transportation equipment and a source 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 December 31, 1999, the Company had funded approximately $469,000 and is obligated to provide additional funding in the approximate amount of $531,000. As further described in footnote 13, the Company has additionally invested in and acquired up to 15.1% of one of NAOF's investee companies, plus acquired the worldwide distribution rights, excluding certain countries, to distribute the products manufactured by the investee company. The Company continues to negotiate further strategic opportunities with this investee company.

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 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 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.

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.

The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130 prescribes standards for reporting comprehensive income and its components. The implementation of this SFAS has no material effect on the Company's consolidated financial statements.

SFAS No. 131, "Disclosures About Segments of An Enterprise and Related Information", requires disclosures of certain information about the Company's operating segments on a basis consistent with the way in which the Company is managed and operated. SFAS No. 131 also requires disclosures about products and services, geographic areas and major customers. The adoption of SFAS No. 131 did not affect results of operations or the financial position of the Company but did affect the disclosure of segment information.

Start-up Costs. In April, 1998, AcSEC issued Statement of Position 98-5 "Reporting on the Costs of Start-up Activities" (SOP 98-5). SOP 98-5 requires costs of start up activities and organization costs to be expensed as incurred and is effective for fiscal years beginning after December 15, 1998.

Revenue Recognition In December, 1999, the Securities and Exchange Commission issued staff accounting bulletin No. 101("SAB101"), "Revenue Recognition in Financial Statements." SAB101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company will adopt SAB101 as required during the year 2000, and is evaluating the effect such adoption may have on its consolidated results of operations and financial position.

ITEM 7. Financial Statements.

The following documents are filed as a part of this report on Form 10-KSB:

All schedules have been omitted because they are inapplicable or the required information is included in the notes to the consolidated financial statements.

None.

The information required by Item 401 and 405 of Regulation S-B with respect to directors and executive officers of the registrant will be set forth in the Proxy Statement for the Annual Meeting of Stockholders to be held on June 30, 2000 and to be filed with the Securities and Exchange Commission by April 30, 2000, and is incorporated herein by this reference.

ITEM 10. Executive Compensation.

The information required by Item 402 of Regulation S-B with respect to executive compensation will be set forth in the Proxy Statement for the Annual Meeting of Stockholders to be held on June 30, 2000 and to be filed with the Securities and Exchange Commission by April 30, 2000, and is incorporated herein by this reference.

ITEM 11. Security Ownership of Certain Beneficial Owners and Management.

The information required by Item 403 of Regulation S-B with respect to security ownership of certain beneficial owners and management will be set forth in the Proxy Statement for the Annual Meeting of Stockholders to be held on June 30, 2000 and to be filed with the Securities and Exchange Commission by April 30, 2000, and is incorporated herein by this reference.

ITEM 12. Certain Relationships and Related Transactions.

The information required by Item 404 of Regulation S-B with respect to certain relationships and related transactions will be set forth in the Proxy Statement for the Annual Meeting of Stockholders to be held on June 30, 2000 and to be filed with the Securities and Exchange Commission by April 30, 2000, and is incorporated herein by this reference.

ITEM 13. Exhibits List and Reports on Form 8-K.

1. Exhibits:

8. Specimen of Final Form of Warrant to Purchase Common Stock of Chancellor Corporation issued by the Company on April 1, 1998 to VESTEX Capital Corporation.
9. Consulting Agreement, dated July 1, 1998, by and among the Company and VMI Corporation.

11. Stock Redemption Agreement, dated August 7, 1998, by and among the Company and VESTEX Capital Corporation.

23. Employment Agreement, dated October 1, 1998, by and among Chancellor Corporation and Franklyn E. Churchill.

11 Computation of Earnings per Share

1. Subsidiaries of the Company (incorporated by reference from Exhibit 21 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995).

1. Independent Auditor's Consent - Metcalf, Rice, Fricke and Davis

* Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.

Copies of these exhibits are available to stockholders of record at a charge of $.09 per page, plus postage upon written request. Direct requests to: Jon Ezrin, Treasurer, Chancellor Corporation, 210 South Street, Boston, MA 02111.

(b) Reports on Form 8-K:

The following table reflects the calculation of the earnings per share:

                                                                    In thousands, except share and per share data

INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors
of Chancellor Corporation

We have audited the accompanying consolidated balance sheet of Chancellor Corporation and subsidiaries as of December 31, 1999 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the years in the two year period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we 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 financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chancellor Corporation and its subsidiaries as of December 31, 1999 and the results of their operations and their cash flows for each of the years in the two year period ended December 31, 1999 in conformity with generally accepted accounting principles.

/s/ Metcalf Rice Fricke & Davis

Atlanta, Georgia

March 24, 2000

(In Thousands, Except Per Share Data)

Chancellor Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1999 AND 1998
(In Thousands)

CHANCELLOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1999

1. Business Organization and Significant Accounting Policies

Chancellor Corporation and Subsidiaries (the "Company") are engaged in (1) buying, selling, leasing and remarketing new and used equipment, primarily transportation, material handling and construction equipment, (2) managing equipment on and off-lease, and (3) arranging equipment-related financing. The Company's primary market has historically been the United States. During 1999 and 1998, the Company expanded its market presence to include activities in international markets such as the Republic of South Africa and Russia.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts, transactions and profits and losses have been eliminated in consolidation.

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These assumptions could change based on future experience and, accordingly, actual results may differ from these estimates.

Revenue Recognition

Transportation equipment sales - Revenues on transportation equipment sales is recognized in the period in which the sale is completed and title is transferred. Deposits on transportation equipment, that may be required under certain financing contracts, are shown as deposits on sales and included in accrued expenses.

Although transportation equipment is primarily sold with recourse, the Company may undertake certain limited obligations with respect to specific customers in case of default, referred to as limited recourse. Upon transfer of the asset sold with limited or full recourse, the Company accounts for the transaction as a sale, in accordance with the provisions of FASB Statement No. 125, "Accounting for transfers and Servicing of Financial Assets and Extinguishments of Liabilities". The Company's management has considered its history of repossession losses and has determined that no liability for recourse obligations is currently necessary.

Lease underwriting income - Lease underwriting fees arise from the sale of equipment leasing transactions and include cash underwriting margins and residual value fees. The excess of the sales price of equipment to an investor (including the assumption of any nonrecourse indebtedness) over its cost to the Company represents lease-underwriting fees. The Company typically arranges for the lease of equipment to a lessee and, in some cases for borrowings to finance the purchase of the equipment, assigning lease rentals to secure such borrowings on a nonrecourse basis. If the Company elects to sell the transaction (as opposed to retaining the transaction for its own portfolio), the equipment, subject to the lease and the borrowing (if any), is then sold to investors. Consideration for the sale of the leased equipment to investors is normally in the form of a cash investment.

Residual value fees arise from the sale of lease transactions to investors. These fees represent the Company's present value share of the future residual value of the leased equipment that the Company expects to realize upon successful remarketing of the equipment. The Company accounts for these transactions by booking the income during the period in which it is recognized.

Direct finance lease income - Lease contracts which qualify as direct finance leases are accounted for by recording on the balance sheet minimum lease payments receivable and estimated residual values on leased equipment less unearned lease income and credit allowances. Revenues from direct finance leases are recognized as income over the term of the lease, on the basis that produces a constant rate of return.

Operating leases (Rental Income) - Lease contracts, which qualify as operating leases, are accounted for by recording the leased equipment as an asset, at cost. The equipment is then depreciated on a straight-line basis over two to fifteen years to its estimated residual value. Equipment is further depreciated below its initial residual value upon release to its estimated revised residual value at lease expiration. Any changes in depreciable lives affect the associated expense on a prospective basis. Rental income from operating leases is recognized using a straight-line method over the initial term of the lease.

The Company is entitled to reimbursement of expenses incurred in the remarketing of certain equipment as outlined in various remarketing agreements. Pursuant to the terms of the trust agreements, the Company is permitted to charge the trusts for costs associated with administrating the trust and to recover expenses incurred in administering the trust. The reimbursement of these costs is recorded as a reduction of general and administrative expenses.

The Company reviews recorded residual values on an annual basis. Write downs in estimated residual values, due to declines in equipment value or the financial creditworthiness of individual customers and major industries into which the Company leases equipment, are recorded when considered other than temporary. The residual valuation is based on independent valuation of the equipment held under trust lease and its internal valuation assessments. The Company also reviews current market analyses and trends of the industry for comparative valuations.

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents.

A primary credit risk includes financing for high-credit-risk customers. The Company, as is common in this industry, obtains financing for the customers from outside financial institutions that specialize in this type of high-credit risk customers primarily with no recourse. The Company may undertake certain limited obligations with respect to specific customers with these financial institutions in case of customer default, referred to as limited recourse. However, should a sale without recourse be obtained by a credit application which contains misrepresentation to the financing company, via the Company or customer, then that sale can be reclassified as a sale with recourse and become an obligation of the Company. As discussed in the summary of accounting policies of this report, the Company records limited and full recourse sales in accordance with the provisions of FASB Statement No. 125. As of December 31, 1999, the Company's has sold approximately $1,849,000 with limited or full recourse. The Company's management has considered its history of repossession losses and has determined that no liability for recourse obligations is currently necessary. Concentrations with respect to trade receivables are limited because the Company's client base is made up of a large number of geographically diverse clients.

The Company maintains its cash balances in several banks. The Federal Deposit Insurance Corporation insures up to $100,000 of the balances held by each bank. The Company also has arrangements whereby the funds in excess of specified cash balances are invested in overnight repurchase agreements and such overnight investments are collateralized by high-grade corporate debt securities. As of December 31, 1999, the uninsured portion of the cash balances held at banks was approximately $825,000, of which $520,000 was invested in overnight repurchase agreements.

All inventories are valued at the lower of cost or market. The cost of transportation equipment, including reconditioning parts and other direct costs, is determined using the specific identification method.

Furniture and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, typically 3 to 7 years. Leasehold improvements are amortized over the lease term.

Intangibles primarily consist of goodwill and distribution rights, which are being amortized over an estimated life of three (3) to fifteen (15) years using the straight-line method.

Tomahawk excess purchase price - The acquisition of MRB, Inc. was accounted for under the purchase method of accounting. As previously reported in the April 1999 10-KSB, the purchase price paid by CAM consisted of 4,500,000 shares of Common Stock of Chancellor valued at $.96 cents per share. The excess purchase price of $3,142,000 as of December, 1999 consisted of said shares valued at $.65 cents per share, less net worth plus earn-out payments accrued during 1999, which has been allocated between a covenant not to compete, customer database files and goodwill in 1999 and will be amortized in the beginning of February, 1999 over a period of five to fifteen years.

Certain reclassifications have been made to the 1998 financial statements to conform to the 1999 presentation.

	December 31,
	1999

Notes receivable		$ 202
Receivables from trust, net		1,036
Loans receivable		84
Trade receivable		1,683
Accrued rents receivable, net		47
Interest receivable		4
Contracts receivable		1,098
		$ 4,154

Years ending December 31:

	December 31,
	1999

Minimum lease payments receivable		$ 458
Estimated unguaranteed residual values of leased equipment, net		39
Less: Unearned income		(121	)
		$ 376

	December 31,
	1999

Transportation equipment		$ 5,404
Other equipment		635
		6,039
Less - accumulated depreciation		1,887
		$ 4,152

2000		$ 166				$ 1,059
2001		161				633
2002		97				202
2003		34				111
Thereafter		---				175
		$ 458				$ 2,180

5. Accounts Payable and Accrued Expenses:

	December 31,
	1999

Trade accounts payable		$ 2,227
Payables to investors		883
Contribution payable to New Africa Opportunity Fund		531
Accrued commissions payable		725
Accrued legal and accounting fees		189
Accrued interest payable		123
Commitment Fees		183
Accrued Income Taxes		70
Accrued Other Taxes		40
Accrued Earn out Fees		217
Accrued Other Expenses
		$ 5,444

Years ending December 31:
2000		$ 88
2001		91
2002		13
		$ 192

	December 31,
	1999

Promissory note payable to the Company's majority stockholder, bearing interest at the prime rate (8.50% at December 31, 1999) plus 2%, principal and accrued interest payable December 31, 2002, secured by substantially all of the assets of the Company.		$ 586
Subordinated promissory note payable to a former stockholder of the Company, bearing interest at the prime rate (8.5% at December 31, 1999) plus 1%, principal and accrued interest payable on demand.		200
Promissory note payable to a financial institution, bearing interest at 10%, monthly payments of $64,400 January 2000 through April 2000, $55,500 May 2000 through July 2000, and a balloon payment of $1,842,000 due August 2000, secured by the equipment and lease contracts associated with the note payable.		2,123
Promissory note payable to a financial institution, bearing interest at the average of the one (1) and two (2) month London Interbank Offered Rates (5.99% at December 31,1999) plus interest through July 2000, secured by the equipment and lease contracts with the note payable.		1,206
Promissory note payable to an insurance institution, bearing interest at 8%, principal and accrued interest payable if the note amount exceeds the cash value of the associated life insurance policy, secured by an adjustable whole life policy insuring certain officers of the Company.		291
Promissory note payable to a financial institution , bearing interest at the prime rate (8.50 % at December 31, 1999) plus 2%, principal and accrued interest payable January 31, 2000, secured by guarantee of Vestex Capital Corporation and Brian M. Adley.		900
Equipment line of credit with one leasing company, monthly payments of $502 expiring November 2002		14
		5,320
Less - current portion		4,725
		$ 595

Years ending December 31:

	December 31,
	1999

Revolving Bridge loan payable to a financial institution providing For maximum borrowings up to $400,000 for working capital Purposes, interest payable monthly at the rate of 10.5% per annum, principal balance due on March 27, 2000.		380
Various notes payable to a financial institution, payable in Monthly installments of $2,753 including interest at rates of 9 and 10 percent per annum, due from September 2001 to May 2003, secured by automobiles and equipment.		69
		449
Less - current portion		407
		$ 42

Aggregate annual maturities of notes payable as of December 31, 1999 are as follows (in thousands):

Years ending December 31:

	December 31	December 31
	1999	1998

Pro forma information As noted above The Company has elected to follow APB Opinion No. 25, Accounting Interpretation 1, "Stock Plans Established by a Principal Stock Holder", in accounting for the Warrants because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation", requires the use of option valuation models that were not developed for use in valuing these warrants. These warrants have been properly recorded within APB 25 and have resulted in approximately $42,000 and $939 compensation expense to the Company during 1999 and 1998, respectively. SFAS No. 123 requires the disclosure of pro forma net income (loss) and earnings per share as if the Company had adopted the fair value method as of the beginning of fiscal 1995. Under SFAS 123, the fair value of stock options to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the stock warrants. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly differs from the calculated values.

In October 1999, the Company, through an affiliate, closed on the acquisition of a 15.1% equity interest in Afinita Motor Corporation (Pty) Ltd. ("AMC"). AMC is a South African manufacturer/assembler of trucks, buses, automobiles, sport utility vehicles, and other products. This transaction and the related transaction surrounding certain distribution rights were acquired via a combination of the conversion of a note receivable including accrued interest from cash previously advanced, and the issuance of 250,000 shares of a newly created class of Series B Convertible Preferred Stock (the "Series B Preferred Stock").

In October 1999, the Company, through an affiliate, finalized several agreements that were made effective retroactive to June 30, 1999, with Afinta Motor Corporation (Pty) Ltd. ("AMC"). One such affiliate acquired the exclusive worldwide distribution rights for products manufactured/assembled by AMC, excluding Africa, England, Scotland and Wales. AMC is a manufacturer/assembler of trucks, buses, and other products. These distribution rights to the AMC product range include, but are not limited to trucks, tractor-trailers, buses, automobiles, sport utility vehicles, motorcycles, and other products supplied by AMC. The Company issued 100,000 shares of Series B Preferred Stock in the transaction.

The Series B Preferred Stock has a $20.00 per share liquidation preference and converts into common stock at a 1 for 10 basis, which will increase the shares used in computing diluted net income per share in future periods. Also, in conjunction with these investments, NAOF, a $120 million OPIC backed investment fund of which the Company has a 2.5% investment in, also extended its investment/commitment in AMC to $10,000,000. In addition to the Company, several of the other investors are Sun America, Inc., Citicorp, Northwestern Mutual Life and others..

A summary of other investments at December 31, 1999 consists of the following: