SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

|(Mark One) | [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE                
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|           |     | SECURITIES EXCHANGE ACT OF 1934                                     
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|           |     | For the fiscal year ended December 31, 1998                         
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|           |     |                                                                     
|           | [_] | 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(Name of Small Business Issuer in its Charter)





|Massachusetts                            | 04-2626079                          
|---------------------------------------- | ------------------------------------
|(State or Other Jurisdiction of          | (I.R.S. Employer Identification No.)
|Incorporation or Organization)           |                                     
|                                         |                                     
|210 South Street, Boston, Massachusetts  | 02111                               
|(Address of Principal Executive Offices) | Zip Code                            



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





|Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class |  | Name of Each Exchange on Which Registered
|---------------------------------------------------------------------------------- |  | -----------------------------------------
|None                                                                               |  | None                                     

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

Common Stock, par value $.01

(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, 1998 were approximately $10,708,000.

As of April 13, 1999,43,226,395 shares of Common Stock, $.01 par value per share and 5,000,000 shares of Series AA Convertible Preferred Stock, $.01 par value per share (with a liquidation preference of $.50 per share or
$2,5000,000) were outstanding.  Aggregate market value of the voting stock held by non-affiliates of the registrant as of April 13, 1999 was approximately $9,332,000.  Aggregate market value of the total voting stock of the registrant as of April 13,1999
was approximately $28,367,000.



DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement for the Annual Meeting of Stockholders to be held at 2:00 p.m. on June 25, 1999 at the offices of Bingham Dana, LLP, 150 Federal Street, Boston, MA 02109 - Part III

This Annual Report on Form 10-KSB-A 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.





PART I



ITEM 1.     DESCRIPTION OF BUSINESS



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



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; Tomahawk Truck & Trailer Sales of Virginia, Inc., a Virginia corporation; 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.



In addition to having effective control of Tomahawk as of August 1998, the Company had also contractually committed to significant liabilities in excess of $11,194,000.  The Company completed additional due diligence through the
remainder of the year and effected a formal closing in January 1999.  The Company had initially filed its 1998 10-KSB on April 14, 1999, whereby the Company included Tomahawk in its consolidated financial statements.  Upon additional review and
discussions with the Securities and Exchange Commission, the Company has filed this amended 10-KSB-A to reflect the financial statements without Tomahawk as of August 1998, and recorded the transaction as of January, 1999. In an effort to reflect the
transaction on a pro forma basis as initially recorded, please see footnote 18 to the financial statements.





HISTORICAL BUSINESS AND FISCAL YEAR 1998 SIGNIFICANT DEVELOPMENTS



The Company originates lease transactions directly with equipment users and in most cases sells those leases to investors.  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 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.



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.  The continued decline from 1989 through 1996 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.  For the year ended December 31, 1998,
the Company recorded a profit of $524,000, the first 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 equipment and
fully implement 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; Tomahawk Truck & Trailer Sales of Virginia, Inc., a Virginia corporation; 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, primarily tractors and trailers.  Tomahawk operates five (5) retail centers in Conley, Georgia; Richmond, Virginia;
 Pompano Beach, Florida; Orlando, Florida; and Kansas City, Missouri.  Tomahawk also operates its wholesale division from the Conley, Georgia facility.  Tomahawk will operate as a wholly owned subsidiary of the Company, 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.  Investment funding 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 $500,000 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.  The final fee is based principally upon the financial impact and profitability that Tomahawk adds to the Company's operating results.





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.



This transaction was recorded in accordance with the purchase method of accounting as of January 29, 1999.  As a result of the effect on the transaction of the Management Agreement, the designated date of this transaction for accounting
purposes was initially August 1, 1998 but has been revised effective January, 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 $2,600,000 has been recorded in intangibles and 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 periods
of five to twenty years.



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, 1998, the Company had funded approximately $350,000 and is obligated to provide additional funding in the approximate amount of $650,000.  The Company has additionally invested approximately $1,340,000 into one of NAOF's investee companies.
The Company continues to negotiate further strategic opportunities with this investee company.



The Company undertook a review of its trust portfolio, including consultation with legal counsel and industry consultants, and determined that it had not been recovering costs associated with administering the trusts.  Management's
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 $1,498,000 and $994,000 of cost recoveries in the years ended December 31, 1998 and
1997, respectively.  For periods prior to 1997, $1,868,000 was recovered.  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.  Consequently, the Company will record any further recoveries as income in the period in which collection is assured.



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 through the investigation of 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, and other business operations.



Description of Business



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
business plan calls for diversification of the equipment available to be financed.  This 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.



During 1998, the Company continued its lease originating activities, including brokering of several new lease transactions.  The Company also transacted several significant buyouts of portfolios held by certain trust investors. 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.  During 1997, 92% (based on original equipment cost) of the new lease transactions originated by the Company were with the one largest lessee. In addition, approximately 55% and 37% (based on original
equipment cost) of equipment sold to investors in 1997 were purchased by the two largest investors.



Equipment Acquisition



The Company acquired $5.5 million of equipment under 40 leases during 1998.  The Company acquired $214,000 of equipment under 4 leases during 1997.  Additionally, the Company acquired 10 existing leases in connection with the
prepayment of the intercreditor loan in 1997.



Equipment Disposition



In 1998, the Company disposed of $6.8 million of 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.  In 1997, the Company disposed of $4.0 million of the Company's portfolio equipment (measured by its original cost) on operating leases and disposed of
$590,000 on direct finance leases, reducing the total equipment (net of depreciation, pay-down and write-downs) on operating leases and direct finance leases to $232,000 and $521,000, respectively. In 1997, the Company, as a result of a commitment from
the previous management and board, sold $1,300,000 (based on original cost) of equipment under one lease from the portfolio prior to lease expiration.



Remarketing Activities



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 and Texas.



Retail and Wholesale Activities

As previously mentioned, CAM acquired Tomahawk for purposes of enhancing its remarketing of used transportation equipment.  The acquisition of Tomahawk provides the Company with five additional retail centers in Conley, Georgia; Pompano
Beach and Orlando, Florida; Richmond, Virginia; and Kansas City, Missouri, in addition to its previously existing location in Elizabeth, New Jersey.  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.



Equity Syndications



The Company sold certain lease transactions to private investors through the sale of interests in grantor trusts.  In the grantor trust structure, the equipment is acquired directly by the trust and the related lease is transferred
to the trust.  The Company or one of its subsidiaries usually acts as trustee and in that capacity holds title to the equipment and performs specified administrative functions for which it is entitled to receive reimbursement for costs incurred.  The
Company typically sells equipment directly to an investor.  The Company receives fees upon these sales.  In addition, the Company often shares with the investor in the residual value derived from the remarketing of equipment at lease expiration or early
termination.  The Company sold approximately $3 million of equipment to private investors during 1997.  There were no sales of equipment using grantor trusts in 1998.  Although the Company will continue its efforts to syndicate lease transactions, it does
not envision the use of grantor trusts in future transactions.



Competition



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.  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.



BUSINESS PLAN



The Company's strategy is to increase profitability, increase market share, and create growth opportunities by expanding its core business through servicing middle market clients, 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, 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.  In 1997, the Company 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.





Business Expansion



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 strong 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.



In 1997, the Company instituted an aggressive mergers and acquisition strategy, seeking candidates providing vertical and horizontal opportunities within the areas of commercial, consumer and real estate finance.  The expansion of
the Company's core business through the acquisition of and merger with complementary businesses within financial services 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.



Year 2000 Disclosure



The Company has commenced efforts to assess and where required, remediate, issues associated with Year 2000 ("Y2K") issues.  Generally defined, Y2K issues arise from computer programs which use only two digits to refer to the year and
which may experience problems when the two digits become "00" in the year 2000.  In addition, imbedded hardware microprocessors may contain time and two-digit year fields in executing their functions.  Much literature has been devoted to the possible
effects such programs may experience in the Year 2000, although significant uncertainty exists as to the scope and effect the Y2K issues will have on industry and the Company.



The Company has recognized the need to address the Y2K issue in a comprehensive and systematic manner and has taken steps to assess the possible Y2K impact on the Company.  Although the Company has not completed a 100% assessment of all
its information technology ("IT") and non-IT systems for Y2K issues, the Company has completed its assessment of all mission-critical systems.  All mission-critical systems and most of the major applications and hardware have been assessed to determine
the Y2K impact and a plan is in place for timely resolution of potential issues.



In 1998, the Company developed a strategic plan to identify the IT systems needed to accomplish the Company's overall growth plans.  As part of this process, Y2K issues were considered and addressed by the Company's senior management
and MIS personnel.  Although this plan was intended to modernize the IT systems, compliance with Y2K requirements were incorporated.



The cost of bringing the Company in full compliance should not result in a material increase in the recent levels of capital spending or any material one-time expenses.  The Company has spent approximately $152,000 in modernizing its IT
system, including compliance with Y2K requirements.  The Company anticipates spending of approximately $300,000 during fiscal 1999 to complete the modernization of its IT system.



The failure of either the Company, its vendors or clients to correct the systems affected by Y2K issues could result in a disruption or interruption of business operations.  The Company uses computer programs and systems in a vast array
of its operations to collect, assimilate and analyze data.  Failure of such programs and systems could affect the Company's ability to track assets under lease and properly bill.  Although the Company does not believe that any of the foregoing worst-case
scenarios will occur, there can be no assurance that unexpected Y2K problems of the Company's and its vendors' and customer's operations will not have a material adverse effect on the Company.



While it is difficult to classify our state of readiness, we believe that our internal plans should have the Company ready for the year 2000 to avoid any material Y2K issues.  We have completed the assessment, testing systems and
developing contingency plans.  Management is in constant communication with its IT personnel and has made and will continue to make reports to the Company's Board of Directors.



In 1998 the Company made several improvements to its Internet presence (http://www.chancellorcorp.com) as part of the Company's strategy to further incorporate technology into its marketing and customer service initiatives.  The
Company's goal for 1999 is to create a simple, well-designed and useful Internet destination by redesigning the site and expanding content to improve its usefulness as a business resource for customers and an informational tool for investors.



During second quarter of 1999, the Company plans to launch a comprehensive upgrade to its Internet site designed to be more user friendly.  The new Chancellor site will showcase the Company's truck and trailer inventory available
through its New Jersey retail location, provide online and downloadable lease applications for fleet managers, and improve the quality and quantity of corporate and financial information tailored for the investment community.





Market Opportunities



Through implementation of a strategy allowing for penetration of 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.)



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.



Operating Facility



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; Kansas City, Missouri; and Elizabeth, New Jersey.  A direct sales staff and telemarketing program supports a national network of sales representatives.



Seasonality



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



Employees



As of April 13, 1999, the Company employed approximately 90 persons on a full time basis.





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
three and a half years remaining in the term, and with a base rent, as of December 31, 1998, of approximately $11,000 per month.  The Boston, Massachusetts facility adequately provides for present and future needs, as currently planned.



The Company also leases a retail center in Elizabeth, New Jersey.  This location is utilized for the storage, display, and selling of used transportation equipment. This facility is leased under a non-cancelable arrangement with the
remaining term of one year.  The monthly rent of this facility as of December 31, 1998 is approximately $4,500.



ITEM 3.     LEGAL PROCEEDINGS



As of 12/1/99, 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.





PART II





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.





|                                       |  |              |  |  |  |              | 
|-------------------------------------- |  | ------------ |  |  |  | ------------ | 
|1999                                   |  | High         |  |  |  | Low          | 
|                                       |  |              |  |  |  |              | 
|First quarter (through March 30, 1999) |  | $        .93 |  |  |  | $        .43 | 
|                                       |  |              |  |  |  |              | 
|1998                                   |  |              |  |  |  |              | 
|                                       |  |              |  |  |  |              | 
|Fourth quarter                         |  | .88          |  |  |  | .50          | 
|Third quarter                          |  | 1.34         |  |  |  | .24          | 
|Second quarter                         |  | .37          |  |  |  | .16          | 
|First quarter                          |  | .44          |  |  |  | .27          | 
|                                       |  |              |  |  |  |              | 
|1997                                   |  |              |  |  |  |              | 
|Fourth quarter                         |  | .44          |  |  |  | .15          | 
|Third quarter                          |  | .18          |  |  |  | .10          | 
|Second quarter                         |  | .15          |  |  |  | .09          | 
|First quarter                          |  | .10          |  |  |  | .04          | 



On April 13, 1999, there were approximately 510 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





ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The analysis below is reflective of the Company, and does not give rise to further analysis of the Management Agreement with Tomahawk.





Results of Operations



Year Ended December 31, 1998 vs. December 31, 1997



Revenues.  Total revenues for the year ended December 31, 1998 was $10,708,000 as compared to $4,433,000 for the prior year, an increase of $6,275,000 or 141.6%.  For the year ended December 31, 1998, transportation equipment
sales were $6,165,000 as compared to no sales for the corresponding prior year.  This significant revenue stream is attributable in part to a major purchase and sale of equipment from the buy-out of a portfolio resulting in approximately $5,647,000 of
revenues recorded.  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, 1998, rental income increased by $72,000 or 8.3% 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, 1998, lease underwriting income decreased by $219,000 or 74.7% 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 does, however, continue its lease origination rebuilding process through 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, 1998, direct finance lease income decreased by $162,000 or 59.6%, 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 1998 as compared to the addition of 10 leases in 1997.  For the year ended December 31, 1998, gains from portfolio remarketing increased by $573,000 or 71.5% as compared to the prior year.  The increase in gains from portfolio
remarketing is attributable to the increase in sales of portfolio assets during the year ended December 31, 1998 as compared to the prior year.  For the year ended December 31, 1998, fees from remarketing activities decreased slightly by $81,000 or 5.4%
as compared to the prior year.  This decrease 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, 1998, other income decreased by $224,000 or
33.7% as compared to the corresponding prior year period.  The decrease is attributable in part to the inclusion of certain consulting fees earned in 1997 that were not recurring in 1998.



Costs and Expenses.  Total costs and expenses for the year ended December 31, 1998 was $10,184,000 as compared to $7,152,000 for the prior year, an increase of $3,032,000 or 42.4%.  The increase is primarily a result of the
costs associated with sales of transportation equipment.  The cost of transportation equipment sales was $5,647,000 for the year ended December 31, 1998 and resulted in an overall gross margin of 8.4%.  Selling, general and administrative expenses for the
year ended December 31, 1998 was $3,949,000 as compared to $6,412,000 for the corresponding prior year, a decrease of $2,463,000 or 38.4%.  For the year ended December 31, 1998, selling, general and administrative expenses included recovered reimbursable
administration costs of $1,498,000 as compared to $405,000 for the corresponding prior year.  Before netting out the reimbursable administration costs selling, general and administrative costs decreased to $5,447,000 for the year ended December 31, 1998
as compared to $6,817,000 for the corresponding prior year, a decrease of $1,370,000 or 20.1%.  The decrease in selling, general and administrative expenses reflects the success of management's cost containment and stabilization efforts that were
finalized in 1997.  Management believes it has successfully implemented its cost containment and stabilization strategy.  These cost improvements have resulted in a stabilization of the corporate infrastructure and provide a firm foundation for the new
management team to implement the growth phase of its business plan.



Interest expense for the year ended December 31, 1998 was $111,000 as compared to $281,000 for the prior year, a decrease of $170,000 or 60.5%.



Depreciation and amortization expense for the year ended December 31, 1998 was $477,000 as compared to $459,000 for the prior year, an increase of $18,000 or 3.9%.



Extraordinary Item - Gain on Debt Forgiveness.  The Company recorded a gain on debt forgiveness for the year ended December 31, 1997 of $930,000.  In April 1997, the Company repaid in advance of their respective terms an
inter-creditor loan and secured inventory loan.  The aggregate amount of this debt on the repayment date was $1,906,000, of which approximately $976,000 was paid in cash and the balance of $930,000 was forgiven.  In addition, the Company paid
approximately $22,000 in legal and bank fees to complete this transaction.



Net Income.  Net income for the year ended December 31, 1998 was $524,000 as compared to a net loss of $1,802,000 for the prior year, an increase of $2,326,000 or 129.1%. The increase in net income is primarily attributable
to the significant increase in revenues, primarily from the retail and wholesale of used transportation equipment, the buy-out of leases from portfolios, and continued improvements in the containment of costs.  Basic net income per share for the year
ended December 31, 1998 was $0.02 per share as compared to a ($0.12) net loss per share for the prior year, an increase of $0.14 per share.  The increase is due primarily to the marked increase in overall net income resulting from significant revenue growth
 .





Liquidity and Capital Resources



The Company recognized a net increase in cash and cash equivalents for the year ended December 31, 1998 of $515,000.  Operating activities used cash of $2,283,000 during the year ended December 31, 1998.  Investing activities
provided cash of $946,000 during the year ended December 31, 1998.   Financing activities provided cash of $1,852,000 during the year ended December 31, 1998 and is primarily a result of increases in stock issuance.  Cash and cash equivalents amounted to
$612,000 at December 31, 1998 as compared to $97,000 at December 31, 1997, an increase of $515,000 or 530.9%.



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.  Vestex Capital Corporation ("VCC"), an additional affiliate of the Company, provided
specified services including debt and equity raising efforts, and other financing activity.  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.
VMI provides services to the Company on operational and other matters for which it is compensated at levels negotiated with the Company.



During 1998, VCC investigated numerous strategic alliances and merger and acquisition opportunities on behalf of the Company.  In connection with this activity, VCC was instrumental in the negotiation and consummation of the Lease
Servicing Agreement entered into on November 1, 1998 among Chancellor Leasing Services, Riviera Finance - East Bay and United Capital and Finance LLC.   VCC continues to negotiate and manage the Company's financing, acquisition and investment efforts in
the Republic of South Africa and other international opportunities.  VCC was 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 $22,000,000.  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, converted into debt and equity instruments of the Company.  This included the purchase of
1,946,146 shares of the Company's common stock at a price of $.69 per share.  Additionally, VCC infused approximately $755,000 of cash and paid expenses of approximately $670,000 on behalf of the Company during 1998.  As a result, in part, of VCC's
activities and services provided, the Company's net worth increased to $2,362,000 at December 31, 1998 from $227,000 as of December 31, 1997 and from an approximate $2,550,000 negative net worth as of December 31, 1996.



The Company undertook a review of its trust portfolio, including consultation with legal counsel and industry consultants, and determined that it had not been recovering costs associated with administering the trusts.  Management's
review determined that approximately $22,000,000 of costs for periods prior to 1997 had not been recovered from the trusts.  The Company has recorded approximately $1,498,000 and $994,000 of cost recoveries in the years ended December 31, 1998 and 1997,
respectively.  For periods prior to 1997, $1,868,000 was recovered.  Management makes no representations concerning the Company's ability to recover any further costs for periods prior to 1997 or thereafter.  Further recoveries for periods prior to 1997 are contingent upon the current status of the specific trusts and the Company's level of recovery
efforts.  Consequently, the Company will record any further recoveries as income in the period in which collection is assured.



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 both provide 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-operator.  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, 1998, the Company had funded approximately $350,000 and is obligated to provide additional funding in the approximate amount of $650,000.  The Company has additionally invested approximately $1,340,000 into one of NAOF's investee companies.
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.





Contractual - Tomahawk Liability



As previously discussed, although the Company did not have a formal closing with Tomahawk until January 1999, the Company was contractually liable at December 31, 1998 for approximately $11,200,000 of liabilities.  The purchase was
effected January, 1999 (see footnote 18 for details).





Potential Fluctuations In Quarterly Operating Results



The Company's future quarterly operating results and the market price of its stock may fluctuate.  In the event the Company's revenues or earnings for any quarter are less than the level expected by securities analysts or the market
in general, such shortfall could have an immediate and significant adverse impact on the market price of the Company's stock.  Any such adverse impact could be greater if any such shortfall occurs near the same time of any material decrease in any widely
followed stock index or in the market price of the stock of one or more public equipment leasing companies or major customers or vendors of the Company.



The Company's quarterly results of operations are susceptible to fluctuations for a number of reasons, including, without limitation, as a result of sales by the Company of equipment it leases to its customers.  Such sales of
equipment, which are an ordinary but not predictable part of the Company's business, will have the effect of increasing revenues, and, to the extent sales proceeds exceeds net book value, net income, during the quarter in which the sale occurs.
Furthermore, any such sale may result in the reduction of revenue, and net income, otherwise expected in subsequent quarters, as the Company will not receive lease revenue from the sold equipment in those quarters.



Given the possibility of such fluctuations, the Company believes that comparisons of the results of its operations to immediately succeeding quarters are not necessarily meaningful and that such results for one quarter should not be
relied upon as an indication of future performance.



Recent Accounting Pronouncements



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.









|ITEM 7.                                                                      | FINANCIAL STATEMENTS                                                                          |    
|---------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---
|The following documents are filed as a part of this report on Form 10-KSB-A: |                                                                                              
|                                                                             | Page No                                                                                      
|                                                                             |                                                                                               |    
|                                                                             | Independent Auditors' Report                                                                  | F-1
|                                                                             |                                                                                               |    
|                                                                             | Independent Auditors' Report                                                                  | F-2
|                                                                             |                                                                                               |    
|                                                                             | Consolidated Balance Sheet as of December 31, 1998                                            | F-3
|                                                                             |                                                                                               |    
|                                                                             | Consolidated Statements of Operations for the years ended December 31, 1998 and 1997          | F-4
|                                                                             |                                                                                               |    
|                                                                             | Consolidated Statements of Stockholders Equity for the years ended
December 31, 1998 and 1997 | F-5
|                                                                             |                                                                                               |    
|                                                                             | Consolidated Statements of Cash Flows for the years ended 
December 31, 1998 and 1997         | F-6
|                                                                             |                                                                                               |    
|                                                                             | Notes to Consolidated Financial Statements                                                    | F-7
|                                                                             |                                                                                               |    

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





ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES



On February 25, 1999, our Audit Committee and Board of Directors approved the dismissal of our independent accountants, Reznick Fedder & Silverman, P.C. ("Reznick Fedder").  We provided Reznick Fedder with the reasons for the
dismissal in a letter on March 4, 1999.  The reasons include, but are not limited to:  (i) disagreements on fees billed by Reznick Fedder for services in the prior year, including, but not limited to, due diligence and business advisory services in
connection with merger and acquisition activity, and estimated fees in connection with the proposed 1998 audit engagement, (ii) a lack of commitment by Reznick Fedder to ensure timely completion of the 1998 audit and timely filing of the 1998 Annual
Report on Form 10-KSB, (iii) dissatisfaction as to the timeliness of Reznick Fedder's provision of business advisory reports and recommendations in general and Management Reports pursuant to the requirements of Statements on Auditing Standards No. 61 in
particular, and (iv) personality conflicts between Reznick Fedder's audit team and management, including disagreements concerning the quality of staffing provided previously.



During the years ended December 31, 1997 and 1996:  (i) there were no disagreements with Reznick Fedder on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Reznick Fedder, would have caused Reznick Fedder to make a reference to the subject matter of the disagreements in connection with its reports in the financial statements for such years and (ii) there
were no "reportable events" as described in Items 304 of Regulation S-K.  Reznick Fedder's report of independent accountants on the Company's consolidated financial statements for the years ended December 31, 1997 and 1996 each contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.



During the interim period from December 31, 1997 through February 25, 1999 (the date of Reznick Fedder's dismissal as the Company's independent accountants), Reznick Fedder alleged, solely in their opinion, (i) one potential
disagreement as to a matter relating to accounting principles, and (ii) one suggested "reportable event".



By letter dated March 15, 1999, Reznick Fedder has indicated that, based on the limited information provided to them as of February 6, 1999, it did not appear that the purchase of Atlanta based MRB, Inc. and affiliates d/b/a
Tomahawk Truck & Trailer Sales, Inc. ("MRB") should be reflected as of August 1, 1998, as stated in our Current Report on Form 8-K filed on February 12, 1999.  Reznick Fedder based its preliminary determination on the August 1, 1998 Management
Agreement, the January 29, 1999 Stock Purchase Agreement, and the January 29, 1999 Loan Agreement, each with MRB, as indicated in Reznick Fedder's letter to us dated March 8 (incorporated by reference from Exhibit 99 to the Company's Form 8-K/A filed with
the Securities and Exchange Commission on March 22, 1999).



Reznick Fedder also incorrectly stated in that letter that their preliminary determination was based in part on the First Amendment to the Management Agreement dated August 17, 1998, when in fact,  Reznick Fedder did not review that
First Amendment until after we filed our Current Report on Form 8-K on February 12, 1999 reporting the completion of our acquisition of MRB.  Despite their dismissal as our independent accountants, Reznick Fedder also requested in that letter that the
Company provide any additional information that they should consider in connection with their opinion regarding the appropriateness of the accounting disclosures made in the Company's Form 8-K filed on February 12, 1999.  Reznick Fedder did not request
further information as to this issue prior to their dismissal.



We engaged the Atlanta based firm of Metcalf Rice Fricke & Davis ("Metcalf Rice") on January 25, 1999 to perform the 1998, 1997, and 1996 audits of MRB, a significant subsidiary.  We further engaged the firm of Metcalf Rice,
based on the merits of their performance of services in connection with the MRB audits, to serve as our independent accountants in February, 1999.  We then asked Metcalf Rice to review this potential issue, alleged by Reznick Fedder as referenced in their
letter dated March 15, 1999, using all available information, including materials not previously requested by Reznick Fedder, and provide us with their determination as to the proper accounting treatment of our acquisition of MRB under generally accepted
accounting principles.  On March 29, 1999, Metcalf Rice issued a letter pursuant to Statements of Auditing Standards No. 50 "Independent Accountants Report on Appropriate Application of Generally Accepted Accounting Principles," which addressed the
reporting period under generally accepted accounting principles that the Company complied with in preparing its December 31, 1998 financial statements.



As to the second paragraph of Reznick Fedder's letter, they were only provided with a preliminary unaudited, unconsolidated, and unadjusted trial balance for fiscal 1998.  In addition, Reznick Fedder was not engaged as our
independent accountants for the purpose of certifying the consolidated financial statements of Chancellor Corporation as of December 31, 1998 and for the year then ended, and were therefore not engaged to perform planning for this audit.



Reznick Fedder was not asked by us to determine whether adjustments were required to recorded assets and liabilities which could materially impact the fairness or reliability of financial statements for the year ended December 31,
1998.  Adjustments, as necessary, were made based on recommendations of Metcalf Rice during the course of their audit fieldwork.



The Company had initially filed its 1998 10-KSB on April 14, 1999, whereby the Company included Tomahawk in its consolidated financial statements.  Upon additional review and discussions with the Securities and Exchange Commission,
the Company has filed this amended 10-KSB-A to reflect the financial statements without Tomahawk as of August 1998, and recorded the transaction as of January, 1999.

PART III



ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT



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 25,
1999 and to be filed with the Securities and Exchange Commission in April 1999, 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 he Proxy Statement for the Annual Meeting of Stockholders to be held on June 25, 1999 and to be filed with the Securities
and Exchange Commission in April 1999, 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 25,
1999 and to be filed with the Securities and Exchange Commission in April 1999, 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 25, 1999 and to be
filed with the Securities and Exchange Commission in April 1999, and is incorporated herein by this reference.



ITEM 14.     EXHIBITS AND REPORTS ON FORM 8-K



|(a)                                                                                                                                                                                                                                      | Exhibits:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|                                                                                                                                                                                                                                         | 2        
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 3.1      
|                                                                                                                                                                                                                                         | 3.2      
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 10.1     
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 10.2     
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 10.3     
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 10.4     
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 10.5     
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 10.6     
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 10.7     
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 10.8     
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 10.9     
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 10.11    
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 10.21    
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 10.22    
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 10.23    
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 11       
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 16(a)    
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 21       
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 23.1     
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 23.2     
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         | 27.1     
|                                                                                                                                                                                                                                         |          
|*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)      
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                         |          
|                                                                                                                                                                                                                                        

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, 1998 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended.  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.  The financial statements of Chancellor Corporation and
subsidiaries for the year ended December 31, 1997 were audited by other auditors whose report dated March 27, 1998 expressed an unqualified opinion on those statements.



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.



As discussed further in notes 1 and 18, the Company has restated the 1998 consolidated financial statements to reflect the results of a change in the date of acquisition of the Company's MRB, Inc. subsidiary to January 29, 1999.



In our opinion, the 1998 consolidated financial statements, as restated, referred to above present fairly, in all material respects, the financial position of Chancellor Corporation and subsidiaries as of December 31, 1998, and the
results of operations and their cash flows for the year then ended in conformity with generally accepted accounting principles.







/s/Metcalf Rice Fricke & Davis

Atlanta, Georgia

April 13, 1999, except for Notes 7, 10, 14, 15, 16 and 18

which are as of December 30, 1999.



INDEPENDENT AUDITOR'S REPORT







To the Stockholders and Board of Directors of

Chancellor Corporation





We have audited the accompanying consolidated statements of operations, stockholders' equity (deficit) and cash flows for the year ended December 31, 1997.  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 audits 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 audits provide a reasonable basis for our opinion.



In our opinion, the 1997 consolidated financial statements referred to above present fairly, in all material respects, and the results of operations and cash flows of Chancellor Corporation and its subsidiaries for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.



/s/ Reznick Fedder & Silverman





Boston, Massachusetts

March 18, 1998



Chancellor Corporation and Subsidiaries

Consolidated Balance Sheet

(In Thousands)







| | December 31, | 
| | ------------ | 
| | 1998         | 
| | (restated)   | 



|Assets                                                                                                    |   |           |  
|--------------------------------------------------------------------------------------------------------- | - | --------- | -
|                                                                                                          |   |           |  
|Cash and cash equivalents                                                                                 | $ | 612       |  
|Receivables, net                                                                                          |   | 2,880     |  
|Inventory                                                                                                 |   | 36        |  
|Net investment in direct finance leases                                                                   |   | 359       |  
|Equipment on operating lease, net of accumulated depreciation of $2,351                                   |   | 702       |  
|Residual values, net                                                                                      |   | 219       |  
|Furniture and equipment, net of accumulated depreciation of $1,221                                        |   | 807       |  
|Other investments                                                                                         |   | 1,000     |  
|Intangibles, net                                                                                          |   | 111       |  
|Other assets, net                                                                                         |   | 1,460     |  
|Total Assets                                                                                              | $ | 8,186     |  
|                                                                                                          |   |           |  
|Liabilities and Stockholders' Equity                                                                      |   |           |  
|                                                                                                          |   |           |  
|Liabilities                                                                                               |   |           |  
|Accounts payable and accrued expenses                                                                     | $ | 3,572     |  
|Deferred revenue                                                                                          |   | 1,068     |  
|Indebtedness:                                                                                             |   |           |  
|Nonrecourse                                                                                               |   | 889       |  
|Recourse                                                                                                  |   | 295       |  
|Total Liabilities                                                                                         |   | 5,824     |  
|                                                                                                          |   |           |  
|                                                                                                          |   |           |  
|Stockholders' equity                                                                                      |   |           |  
|Preferred Stock, $.01 par value, 20,000,000 shares authorized:                                            |   |           |  
|Convertible Series AA, 5,000,000 shares issued and outstanding                                            |   | 50        |  
|Convertible Series B, 2,000,000 shares authorized,
          none issued and outstanding                  |   | - - -     |  
|Common stock, $.01 par value; 75,000,000 shares authorized,
     38,541,895 shares issued and outstanding |   | 385       |  
|Additional paid-in capital                                                                                |   | 29,943    |  
|Accumulated deficit                                                                                       |   | (  28,016 | )
|Total Stockholders' Equity                                                                                |   | 2,362     |  
|                                                                                                          |   |           |  
|Total Liabilities and Stockholders' Equity                                                                | $ | 8,186     |  









The accompanying notes are an integral part
of these consolidated financial statements.



Chancellor Corporation and Subsidiaries

Consolidated Statements of Operations

(In Thousands, Except Per Share Data)

|                                                           |   | December 31, |  
|---------------------------------------------------------- | - | ------------ | -
|                                                           |   | 1998         |  
|                                                           |   | (restated)   |  
|Revenues:                                                  |   |              |  
|Transportation equipment sales                             | $ | 6,165        | $
|Rental income                                              |   | 942          |  
|Lease underwriting income                                  |   | 74           |  
|Direct finance lease income                                |   | 110          |  
|Interest income                                            |   | 195          |  
|Gains from portfolio remarketing                           |   | 1,374        |  
|Fees from remarketing activities                           |   | 1,407        |  
|Other income                                               |   | 441          |  
|                                                           |   | 10,708       |  
|                                                           |   |              |  
|Costs and expenses:                                        |   |              |  
|Cost of transportation equipment sales                     |   | 5,647        |  
|Selling, general and administrative                        |   | 3,949        |  
|Interest expense                                           |   | 111          |  
|Depreciation and amortization                              |   | 477          |  
|                                                           |   | 10,184       |  
|                                                           |   |              |  
|Earnings before taxes                                      |   | 524          |  
|                                                           |   |              |  
|Provision for income taxes                                 |   | - - -        |  
|Income (loss) before extraordinary item                    |   | 524          |  
|Extraordinary item - gain on debt forgiveness              |   | - - -        |  
|                                                           |   |              |  
|Net Income                                                 | $ | 524          | $
|                                                           |   |              |  
|Basic net income per share:                                |   |              |  
|Income (loss) before extraordinary item                    | $ | 0.02         | $
|Extraordinary item                                         |   | - - -        |  
|Net income (loss)                                          | $ | 0.02         | $
|                                                           |   |              |  
|                                                           |   |              |  
|Shares used in computing basic net income (loss) per share |   | 32,195,162   |  
|                                                           |   |              |  









The accompanying notes are an integral part 
of these consolidated financial statements





.

Chancellor Corporation and SubsidiariesCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1998 AND 1997
(In Thousands)



|                                                     | Preferred Stock | Common Stock | Add'l Paid-In | Accum-ulated | Treasury Stock | Stock-holders' Equity
|---------------------------------------------------- | --------------- | ------------ | ------------- | ------------ | -------------- | ---------------------
|                                                     | Shares          | Amt          | Shares        | Amt          | Capital        | Deficit              
|                                                     |                 |              |               |              |                |                      
|Balance 1/1/97                                       | 5,000           | $  50        | 6,567         | $ 65         | $   24,609     | $ (26,738)           
|                                                     |                 |              |               |              |                |                      
|                                                     |                 |              |               |              |                |                      
|Preferred stock
   Series A issued                   | 711             | 7            |               |              | 1,343          |                      
|                                                     |                 |              |               |              |                |                      
|Preferred stock
   Series AA issued                  | 3,000           | 30           | 20,250        |              | 870            |                      
|                                                     |                 |              |               |              |                |                      
|Common stock issued                                  |                 |              |               | 203          | 2,123          |                      
|Exercise of stock options                            |                 |              | 15            |              | 3              |                      
|Retirement of treasury stock                         |                 |              | (1,431)       | (14)         | (522)          |                      
|                                                     |                 |              |               |              |                |                      
|Net Loss                                             |                 |              |               |              |                | (1,802)              
|                                                     |                 |              |               |              |                |                      
|Balance 12/31/97                                     | 8,711           | 87           | 25,401        | 254          | 28,426         | (28,540)             
|                                                     |                 |              |               |              |                |                      
|Preferred stock, Series A
converted to common stock  | (711)           | (7)          | 7,105         | 71           | (64)           |                      
|                                                     |                 |              |               |              |                |                      
|Preferred stock, Series AA
converted to common stock | (3,000)         | (30)         | 3,000         | 30           | - - -          |                      
|                                                     |                 |              |               |              |                |                      
|Common stock issued                                  |                 |              | 2,146         | 21           | 1,296          |                      
|Exercise of stock options                            |                 |              | 892           | 9            | 284            |                      
|Additional paid in capital                           |                 |              |               |              | 1              |                      
|Net income(restated)                                 |                 |              |               |              |                | 524                  
|Balance 12/31/98 (restated)                          | 5,000           | $  50        | 38,544        | $385         | $29,943        | $(28,016)            
|                                                     |                 |              |               |              |                |                      

The accompanying notes are an integral part
of these consolidated financial statements.



Chancellor Corporation and Subsidiaries





| | Years Ended 
| | ------------
| | December 31,
| |             
| |             



|Cash flows from operating activities:                                                         |   |  |         |   |  |  |   |  |         |   | 
|--------------------------------------------------------------------------------------------- | - |  | ------- | - |  |  | - |  | ------- | - | 
|Net income (loss)                                                                             | $ |  | 524     |   |  |  | $ |  | ( 1,802 | ) | 
|Adjustments to reconcile net income (loss) to net cash used by          operating activities: |   |  |         |   |  |  |   |  |         |   | 
|Depreciation and amortization                                                                 |   |  | 477     |   |  |  |   |  | 459     |   | 
|Residual value estimate realizations and reductions,
         net of additions                |   |  | 246     |   |  |  |   |  | 283     |   | 
|Gain on debt forgiveness                                                                      |   |  | - - -   |   |  |  |   |  | ( 930   | ) | 
|Changes in assets and liabilities:                                                            |   |  |         |   |  |  |   |  |         |   | 
|Decrease (Increase) in receivables                                                            |   |  | ( 2,213 | ) |  |  |   |  | 1,896   |   | 
|(Increase) in inventory                                                                       |   |  | ( 36    | ) |  |  |   |  | - - -   |   | 
|(Decrease ) Increase in accounts payable and accrued expenses                                 |   |  | ( 2,334 | ) |  |  |   |  | 1,813   |   | 
|Increase in deferred revenue                                                                  |   |  | 1,053   |   |  |  |   |  | 15      |   | 
|Total adjustments                                                                             |   |  | ( 2,807 | ) |  |  |   |  | 3,536   |   | 
|Net cash provided by (used in) operating activities                                           |   |  | ( 2,283 | ) |  |  |   |  | 1,734   |   | 



|Cash flows from investing activities:      |  |  |         |   |  |  |  |  |         |   | 
|------------------------------------------ |  |  | ------- | - |  |  |  |  | ------- | - | 
|Leased equipment held for underwriting     |  |  | 502     |   |  |  |  |  | 729     |   | 
|Net investment in direct finance leases    |  |  | 162     |   |  |  |  |  | 227     |   | 
|Equipment on operating lease, net          |  |  | ( 588   | ) |  |  |  |  | 59      |   | 
|Other investments, net                     |  |  | - - -   |   |  |  |  |  | 185     |   | 
|Net change in cash restricted and escrowed |  |  | 2,419   |   |  |  |  |  | 1,134   |   | 
|Additions to furniture and equipment, net  |  |  | ( 172   | ) |  |  |  |  | ( 1,018 | ) | 
|Net change in other assets                 |  |  | ( 1,377 | ) |  |  |  |  | 141     |   | 
|Net cash provided by investing activities  |  |  | 946     |   |  |  |  |  | 1,087   |   | 



|Cash flows from financing activities:               |  |  |       |   |  |  |  |  |         |   | 
|--------------------------------------------------- |  |  | ----- | - |  |  |  |  | ------- | - | 
|Increase in indebtedness - nonrecourse              |  |  | 688   |   |  |  |  |  | 40      |   | 
|Increase in indebtedness - recourse                 |  |  | 755   |   |  |  |  |  | 1,879   |   | 
|Repayments of indebtedness - nonrecourse            |  |  | ( 327 | ) |  |  |  |  | ( 701   | ) | 
|Repayments of indebtedness - recourse               |  |  | ( 875 | ) |  |  |  |  | ( 3,966 | ) | 
|Issuance of common stock, net                       |  |  | 1,611 |   |  |  |  |  | 3       |   | 
|Net cash provided by (used in) financing activities |  |  | 1,852 |   |  |  |  |  | ( 2,745 | ) | 



|Net increase in cash and cash equivalents        |   |  | 515 |  |  |  |   |  | 76 |  | 
|------------------------------------------------ | - |  | --- |  |  |  | - |  | -- |  | 
|Cash and cash equivalents at beginning of period |   |  | 97  |  |  |  |   |  | 21 |  | 
|Cash and cash equivalents at end of period       | $ |  | 612 |  |  |  | $ |  | 97 |  | 
|                                                 |   |  |     |  |  |  |   |  |    |  | 
|                                                 |   |  |     |  |  |  |   |  |    |  | 

The accompanying notes are an integral
part of these consolidated financial statements.



CHANCELLOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1998



1.Business Organization and Significant Accounting Policies



Business



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 1998, the Company expanded its market presence to include minor activities in international markets
such as Russia and the Republic of South Africa.



Principles of Consolidation



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.



Accounting for Estimates



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 - Revenue 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.



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.



Reimbursable Expenses



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.  The reimbursement of these costs is recorded as a reduction of general and administrative expenses.



Residual Values



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.



Cash and Cash Equivalents



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



Concentration of Credit Risk



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, 1998, the uninsured portion of the cash balances held at one bank was
approximately $573,000, of which $532,000 was invested in overnight repurchase agreements.



Inventory



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, Equipment and Leaseholds



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



Intangibles primarily consist of goodwill, which is amortized over an estimated life of ten years using the straight-line method.



Income Taxes



Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," requires an asset and liability approach for financial accounting and reporting for income taxes. In addition, future tax benefits, such as net
operating loss tax carry forwards, are recognized to the extent realization of such benefits is more likely than not.



Stock-based Compensation



The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation", which allows the Company to account for stock-based awards (including stock options) to employees using the intrinsic value method in accordance with
Accounting Principles Board Opinion No, 25, "Accounting for Stock Issued to Employees".



Net Income (Loss) per Share



Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period.  Diluted net income per share reflects the potential dilution
that could occur from potential common stock such as stock issuable pursuant to the exercise of stock options outstanding and conversion of debt.



Basic net loss per share amounts are computed based on the weighted average number of common shares and diluted net loss per share amounts are based on common and common equivalent shares, when dilutive.  Diluted net loss per share for
1997 is the same as basic net loss per share since common stock equivalent shares from convertible preferred stock and from stock options and warrants were antidilutive.



Supplemental Cash Flow Information



Cash paid for income taxes during 1998 and 1997 was $13,000 and $13,000, respectively.  Interest paid during 1998 and 1997 was $63,000 and $340,000, respectively.



Other Investments



The Company accounts for its equity investment of less than 20% ownership in an investee on the cost basis.



Recent Accounting Pronouncements



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.



Impact of the Year 2000 Issue



The Company has commenced efforts to assess and, where required, remediate issues associated with Year 2000 ("Y2K") issues.  Generally defined, Y2K issues arise from computer programs which use only two digits to refer to the year and
which may experience problems when the two digits become "00" in the year 2000.  In addition, imbedded hardware microprocessors may contain time and two-digit year fields in executing their functions.  Much literature has been devoted to the possible
effects such programs may experience in the Year 2000, although significant uncertainty exists as to the scope and effect the Y2K issues will have on industry and the Company.



The Company has recognized the need to address the Y2K issue in a comprehensive and systematic manner and has taken steps to assess the possible Y2K impact on the Company.  Although the Company has not completed a 100% assessment of all
its information technology ("IT") and non-IT systems for Y2K issues, the Company has completed its assessment of all mission-critical systems.  All mission-critical systems and most of the major applications and hardware have been assessed to determine
the Y2K impact and a plan is in place for timely resolution of potential issues.



In 1998, the Company developed a strategic plan to identify the IT systems needed to accomplish the Company's overall growth plans.  As part of this process, Y2K issues were considered and addressed by the Company's senior management
and MIS personnel.  Although this plan was intended to modernize the IT systems, compliance with Y2K requirements were incorporated.



The cost of bringing the Company in full compliance should not result in a material increase in the recent levels of capital spending or any material one-time expenses.  The Company has spent approximately $152,000 in modernizing its IT
system, including compliance with Y2K requirements.  The Company anticipates spending of approximately $300,000 during fiscal 1999 to complete the modernization of its IT system.



The failure of either the Company, its vendors or clients to correct the systems affected by Y2K issues could result in a disruption or interruption of business operations.  The Company uses computer programs and systems in a vast array
of its operations to collect, assimilate and analyze data.  Failure of such programs and systems could affect the Company's ability to track assets under lease and properly bill.  Although the Company does not believe that any of the foregoing worst-case
scenarios will occur, there can be no assurance that unexpected Y2K problems of the Company and its vendors' and customer's operations will not have a material adverse effect on the Company.



While it is difficult to classify our state of readiness, we believe that our internal plans should have the Company ready for the year 2000 to avoid any material Y2K issues.  Assessment and testing are complete and we have developed
contingency plans.  Management is in constant communication with its IT personnel and has made and will continue to make reports to the Company's Board of Directors.



Fair Value of Financial Instruments



The fair value of the Company's assets and liabilities that constitute financial instruments as defined in SFAS No. 107, "Disclosure about Fair Value of Financial Instruments", approximate their recorded amounts.



Risk Management



The Company is exposed to risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; material disasters; and product liability.  The Company carries commercial insurance
for risks of loss.



Foreign Currency Translation



The Company uses the US dollar as its functional currency.  Foreign currency assets are recoverable in US dollars, including equipment lease payments.  However, the Company has recorded an allowance equal to the net book value for lease
receivables from a party in Russia.  The effect of any foreign currency fluctuations is not considered material in these financial statements.



Restatement of Financial Statements

In accordance with guidelines of the Securities and Exchange Commission, the Company has restated its 1998 financial statements to reflect the acquisition of MRB, Inc. and related companies "Tomahawk" on January 29,
1999 and to properly record expenses and accrued liabilities related to the issuance of stock purchase warrants by the Company's majority shareholder and certain other deferred costs or expenses paid by VCC or VMI on behalf of the Company during 1998.
The effects of the above is as follows:



|                           | As originally reported | Related to Tomahawk deconsolidation | Related to goodwill | Related to VCC/VMI fees | Related to VCC warrants | As restated
|-------------------------- | ---------------------- | ----------------------------------- | ------------------- | ----------------------- | ----------------------- | -----------
|Total Assets               | $  29,569              | $ (15,760)                          | $     155           | $  (5,778)              | $     - - -             | $  8,186   
|Total liabilities          | 22,562                 | (11,591)                            | - - -               | (5,147)                 | - - -                   | 5,824      
|Total shareholders equity` | 7,007                  | (4,169)                             | 155                 | (631)                   | (1)                     | 2,361      
|Total revenues             | 29,639                 | (18,931)                            | - - -               | - - -                   | - - -                   | 10,708     
|Total expenses             | 28,789                 | (19,082)                            | (155)               | 631                     | 1                       | 10,184     





2.     Receivables



Receivables consists of the following as of December 31, 1998 (in thousands):





| | December 31,
| | ------------
| | 1998        
| | (restated)  



|Note receivable               | $ | 1,242 | 
|----------------------------- | - | ----- | 
|Receivables from trust, net   |   | 855   | 
|Loans receivable              |   | 373   | 
|Other notes receivable        |   | 137   | 
|Accrued rents receivable, net |   | 40    | 
|Interest receivable           |   | 104   | 
|Other receivables             |   | 129   | 
|                              |   |       | 
|                              | $ | 2,880 | 
|                              |   |       | 

Receivables from trusts include amounts due the Company for cash outlays associated with the remarketing of equipment of $72,000.  These amounts will be collected upon successful remarketing of such equipment.
Additionally, receivables from trusts include amounts due for costs incurred by the Company for administration of the trusts in accordance with the trust agreements of $1,764,000.  Collection of costs of administration is not certain due to numerous
factors and is, therefore, included net of the estimated reserve.



Accrued rents represent amounts due from portfolio leases, net of an allowance of $88,000.



3.     Residual Values, Net



The Company's lease underwriting income includes consideration in the residual value sharing arrangements received from originating and selling lease transactions to investors.  The Company, upon remarketing of the equipment at
termination or expiration of the related leases, will realize this type of consideration (residual values).  The Company's share of expected future residual values is recorded as income at their discounted present value at the time the underlying leases
are sold to investors.  Any increases in the Company's expected residual sharing are recorded as gains upon realization. Write-down in estimated residual value 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 Company evaluates residual values based upon independent assessments by industry professionals, in addition to already established
internal criteria.



The activity in the residual value accounts for the years ended December 31, 1998 and 1997 is as follows (in thousands):



| | December 31,
| | ------------
| | 1998        



|Residual values, beginning of year, net | $ | 465 |   |  | $ | 748   |  
|--------------------------------------- | - | --- | - |  | - | ----- | -
|Residual realization                    | ( | 204 | ) |  | ( | 283   | )
|Residual value estimate reduction       | ( | 42  | ) |  |   | - - - |  
|                                        |   |     |   |  |   |       |  
|Residual values, end of year, net       | $ | 219 |   |  | $ | 465   |  
|                                        |   |     |   |  |   |       |  



Residual value estimate reductions represent reductions in expected future residual values on certain equipment, the residuals that were substantially all recorded prior to 1997.  Such reductions resulted from an extensive review and
valuation of all assets owned, leased and managed by the Company.  For the years ended December 31, 1998 and 1997, the Company realized income of approximately $1,407,000 and $1,488,000, respectively, relating to the remarketing of equipment for which no
residuals were recorded or realized amounts exceeded the booked residual.



Aggregate residual value fees expected to be realized as of December 31, 1998 are as follows (in thousands):





|Years ending December 31: | 
|------------------------- | 



|1999       | $ | 102  | 
|---------- | - | ---- | 
|2000       |   | 74   | 
|2001       |   | 8    | 
|2002       |   | 2    | 
|2003       |   | ---- | 
|Thereafter |   | 33   | 
|           | $ | 219  | 



4.     Net Investment in Direct Finance Leases and Equipment on Operating Lease:



Net investment in direct finance leases consisted of the following as of December 31, 1998 (in thousands):





| | December 31,
| | ------------
| | 1998        



|Minimum lease payments receivable                               | $ | 389 |  
|--------------------------------------------------------------- | - | --- | -
|Estimated unguaranteed residual values of
leased equipment, net |   | 53  |  
|Less:  Unearned income                                          |   | (83 | )
|                                                                |   |     |  
|                                                                | $ | 359 |  

The cost of equipment on operating lease by category of equipment consists of the following as of December 31, 1998 (in thousands):





| | December 31,
| | ------------
| | 1998        



|Transportation equipment        | $ | 819   | 
|------------------------------- | - | ----- | 
|Other equipment                 |   | 2,234 | 
|                                |   | 3,053 | 
|                                |   |       | 
|Less - accumulated depreciation |   | 2,351 | 
|                                |   |       | 
|                                | $ | 702   | 





The aggregate amounts of minimum lease payments to be received from noncancelable direct finance and operating leases are as follows (in thousands):





|                         | Direct 
|------------------------ | -------
|Year ending December 31: | Finance



|1999 | $ | 195 |  |  | $ | 219 | 
|---- | - | --- |  |  | - | --- | 
|2000 |   | 110 |  |  |   | 34  | 
|2001 |   | 72  |  |  |   | 31  | 
|2002 |   | 8   |  |  |   | 30  | 
|2003 |   | 4   |  |  |   | 30  | 
|     |   |     |  |  |   |     | 
|     | $ | 389 |  |  | $ | 344 | 

5.     Accounts Payable and Accrued Expenses:



Accounts payable and accrued expenses consists of the following as of December 31, 1998 (in thousands):



| | December 31,
| | ------------
| | 1998        
| | (restated)  



|Trade accounts payable                              | $ | 358   | 
|--------------------------------------------------- | - | ----- | 
|Payables to investors                               |   | 1,361 | 
|Contribution payable to New Africa Opportunity Fund |   | 650   | 
|Accrued commissions payable                         |   | 53    | 
|Accrued legal and accounting fees                   |   | 272   | 
|Accrued interest payable                            |   | 95    | 
|Other accrued expenses                              |   | 783   | 
|                                                    |   |       | 
|                                                    | $ | 3,572 | 



6.     Early Extinguishment of Intercreditor Loan



In April 1997, the Company executed and delivered (1) the Loan Reduction and Purchase and Assignment Agreement dated April 1997 among the Company, its corporate affiliates, a bank, as agent (the "Agent") for the Company's principal
recourse lenders, and VCC, the Company's majority shareholder; (2) release in favor of the principal recourse lenders to be given by VCC and Brian M. Adley, Chairman of the Board of Directors of the Company and President of VCC, individually; (3) release
in favor of the principal recourse lenders to be given by the Company, its corporate affiliates and/or subsidiaries, in favor of VCC.  Coterminous with this transaction, both the intercreditor loan and secured inventory loan were repaid in advance of
their respective terms.  The aggregate amount of this debt on the repayment date was approximately $1,906,000, of which approximately $976,000 was paid in cash and the balance of $930,000 was forgiven.  In addition, the Company paid approximately $22,000
in legal and bank fees to complete this transaction



7.     Non-Recourse and Recourse Debt



Non-recourse indebtedness consists of notes payable to banks and financial institutions arising from assignments of the Company's rights, (most notably the right to receive rental payments) as lessor, at interest rates ranging from 7.8%
to 13.6%.  Amounts due under nonrecourse notes are obligations of the Company, which are secured only by the leased equipment, and assignments of lease receivables, with no recourse to any other assets of the Company.  The Company is at risk, however, for
the amount of residual value booked on equipment for its own portfolio in the event of a lessee default.



Aggregate future maturities of non-recourse debt as of December 31, 1998 are as follows (in thousands):





|Years ending December 31: | 
|------------------------- | 



|1999 | $ | 698 | 
|---- | - | --- | 
|2000 |   | 87  | 
|2001 |   | 91  | 
|2002 |   | 13  | 
|     |   |     | 
|     | $ | 889 | 



Recourse debt consists of the following as of December 31, 1998 (in thousands):





| | December 31,
| | ------------
| | 1998        



|Promissory note payable to the Company's majority stockholder, bearing interest at the prime rate (7.75% at December 31, 1998) plus 2%, principal and accrued interest payable December 31, 2001, secured by substantially all of the assets of
the Company. | $ | 39 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ---
|                                                                                                                                                                                                                                                             |   |    
|Subordinated promissory note payable to a former stockholder of the Company, bearing interest at the prime rate (7.75% at December 31, 1998) plus 1%, principal and accrued interest payable on demand.                                                      |   | 200
|                                                                                                                                                                                                                                                             |   |    
|Equipment line of credit with two leasing companies, aggregate monthly payments of $2,183 and leases expiring from November 2000 to January 2001                                                                                                             |   | 56 
|                                                                                                                                                                                                                                                             |   | 295
|Less - current portion                                                                                                                                                                                                                                       |   | 220
|                                                                                                                                                                                                                                                             |   |    
|                                                                                                                                                                                                                                                             | $ | 75 



Aggregate future maturities of recourse debt as of December 31, 1998 are as follows (in thousands):





|Years ending December 31: |  
|------------------------- | -
|1999                      | $
|2000                      |  
|2001                      |  
|2002                      |  
|                          |  
|                          | $





8.     Income Taxes



The provision (benefit) for income taxes consists of the following (in thousands):





| | 1998 |  | 1997
| | ---- |  | ----



|Current:  |   |       |  |  |   |       | 
|--------- | - | ----- |  |  | - | ----- | 
|Federal   | $ | - - - |  |  | $ | - - - | 
|State     |   | - - - |  |  |   | 13    | 
|          |   |       |  |  |   |       | 
|Deferred: |   |       |  |  |   |       | 
|Federal   |   | - - - |  |  |   | - - - | 
|State     |   | - - - |  |  |   | - - - | 
|          |   |       |  |  |   |       | 
|          | $ | - - - |  |  | $ | 13    | 



A reconciliation of the rate used for the provision (benefit) for income taxes is as follows:





| | 1998 |  | 1997
| | ---- |  | ----



|Tax benefit at statutory rate                                                                 |  | 34.0%  |  |  | 34.0% 
|--------------------------------------------------------------------------------------------- |  | ------ |  |  | ------
|Net operating loss carry forward benefit for which
utilization is not assured and other items |  | (34.0) |  |  | (34.0)
|                                                                                              |  |        |  | 
|                                                                                              |  | 0.0%   |  |  | 0.0%  



The Company files consolidated federal income tax returns with all of its subsidiaries.  As of December 31, 1998, the Company has net operating loss carry forwards of approximately $21,771,000 available for federal tax purposes, which
expire in the years 2001 through 2012. In addition, at December 31, 1998, the Company has investment tax credit carry forwards for federal income tax purposes available to offset future taxes of approximately $1,855,000 expiring in the years 1999 through
2002 and minimum tax credit carry forwards for federal income tax purposes available to offset future taxes of approximately $135,000 which do not expire.  For federal tax purposes, utilization of net operating losses and tax credit carry forwards will be
limited in future years as a result of a greater than 50% change in ownership which occurred in July 1995.



Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss
and tax credit carry forwards.



The tax effects of significant items comprising the Company's net deferred tax liability as of December 31, 1998 are as follows (in thousands):



| | December 31,
| | ------------
| | 1998        



|Deferred tax liabilities:                          |   |         |  
|-------------------------------------------------- | - | ------- | -
|Differences between book and tax basis of property | $ | 189     |  
|                                                   |   |         |  
|Deferred tax assets:                               |   |         |  
|Reserves not currently deductible                  |   | 552     |  
|Net operating loss carry forwards                  |   | 8,708   |  
|Tax credit carry forwards                          |   | 1,987   |  
|Other                                              |   | 1       |  
|Total deferred tax assets                          |   | 11,248  |  
|                                                   |   | 11,059  |  
|Valuation allowance                                |   | (11,059 | )
|                                                   |   |         |  
|Net deferred tax liability                         | $ | - - -   |  



All deferred tax liabilities and deferred tax assets (except tax credit carry forwards) are tax effected at the enacted rates for state and federal taxes. The valuation allowance relates primarily to net operating loss carry forwards
and tax credit carry forwards that may not be realized.  The valuation allowance decreased by $940,000 in 1998.  For the year ended December 31, 1997 the valuation allowance decreased by $1,050,000.



The deferred tax asset is available to offset taxable income in excess of book income generated from the lease portfolio and residual values, which are the principal components of the total deferred tax liabilities of $189,000 as of
December 31, 1998.  The deferred tax asset, net of the deferred tax liability, has been fully reserved as of December 31, 1998.



9.     Stockholders Equity



The Preferred Stock issued by the Company carries certain preferences and rights as discussed below.  Each share of Preferred Stock is entitled to the number of votes equal to the number of whole shares of Common Stock into which the
share of the Preferred Stock held are then convertible. The holders of the Preferred Stock shall be entitled to receive cash dividends only to the extent and in the same amounts as dividends are declared and paid with respect to Common Stock as if the
Preferred Stock has been converted to Common Stock in accordance with the provisions related to conversion.  Preferences specific to each series are as follows:



Series AA - convertible into one share of Common Stock for each share of Preferred Stock and has a liquidation preference of $.50 per share.



Series B - convertible into ten shares of Common Stock for each share of Preferred Stock and has a liquidation preference of $2.00 per share.



10.     Stock Option Plans and Stock Purchase Plan



The Company has three stock option plans: a 1994 Stock Option Plan, a 1994 Directors' Stock Option Plan and a 1997 Stock Option Plan.



The Company's stock option plans provide for incentive and nonqualified stock options to purchase up to an aggregate of 7,207,000 shares of the Company's Common Stock which may be granted to key contributors of the Company, including
officers, directors, employees and consultants.  The options are generally granted at the fair market value of the Company's Common Stock at the date of the grant, vest over a five-year period, are exercisable upon vesting and expire five years from the
date of grant.



Information with respect to the stock option plans is as follows:



| |  | 1994
Stock
Option Plan |  | 1994
Directors
Option Plan |  | 1997
Stock
Option Plan |  | 1983
Stock
Option Plan |  | Weighted
Average
Exercise
Price
| |  | ---------------------- |  | -------------------------- |  | ---------------------- |  | ---------------------- |  | -------------------------------

|Outstanding, December 31, 1996 |  | 1,081,466 |   | 329,500 |   | - - -     |   | 3,244  |   | $    .18
|------------------------------ |  | --------- | - | ------- | - | --------- | - | ------ | - | --------
|                               |  |           |   |         |   |           |   |        |   |         
|Options granted                |  | 775,000   |   | 337,500 |   | 2,245,000 |   | - - -  |   | .51     
|Options exercised              |  | (15,000   | ) | - - -   |   | - - -     |   | - - -  |   | .15     
|Options canceled and expired   |  | (973,716  | ) | - - -   |   | - - -     |   | - - -  |   | .18     
|Options canceled and reissued  |  | 3,244     |   | - - -   |   | - - -     |   | (3,244 | ) | .01     
|                               |  |           |   |         |   |           |   |        |   |         
|Outstanding, December 31, 1997 |  | 870,994   |   | 667,000 |   | 2,245,000 |   | - - -  |   | .49     
|                               |  |           |   |         |   |           |   |        |   |         
|Options granted                |  | 355,991   |   | - - -   |   | 1,911,500 |   | - - -  |   | .52     
|Options exercised              |  | (384,583  | ) | (40,000 | ) | (467,000  | ) | - - -  |   | .33     
|Options canceled and expired   |  | (59,985   | ) | - - -   |   | (952,500  | ) | - - -  |   | .52     
|                               |  |           |   |         |   |           |   |        |   |         
|Outstanding, December 31, 1998 |  | 782,417   |   | 627,000 |   | 2,737,000 |   | - - -  |   | $    .54







Additional information regarding options outstanding as of December 31, 1998 is as follows:



Options Outstanding





|Exercise
Price |  | Number
of Shares |  | Weighted Average Contractual Life |  | Exercisable Options |  | Date of Expiration
|-------------- |  | ---------------- |  | --------------------------------- |  | ------------------- |  | ------------------



|$0.01 |  | 1,917     |  | 5.00 |  | 1,917     |  | 2002       
|----- |  | --------- |  | ---- |  | --------- |  | -----------
|$0.05 |  | 112,500   |  | 8.00 |  | 112,500   |  | 2006       
|$0.06 |  | 112,500   |  | 8.00 |  | 112,500   |  | 2006       
|$0.10 |  | 364,000   |  | 4.75 |  | 267,000   |  | 2003 - 2004
|$0.13 |  | 27,911    |  | 2.59 |  | 27,911    |  | 2001       
|$0.16 |  | 5,000     |  | 2.59 |  | 5,000     |  | 2001       
|$0.19 |  | 27,589    |  | 2.59 |  | 27,589    |  | 2001       
|$0.20 |  | 675,000   |  | 6.15 |  | 475,000   |  | 2004 - 2007
|$0.25 |  | 602,000   |  | 6.13 |  | 177,000   |  | 2004 - 2005
|$0.30 |  | 40,000    |  | 4.75 |  | 40,000    |  | 2003       
|$0.50 |  | 591,333   |  | 6.64 |  | - - -     |  | 2005 - 2006
|$0.60 |  | 40,000    |  | 5.75 |  | - - -     |  | 2004       
|$0.70 |  | 120,000   |  | 7.34 |  | - - -     |  | 2004 - 2008
|$0.71 |  | 10,000    |  | 5.75 |  | - - -     |  | 2004       
|$0.75 |  | 588,333   |  | 7.64 |  | - - -     |  | 2006 - 2007
|$0.80 |  | 30,000    |  | 7.75 |  | - - -     |  | 2004 - 2008
|$0.81 |  | 10,000    |  | 6.75 |  | - - -     |  | 2005       
|$0.91 |  | 10,000    |  | 7.75 |  | - - -     |  | 2006       
|$1.00 |  | 678,334   |  | 9.09 |  | - - -     |  | 2007 - 2008
|$1.01 |  | 10,000    |  | 8.75 |  | - - -     |  | 2007       
|$1.11 |  | 10,000    |  | 9.75 |  | - - -     |  | 2008       
|$1.50 |  | 40,000    |  | 8.75 |  | - - -     |  | 2007 - 2008
|$2.00 |  | 40,000    |  | 8.75 |  | - - -     |  | 2007 - 2008
|      |  |           |  |      |  |           |  |            
|      |  | 4,146,417 |  |      |  | 1,246,417 |  |            





Pro forma information.  The Company has elected to follow APB Opinion No. 25; "Accounting for Stock Issued to Employees," in accounting for its employee stock options 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 employee stock options.  Under APB No. 25, because the exercise price of the
Company's employee stock options equal or exceeds the market price of the underlying stock on the date of the grant, no compensation expense is recognized in the Company's financial statements.  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 Company's stock option awards.  These models also require subjective assumptions, including
future stock price volatility and expected time to exercise, which greatly differs from the calculated values.



The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected life, 48 months following vesting; stock volatility 200% in 1998 and 1997; risk free interest
rate, 8%, in 1998 and in 1997 and no dividends during the expected term.  The forfeitures of the options are recognized as they occur.  If the computed fair values of the 1997 and 1998 awards had been expensed over the vesting period of the awards, the
pro forma net income in 1998 would have been $547,000 or $0.01 per share and the pro forma net loss in 1997 would have been $1,850,000 or $0.12 per share.



Employee Stock Purchase Plan



The Company's 1994 Employee Stock Purchase Plan authorizes the offering to employees of up to 250,000 shares of Common Stock in six semiannual offerings at a price of 85% of the Common Stock's bid price and in an amount determined by a
formula based on each employee's estimated annual compensation. The Company's stockholders authorized this plan in January 1995. No shares of Common Stock have been offered pursuant to the plan to date.



The Company has reserved 250,000 shares of Common Stock for all amounts that may be offered to employees under this plan.



Stock Warrants



During 1998, the Company's majority shareholder allocated 3,300,000 shares of the Company's common stock to employees of the Company under various stock purchase warrant agreements.



Information with respect to these stock warrants is as follows:





| | Shares |  | Weighted Average
Exercise Price
| | ------ |  | -------------------------------



|Outstanding, December 31, 1997 |  | - - -     |  | $ | - - -
|------------------------------ |  | --------- |  | - | -----
|Warrants granted               |  | 3,300,000 |  |   | .682 
|Warrants exercised             |  | - - -     |  |   | - - -
|Warrants forfeited             |  | - - -     |  |   | - - -
|                               |  |           |  |   |      
|Outstanding, December 31, 1998 |  | 3,300,000 |  |   | $.682

Additional information regarding options outstanding as of December 31, 1998 is as follows:



Warrants Outstanding



|                         |                                |                           |                              |  | Warrants Exercisable          
|------------------------ | ------------------------------ | ------------------------- | ---------------------------- |  | ------------------------------
|Range of Exercise Prices | Number Outstanding
at 12/31/98 | Weight-Avg
Remaining Life | Weight-Avg
Exercisable Price |  | Number Exercisable
at 12/31/98
|0.10                     | 550,000                        | 6.36                      | 0.10                         |  | 550,000                       
|0.25                     | 650,000                        | 7.46                      | 0.25                         |  | 650,000                       
|0.50                     | 800,000                        | 8.50                      | 0.50                         |  | 800,000                       
|0.75                     | 200,000                        | 9.00                      | 0.75                         |  | 200,000                       
|1.00                     | 180,000                        | 6.00                      | 1.00                         |  | 180,000                       
|1.10                     | 180,000                        | 7.00                      | 1.10                         |  | 180,000                       
|1.25                     | 380,000                        | 9.05                      | 1.25                         |  | 380,000                       
|1.50                     | 180,000                        | 9.00                      | 1.50                         |  | 180,000                       
|2.00                     | 180,000                        | 10.00                     | 2.00                         |  | 180,000                       
|                         | 3,300,000                      | 7.92                      | 0.682                        |  | 3,300,000                     





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 a $939.00 compensation expense to the Company during 1998.  At December 31, 1998, unamortized warrant compensation expense was $128,000.   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.



The Company's calculations were made using the Black-Scholes option pricing model using the same assumptions utilized for the stock option plans discussed above.  The forfeitures of the warrants are recognized as they occur.  If the
computed fair values of the warrants had been expensed over the vesting period of the awards, the pro forma net loss in 1998 would have been $128,000.



11.     Major Customers



The Company is engaged principally in originating and selling equipment leasing transactions.  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.  During 1997, 92% (based on original equipment cost) of the new lease transactions
originated by the Company were with the one largest lessee. In addition, approximately 55% and 37% (based on original equipment cost) of equipment sold to investors in 1997 were purchased by the two largest investors.





12.     Employee Benefit Plan



The Company sponsors a 401(k) retirement plan (the "Plan") for the benefit of its employees. The Plan enables employees to contribute up to 15% of their annual compensation. The Company's contributions to the Plan, up to a maximum of
$500 per participating employee, amounted to approximately $11,000 and $18,000 in 1998 and 1997, respectively.



13.     Other Investment



Other investment includes a $1 million equity investment in the New Africa Opportunity Fund, LP ("NAOF").  NAOF is a $120 million investment fund with the backing of the Overseas Private Investment Corporation ("OPIC") created to make
direct investments in emerging companies throughout sub-Saharan Africa.  Capital contributions are payable within 10 business days of a capital call pursuant to the terms of the partnership agreement.  As of December 31, 1998, the Company funded $350,000
of a $1 million commitment for its 2.5% interest in NAOF and the remaining obligation of $650,000 is included in accounts payable and accrued expenses.



14.     Related Party Activities



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.  Vestex Capital Corporation ("VCC"), an additional affiliate of the Company, provided
specified services including debt and equity raising efforts, and other financing 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.
VMI provides services to the Company on operational and other matters for which it is compensated at levels negotiated with the Company.



During 1998, VCC investigated numerous strategic alliances and merger and acquisition opportunities on behalf of the Company.  In connection with this activity, VCC was instrumental in the negotiation and consummation of the Lease
Servicing Agreement entered into on November 1, 1998 among Chancellor Leasing Services, Riviera Finance - East Bay and United Capital and Finance LLC. VCC continues to negotiate and manage the Company's financing, acquisition and investment efforts in the
Republic of South Africa and other international opportunities.  VCC was 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 $22,000,000.  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 as of December 31, 1998.  As a result, in part, of VCC's activities and services provided, the Company's net worth increased to $2,362,000 at December 31, 1998 from $227,000 as of December 31, 1997 and from an approximate $12,000,000 negative
net worth as of December 31, 1996.





During 1998 and 1997, the Company's majority shareholder and its affiliates provided various services for which the Company incurred total fees and related expenses of $1,996,000 and $2,245,000, respectively.  In 1998, consulting fees
to affiliates charged to operations totaled $996,000 and fees of $1,000,000 associated with obtaining the future recovery of trust administration expenses were capitalized to be amortized over a two-year period.  Amortization of capitalized trust recovery
costs was $48,000 during 1998.  In 1997, the Company charged operations $1,850,000 for fees incurred in connection with services provided by the affiliates for negotiation of significant cost savings realized by the Company in 1997, development and
implementation of a restructuring plan for the Company, guarantee and loan fees, operational consulting and assistance with various financing transactions.



Loans and fees payable to the affiliates at December 31, 1998 and 1997 totaled $42,000 and $109,000, respectively.  Interest expense to the majority shareholder for 1998 and 1997 was $16,000 and $92,000, respectively.



During 1998 and 1997, the Company issued various equity securities in exchange for cash, debt and fees payable to the majority shareholder.  In 1998, the Company issued 1,946,196 shares of common stock at a price of $0.69 per share in
payment of $1,343,000 of debt and fees payable.  In 1997, the Company issued 3,000,000 shares of Series AA Preferred Stock in exchange for $900,000 of debt and fees payable, 710,526 shares of Series A Preferred Stock for $1,350,000 and 20,050,000 shares
of Common Stock for $2,306,000.



Chancellor has entered into two lease transactions with Kent International ("Kent"); a company owned 50 percent by a director of the Company.  Total original equipment cost for these transactions amount to approximately $144,000.
During 1997, the Company loaned Kent $128,500.  The loan is repaid in equal monthly installments of $5,296 and matures December 1999.  The loan bears interest at 15 percent per annum.  As of December 31, 1998, Kent was in default of the loan.  As of
December 31, 1998, the outstanding balance on the loan is approximately $62,000.



15.	Commitments and Contingencies



The Company rents its corporate offices under a five-year non-cancelable lease. In addition, the Company leases regional marketing offices at three locations along the east coast. The future minimum rental commitments are as follows (in
thousands):





|Years ending December 31: | 
|------------------------- | 



|1999 | $ | 359   | 
|---- | - | ----- | 
|2000 |   | 300   | 
|2001 |   | 233   | 
|2002 |   | 201   | 
|2003 |   | 102   | 
|     |   |       | 
|     | $ | 1,195 | 



Rental expense, net of abatements, for the years ended December 31, 1998 and 1997 amounted to approximately $421,000, and $194,000, respectively.



The Company undertook a review of its trust portfolio, including consultation with legal counsel and industry consultants, and determined that it had not been recovering costs associated with administering the trusts.  Management's
review determined that approximately $22,000,000 of costs for periods prior to 1997 had not been recovered from the trusts.  The Company has recorded approximately $1,498,000 and $994,000 of cost recoveries in the years ended December 31, 1998 and 1997,
respectively.  For periods prior to 1997, $1,868,000 was recovered.  Management makes no representations concerning the Company's ability to recover any further costs for periods prior to 1997 or thereafter.  Further recoveries for periods prior to 1997
are contingent upon the current status of the specific trusts and the Company's level of recovery efforts.  Consequently, the Company will record any further recoveries as income in the period in which collection is assured.



16.     Legal Proceedings



As of December 1, 1999, 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.



17.     Operating Segments



The Company operates in two primary business segments: 1) sales of transportation equipment and 2) leasing activity, as follows (in thousands):



| | Years Ended December 31,
| | ------------------------
| | 1998                    



|Sales of Transportation Equipment:            |   |       |  |  |   |       | 
|--------------------------------------------- | - | ----- |  |  | - | ----- | 
|                                              |   |       |  |  |   |       | 
|Revenues                                      | $ | 6,165 |  |  | $ | - - - | 
|Cost and expenses:                            |   |       |  |  |   |       | 
|Cost of transportation equipment              |   | 5,647 |  |  |   | - - - | 
|Selling, general and administrative           |   | 278   |  |  |   | - - - | 
|                                              | $ | 5.295 |  |  | $ | - - - | 
|                                              |   |       |  |  |   |       | 
|                                              |   |       |  |  |   |       | 
|Income from sales of transportation equipment | $ | 240   |  |  |   | - - - | 
|                                              |   |       |  |  |   |       | 
|Identifiable Assets                           | $ | 36    |  |  |   |       | 





| | Years Ended December 31,
| | ------------------------
| | 1998                    



|Leasing Activity                                                                       |   |       |  |  |   |        |  
|-------------------------------------------------------------------------------------- | - | ----- |  |  | - | ------ | -
|                                                                                       |   |       |  |  |   |        |  
|Revenues:                                                                              |   |       |  |  |   |        |  
|Leasing activity                                                                       | $ | 3,907 |  |  | $ | 3,724  |  
|Interest income                                                                        |   | 195   |  |  |   | 44     |  
|Other income                                                                           |   | 441   |  |  |   | 665    |  
|                                                                                       |   | 4,543 |  |  |   | 4,433  |  
|                                                                                       |   |       |  |  |   |        |  
|Costs and expenses:                                                                    |   |       |  |  |   |        |  
|Selling, general and administrative                                                    |   | 3,671 |  |  |   | 6,412  |  
|Interest expense                                                                       |   | 111   |  |  |   | 281    |  
|Depreciation and amortization                                                          |   | 477   |  |  |   | 459    |  
|                                                                                       |   | 4,259 |  |  |   | 7,152  |  
|                                                                                       |   |       |  |  |   |        |  
|Income (loss) from leasing activity                                                    | $ | 284   |  |  | $ | (2,719 | )
|                                                                                       |   |       |  |  |   |        |  
|Identifiable assets as of December 31, 1998                                            | $ | 3,648 |  |  |   |        |  
|                                                                                       |   |       |  |  |   |        |  
|Income (loss) before extraordinary item and
      provision (benefit) for income taxes | $ | 524   |  |  | $ | (2,719 | )



Domestic and Foreign Operations



The Company has foreign operating segments in Russia and the Republic of South Africa.  Operating income from these operations for the year ended December 31, 1998 was approximately $13,000 in Russia and $96,000 in the Republic of South
Africa.  Foreign assets and U.S. assets collateralized by equipment in Russia and the Republic of South Africa are approximately $3,902,000 as of December 31, 1998.  The assets, which include intangibles and a note receivable, are recoverable or
collectable in U.S. dollars.



18.     Subsequent Event

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; Tomahawk Truck & Trailer Sales of Virginia, Inc., a Virginia corporation; and Tomahawk Truck & Trailer Sales of Missouri, Inc., a Missouri corporation (collectively
"Tomahawk").  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.



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.  Approximately $1.0 million is expected to be paid during 1999.



Principles of proforma information:  The proforma combining balance sheet and statement of operations include the accounts of Chancellor Corporation and its wholly owned subsidiaries and MRB, Inc.  All significant intercompany
accounts, transactions, and profits and losses have been eliminated in the proforma financial statements.



Said transaction has been accounted for at its formal closing in January 1999, the evaluation being based on $.65 per share as opposed to the previous $.96 per share.  As previously noted the Company had been contractually liable for
liabilities of approximately $11,194,000.  The Company had initially filed its 10K-SB in April 1999.  Said 10-KSB included Tomahawk consolidated with the Company (as of August 1998), however, this 10-KSB-A  has been revised to reflect Tomahawk as of
January 1999.  The following financial statements are Pro-Forma only, and the consolidated statement of operations reflect Tomahawk operations as if the acquisition had occurred on January 1, 1998.



Revenue Recognition  Transportation Equipment Sales- Revenues on MRB, Inc. transportation equipment sales is recognized in the period in which the sale is complete 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.



Inventory  MRB, Inc. inventory is 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.



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 $2,600,000 as of January, 1999 consisted of said shares valued at $.65 cents per share, less change in net worth, 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 twenty years.



Net Income per share  Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period, including the MRB, Inc. shares
issued.  Diluted net income per share is not presented for the 1998 proforma financial statements since common stock equivalent shares from convertible preferred stock and from stock options and warrants are antidilutive.



Revolving Lines of Credit  During 1994, and prior to its acquisition by the Company, Tomahawk entered into a revolving line of credit agreement with a financial institution whereby Tomahawk can borrow up to $7,500,000 to floor
plan used transportation equipment inventory.  The maximum amount outstanding during 1998 was $7,500,000.  In addition, during 1998, Tomahawk entered into a financing agreement with the same institution to floor plan additional used transportation
equipment inventory in the approximate amount of $4,500,000.  Interest is accrued monthly at the financial institution's prime plus .75 to 1.5 percent, depending on the floor planned inventory amounts.  The effective rate of interest at December 31, 1998
was 9.7 percent.  The aggregate principal balance outstanding on the revolving line of credit and the financing agreement as of December 31, 1998 was approximately $9,063,000.  The Company, in connection with the Tomahawk acquisition, assumed the
obligation pursuant to this revolving line of credit and financing agreement.  The revolving line of credit and financing agreement are both personally guaranteed by the selling stockholders of Tomahawk.

Notes Payable



Notes payable consists of the following as of December 31, 1998 (in thousands):





| | December 31,
| | ------------
| | 1998        



|Unsecured notes payable to individuals due on demand
  Including interest at 10 percent per annum.                                                                                                                                          | $ | 256 | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --- | 
|                                                                                                                                                                                                                                            |   |     | 
|Unsecured notes payable to selling stockholders of   Tomahawk,Including interest payable at 10 percent.                                                                                                                                     |   | 200 | 
|                                                                                                                                                                                                                                            |   |     | 
|Notes payable to a bank, payable in various monthly
  Installments including interest at the prime rate (7.75% at
  December 31, 1998) plus 2%, secured by automobiles
  Financed by the Company.                                           |   | 113 | 
|                                                                                                                                                                                                                                            |   |     | 
|Note payable to a financial institution, payable in monthly
  Installments of $4,135 including interest at a rate of 10
  Percent per annum, due February 15, 1999, secured by
  Automobiles and equipment.                                 |   | 4   | 
|                                                                                                                                                                                                                                            |   |     | 
|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
  Percent per annum, principal balance due on March 27, 1999. |   | 157 | 
|                                                                                                                                                                                                                                            |   |     | 
|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.    |   | 97  | 
|                                                                                                                                                                                                                                            |   | 827 | 
|Less - current portion                                                                                                                                                                                                                      |   | 706 | 
|                                                                                                                                                                                                                                            |   |     | 
|                                                                                                                                                                                                                                            | $ | 121 | 

Aggregate annual maturities of notes payable as of December 31, 1998 are as follows
(in thousands):





|Years ending December 31: | 
|------------------------- | 



|1999 | $ | 706 | 
|---- | - | --- | 
|2000 |   | 64  | 
|2001 |   | 34  | 
|2002 |   | 17  | 
|2003 |   | 6   | 
|     |   |     | 
|     | $ | 827 | 



CHANCELLOR CORPORATION

Proforma Combining Balance Sheet

As of December 31, 1998

(In thousands)



|Assets                                   | Chancellor | MRB    | Combined | MRB
Consolid.
Entry #1 | MRB
Consolid.
Entry #2 | Chancellor/MRB Combined
|---------------------------------------- | ---------- | ------ | -------- | ---------------------- | ---------------------- | -----------------------
|                                         |            |        |          |                        |                        |                        
|Cash and cash equivalents                | 612        | 32     | 644      |                        |                        | 644                    
|Accounts receivable                      | 2,880      | 375    | 3,255    |                        |                        | 3,255                  
|Inventory                                | 36         | 10,721 | 10,757   |                        |                        | 10,757                 
|Net investment in direct finance lease   | 359        |        | 359      |                        |                        | 359                    
|Equipment on operating lease, net        | 702        |        | 702      |                        |                        | 702                    
|Residual values, net                     | 219        |        | 219      |                        |                        | 219                    
|Property, plant & equipment, net         | 807        | 191    | 998      |                        |                        | 998                    
|Intangibles                              | 111        |        | 111      |                        |                        | 111                    
|Other investments                        | 1,000      |        | 1,000    |                        |                        | 1,000                  
|Other assets                             | 1,460      | 149    | 1,609    |                        |                        | 1,609                  
|Tomahawk, excess purchase price          |            |        | - - -    | (274)                  | 2,925                  | 2,651                  
|                                         |            |        |          |                        |                        |                        
|                                         | 8,186      | 11,468 | 19,654   | (274)                  | 2,925                  | 22,305                 
|                                         |            |        |          |                        |                        |                        
|Liabilities and Stockholders' Equity     |            |        |          |                        |                        |                        
|                                         |            |        |          |                        |                        |                        
|Liabilities:                             |            |        |          |                        |                        |                        
|Accounts payable & accrued      expenses | 3,572      | 1,304  | 4,876    |                        |                        | 4,876                  
|Deferred revenue                         | 1,068      |        | 1,068    |                        |                        | 1,068                  
|Revolving credit line                    |            | 9,063  | 9,063    |                        |                        | 9,063                  
|Notes payable                            |            | 827    | 827      |                        |                        | 827                    
|Non recourse debt                        | 889        |        | 889      |                        |                        | 889                    
|Recourse debt                            | 295        |        | 295      |                        |                        | 295                    
|                                         |            |        |          |                        |                        |                        
|                                         | 5,824      | 11,194 | 17,018   |                        |                        | 17,,018                
|                                         |            |        |          |                        |                        |                        
|Stockholders' Equity                     |            |        |          |                        |                        |                        
|                                         |            |        |          |                        |                        |                        
|Preferred stock, Series AA               | 50         |        | 50       |                        |                        | 50                     
|Common stock                             | 385        | 80     | 465      | (80)                   | 45                     | 430                    
|APIC                                     | 29,943     |        | 29,943   |                        | 2,880                  | 32,823                 
|                                         | (28,016)   | 194    | (27,822) | (194)                  |                        | (28,016)               
|                                         |            |        |          |                        |                        |                        
|                                         | 2,362      | 274    | 2,636    | (274)                  | 2,925                  | 5,287                  
|                                         |            |        |          |                        |                        |                        
|                                         | 8,186      | 11,468 | 19,654   | (274)                  | 2,925                  | 22,305                 
|                                         |            |        |          |                        |                        |                        



CHANCELLOR CORPORATIONProforma Combining Statement of Operations
For the Twelve Months Ended December 31, 1998(In Thousands)



|Revenue                                |   | Chancellor |   | MRB    | Chancellor/MRB Combined
|-------------------------------------- | - | ---------- | - | ------ | -----------------------
|                                       |   |            |   |        |                        
|Transportation equipment sales         | $ | 6,165      | $ | 39,074 | $                      
|Rental income                          |   | 942        |   |        |                        
|Lease underwriting income              |   | 74         |   |        |                        
|Direct finance lease income            |   | 110        |   |        |                        
|Interest income                        |   | 195        |   |        |                        
|Gains from portfolio remarketing       |   | 1,374      |   |        |                        
|Fees from remarketing income           |   | 1,407      |   |        |                        
|Other                                  |   | 441        |   | 5      |                        
|                                       |   |            |   |        |                        
|                                       | $ | 10,708     | $ | 39,079 | $                      
|                                       |   |            |   |        |                        
|                                       |   |            |   |        |                        
|Cost of Sales:                         |   |            |   |        |                        
|Cost of transportation equipment sales | $ | 5,647      | $ | 32,753 | $                      
|Selling, general & administrative      |   | 3,949      |   | 5,491  |                        
|Interest                               |   | 111        |   | 450    |                        
|Depreciation & amortization            |   | 477        |   | 40     |                        
|                                       |   |            |   |        |                        
|                                       | $ | 10,184     | $ | 38,734 | $                      
|                                       |   |            |   |        |                        
|Income before taxes                    | $ | 524        | $ | 345    | $                      
|                                       |   |            |   |        |                        
|Basic net income per share             |   |            |   |        | $                      



Signatures





|Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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|Dated:  June 16, 2000                                                                                                                                                                                           
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|Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.   
|                                                                                                                                                                                                                
|Dated:  June 16, 2000                                                                                                                                                                                           
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|Dated:  June 16, 2000                                                                                                                                                                                           
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|Dated:  June 16, 2000                                                                                                                                                                                           
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|Dated:  June 16, 2000                                                                                                                                                                                           
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