<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 0-23587
CHAPMAN HOLDINGS, INC.
(Name of small business issuer in its charter)
Maryland 52-206977
- ----------------------------------- -------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation) Identification No.)
401 East Pratt Street, 28th Floor, Baltimore, Maryland 21202
- -------------------------------------------------------------------------------
(Address of Principal Executive Office)
Issuer's telephone number, including area code: (410) 625-9656
- -------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 [ ]
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.001 per share
----------------------------------------
(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 [ ]
As of June 30, 1998, 2,953,622 shares of the issuer's common stock, par value
$0.001 per share, were outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I........................................
ITEM 1 FINANCIAL STATEMENTS................
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............
PART II.......................................
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS...........
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K..............
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The consolidated financial statements for the three and six months ended
June 30, 1998 have not been audited but, in the opinion of management,
contain all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position and results of operations
of the Company as of such date and for such periods. The unaudited
consolidated financial statements should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto
appearing in the Company's Form 10-KSB. The results of operations for the
three and six months ended June 30, 1998 are not necessarily indicative of
the results of operations that may be expected for the year ending December
31, 1998 or any future periods.
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF DECEMBER 31, 1997, AND JUNE 30, 1998
------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
--------------- ---------------
(Unaudited)
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 211,342 $ 6,398,896
Cash deposits with clearing organization 40,116 48,663
Investments, available for sale 169,306 201,250
Receivables from brokers and dealers 322,303 107,397
Note receivable from affiliated company 800,672 697,384
Receivables from affiliated companies 245 163,295
Advances to officer/employee 176,051 594,666
Office equipment, net 17,343 21,071
Prepaids and other assets 81,338 417,027
Net assets from discontinued operations 1,044,870 -
-------------- --------------
Total assets $ 2,863,586 $ 8,649,649
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accrued expenses $ 68,864 $ 161,725
Accrued compensation 68,910 127,740
Deferred rent 89,048 83,596
Payable to affiliates 9,846 19,692
Income taxes payable 205,837 136,779
Net liabilities from discontinued operations 1,172,387 -
-------------- --------------
Total liabilities 1,614,892 529,532
-------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 20,000,000 shares authorized,
1,989,235 and 2,953,622 shares issued and outstanding,
respectively 1,989 2,954
Additional paid-in capital 1,091,461 7,902,561
Retained earnings 155,244 214,602
-------------- --------------
Total stockholders' equity 1,248,694 8,120,117
-------------- --------------
Total liabilities and stockholders' equity $ 2,863,586 $ 8,649,649
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1998
-------------------------------------------------
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
---------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------------------------
1997 1998 1997 1998
--------------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Commissions $ 600,775 $ 458,076 $ 1,132,988 $ 1,160,551
Underwriting and management fees 21,767 95,930 50,618 143,065
Interest and dividends 12,579 109,889 21,735 165,710
-------------- -------------- -------------- --------------
Total revenue 635,121 663,895 1,205,341 1,469,326
-------------- -------------- -------------- --------------
EXPENSE:
Compensation and benefits 273,166 423,576 552,102 770,792
Floor brokerage and clearing fees 64,775 111,017 138,702 200,039
Communications 33,336 42,717 75,158 88,029
Occupancy, equipment rental, and
depreciation 87,313 102,008 176,037 194,141
Travel and business development 54,501 64,213 104,669 97,696
Professional fees 22,636 22,933 33,721 58,400
Other operating expense 61,073 105,116 130,483 174,356
-------------- -------------- -------------- --------------
Total expense 596,800 871,580 1,210,872 1,583,453
-------------- -------------- -------------- --------------
Income (loss) from continuing
operations before income
tax provision (benefit) 38,321 (207,685) (5,531) (114,127)
INCOME TAX PROVISION(BENEFIT) 16,015 (78,155) (2,311) (39,944)
-------------- -------------- -------------- --------------
Income (loss) from continuing
operations 22,306 (129,530) (3,220) (74,183)
-------------- -------------- -------------- --------------
LOSS FROM DISCONTINUED
OPERATIONS (15,594) - (19,395) -
-------------- -------------- -------------- --------------
Net income (loss) $ 6,712 $ (129,530) $ (22,615) $ (74,183)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
BASIC AND DILUTIVE EARNINGS PER
SHARE DATA:
(Loss) income from continuing
operations $ - $ (.04) $ (.01) $ (.03)
Loss from discontinued operations - - - -
-------------- -------------- -------------- --------------
Net (loss) income $ - $ (.04) $ (.01) $ (.03)
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
Weighted average shares outstanding 1,989,234 2,953,622 2,014,609 2,632,160
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------------
1997 1998
--------------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (22,615) $ (74,183)
Adjustments to reconcile net loss to net cash used in
operating activities:
Effect from changes in assets and liabilities-
Cash deposits with clearing organization - (8,547)
Receivables from brokers and dealers (32,789) 214,906
Note receivable from affiliated company (59,447) 103,288
Receivables from affiliated companies (696) (163,050)
Advances to officer/employee (24,995) (33,027)
Prepaids and other assets (14,354) (285,689)
Net assets from discontinued operations 135,059 6,024
Accounts payable and accrued expenses 91,684 92,861
Accrued compensation (28,434) 58,830
Deferred rent - (5,452)
Payable to affiliated partnership (59,076) 9,846
Income taxes payable (125,330) (69,058)
-------------- --------------
Net cash used in operating activities (140,993) (153,251)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment (9,785) (3,728)
Purchase of investments - (31,944)
Advances to officer/employee - (385,588)
Other assets - (50,000)
-------------- --------------
Net cash (used in) provided by investing activities (9,785) (471,260)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock - 6,812,065
Purchase of stock (217,500) -
-------------- -------------
Net cash (used in) provided by financing activities (217,500) 6,812,065
-------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (368,278) 6,187,554
CASH AND CASH EQUIVALENTS, beginning of period 497,758 211,342
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 129,480 $ 6,398,896
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARY
-------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
JUNE 30, 1998
-------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Chapman Holdings, Inc. provides securities brokerage and investment banking
services.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Chapman Holdings, Inc. (CHI) and its wholly owned subsidiary, The Chapman Co.
(collectively, the Company). All significant intercompany accounts and
transactions have been eliminated in consolidation. The accompanying
consolidated financial statements are presented on the accrual basis of
accounting in accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Interim Financial Statements
The consolidated financial statements for the three and the six months ended
June 30, 1997 and 1998, are unaudited, but in the opinion of management, such
financial statements have been presented on the same basis as the audited
consolidated financial statements and include all adjustments, consisting only
of normal recurring adjustments necessary for a fair presentation of the
financial position and results of operations, for the periods.
As permitted under the applicable rules and regulations of the Securities and
Exchange Commission, these financial statements do not include all disclosures
normally included with audited consolidated financial statements, and
accordingly, should be read in conjunction with the consolidated financial
statements and notes thereto as of December 31, 1997, included in the Company's
Form SB-2 filed. The results of operations presented in the accompanying
consolidated financial statements are not necessarily representative of
operations for an entire year and because of the nature of the Company's
operations can be materially different between periods.
Cash and Cash Equivalents
Included in cash and cash equivalents is $6,259,665 of cash invested in the U.S.
Treasury Money Fund, a fund managed by Chapman Capital Management, an affiliate.
<PAGE>
2. INITIAL PUBLIC OFFERING AND SPIN-OFF OF OPERATIONS:
On February 26, 1998, the Company consummated an initial public offering (the
Offering) of its Common Stock pursuant to which the Company received net
proceeds of approximately $6,875,000.
Effective February 26, 1998, concurrent with CHI's completed initial public
offering, CHI spun off two of its wholly owned subsidiaries, Chapman Capital
Management, Inc. and Chapman Insurance Agency, Inc. See the audited consolidated
financial statements and notes thereto as of December 31, 1997, included in the
Company's Form 10-KSB filed, for a discussion of this transaction.
3. RELATED PARTY TRANSACTIONS:
During 1998, the Company advanced the President of the Company approximately
$385,000. The note related to this advance bears interest at approximately 5.5%
and is payable in three years.
4. NEW AUTHORITATIVE STANDARDS:
During 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income" (SFAS No. 130), which is effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for reporting and display of comprehensive income and its components.
The Company adopted SFAS No. 130 during the six months ended June 30, 1998, and
has determined that the adoption of this statement has an immaterial impact on
the financial statements as the Company has minimal comprehensive income
adjustments.
During 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131), which is effective for
fiscal years beginning after December 15, 1997. This statement establishes a new
approach for determining segments within a company and reporting information on
those segments. The Company has performed a preliminary assessment of this
statement and believes that no disclosure is necessary as the Company has only
one segment.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Note Regarding Forward-Looking Information
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in
this Report constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, general
economic and business conditions in the Company's market area, inflation,
fluctuations in interest rates, changes in government regulations,
competition and the ability of the Company to implement its business strategy.
Forward-looking statements are intended to apply only at the time they
are made. Moreover, whether or not stated in connection with a
forward-looking statement, the Company undertakes no obligation to correct or
update a forward-looking statement should the Company later become aware that
it is not likely to be achieved. If the Company were to update or correct a
forward-looking statement, investors and others should not conclude that the
Company will make additional updates or corrections thereafter.
<PAGE>
Results of Operations
The following table reflects items in the Statements of Operations as
dollar amounts and as percentages of total revenue.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1998 1997 1998
----------------------- --------------------- ---------------------- -----------------------
Percentage of Percentage of Percentage of Percentage of
Amounts Total Revenue Amounts Total Revenue Amounts Total Revenue Amounts Total Revenue
--------- ------------- ------- ------------- ------- ------------- ------ -------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commisions $ 600,775 94.6% $ 458,076 69.0% $ 1,132,988 94.0% $ 1,160,551 79.0%
Underwriting and management fees 21,767 3.4 95,930 14.4 50,618 4.2 143,065 9.7
Interest and dividends 12,579 2.0 109,889 16.6 21,735 1.8 165,710 11.3
--------- -------- --------- ---------- ----------- -------- ----------- ---------
Total revenue 635,121 100.0 663,895 100.0 1,205,341 100.0 1,469,326 100.0
--------- -------- --------- ---------- ----------- -------- ----------- ---------
EXPENSE:
Compensation and benefits 273,166 43.0 423,576 63.8 552,102 45.8 770,792 52.5
Brokerage and clearing fees 64,775 10.2 111,017 16.7 138,702 11.5 200,039 13.6
Communications 33,336 5.3 42,717 6.4 75,158 6.2 88,029 6.0
Occupancy, rental and depreciation 87,313 13.7 102,008 15.4 176,037 14.6 194,141 13.2
Travel and business development 54,501 8.6 64,213 9.7 104,669 8.7 97,696 6.6
Professional fees 22,636 3.6 22,933 3.5 33,721 2.8 58,400 4.0
Other operating expense 61,073 9.6 105,116 15.8 130,483 10.8 174,356 11.9
--------- -------- --------- ---------- ----------- -------- ----------- ---------
Total expense 596,800 94.0 871,580 131.3 1,210,872 100.4 1,583,453 107.8
--------- -------- --------- ---------- ----------- -------- ----------- ---------
Income from continuing 38,321 6.0 (207,685) (31.3) (5,531) (0.4) (114,127) (7.8)
operations
Income tax provision (benefit) 16,015 2.5 (78,155) (11.8) (2,311) (0.2) (39,944) (2.7)
--------- -------- --------- ---------- ----------- -------- ----------- ---------
Net income from continuing 22,306 3.5 (129,530) (19.5) (3,220) (0.2) (74,183) (5.1)
operations
Loss from discontinuing operations (15,594) (2.4) -- 0.0 (19,395) (1.6) -- 0.0
--------- -------- --------- ---------- ----------- -------- ----------- ---------
Net income $ 6,712 1.1% $(129,530) (19.5%) $ (22,615) (1.8%) $ (74,183) (5.1%)
--------- -------- --------- ---------- ----------- -------- ----------- ---------
--------- -------- --------- ---------- ----------- -------- ----------- ---------
</TABLE>
Total revenue increased by $28,774 or 4.5%, to $663,895 for the three
months ended June 30, 1998 from $835,121 for the prior comparable period.
Total revenue increased by $263,985 or 21.9% to $1,469,326 for the six months
ended June 30, 1998 from $1,205,341 for the prior comparable period. Revenue
was higher due to an increase in underwriting and management fees and
interest income.
Commission revenue decreased by $142,699 or 23.8%, to $458,076 for the
three months ended June 30, 1998 from $600,775 for the prior comparable
period. Commission revenue increased by $27,563 or 2.4% to $1,160,551 for the
six months ended June 30, 1998 from $1,132,988 in the prior comparable
period. The decrease for the three month period was primarily due to a 44.3%
decrease in fixed income commissions. The fixed income commission decrease
was due to a 94.6% decrease in government trading and was partially offset by
a 315.8% increase in municipal sales. These commission revenues were greatly
affected by market conditions in the six months ended June 30, 1998. The
increase for the six month period ended June 30, 1998 was due to the increase
in commission revenue during the first quarter, offset by the decrease for
the second quarter of the six month period.
Underwriting and management fees increased by $74,163, to $95,930 for
the three months ended June 30, 1998 from $21,767 for the prior comparable
period primarily due to an increase in management fees from municipal
transactions. Underwriting and management fees increased by $92,447 to
$143,065 for the six months ended June 30, 1998 from $50,618 in the prior
comparable period.
Interest and dividend revenue increased by $97,310 to $109,889 for the
three months ended June 30, 1998 from $12,579 in the prior comparable period.
Interest and dividend revenue increase by $143,975 to $165,710 for the six
months ended June 30, 1998 from $21,735 in the prior comparable period. This
increase is due to higher earnings due to higher cash balances associated
with the net proceeds from the public offering.
Total expense increased by $274,780 or 46.0%, to $871,580 for the three
months ended June 30, 1998 from $596,800 for the prior comparable period.
Total expense increased to 131.3% of total revenue for the three months ended
June 30, 1998 as compared to 94.0% of total revenue for the prior comparable
period. Total expense increased by $372,581 or 30.8%, to $1,583,453 for the
six months ended June 30, 1998 from $1,210,872 for the prior comparable
period. Total expense increased to 107.8% of total revenue for the six months
ended June 30, 1998 as compared to 100.5% of total revenue for the prior
comparable period
Compensation and benefits increased by $150,410, or 55.1%, to $423,576
for the three months ended June 30, 1998 from $273,166 for the prior
comparable period. As a percentage of total revenue, these expenses increased
to 63.8% for the three months ended June 30, 1998 from 43.0% in the prior
<PAGE>
comparable period. Compensation and benefits increased by $218,690 or 39.6%
to $770,792 for the six months ended June 30, 1998 from $552,102 in the prior
comparable period. Compensation expense includes sales commissions paid to
brokers on the sale of securities and varies in relation to changes in
commission revenue. The increase in compensation and benefits is primarily
attributable to the increase of commissions paid to brokers due to increased
municipal sales volume, the addition of eight employees, and signing bonuses.
Floor brokerage and clearing fees increased by $46,242 or 71.4%, to
$111,017 for the three months ended June 30, 1998 from $64,775 for the prior
comparable period. Floor brokerage and clearing fees increased by $61,337 or
44.2%, to $200,039 for the six months ended June 30, 1998 from $138,702 for
the prior comparable period primarily due to the increase in the number of
sales versus amount of sales.
Communication expense increased by $9,381, or 28.1%, to $42,717 for the
three months ended June 30, 1998 from $33,336 for the prior comparable
period. Communication expense increased by $12,871, or 17.1%, to $88,029 for
the six months ended June 30, 1998 from $75,158 for the prior comparable
period primarily due to price and use increases in connection with the
Company's communications services.
Occupancy, rental and depreciation expense increased by $14,695 or
16.8%, to $102,008 for the three months ended June 30, 1998 from $87,313 for
the prior comparable period. Occupancy, rental and depreciation expense
increased by $18,104 or 10.3%, to $194,141 for the six months ended June 30,
1998 from $176,037 for the prior comparable period. The increase is due to
the opening of additional offices.
Travel and business development expense increased by $9,712 or 17.8%, to
$64,213 for the three months ended June 30, 1998 from $54,501 for the prior
comparable period. Travel and business development expense decreased by
$6,973, or 6.7%, to $97,696 for the six months ended June 30, 1998 from
$104,669 for the prior comparable period. The decrease for the six month
period ended June 30, 1998 was due to the decrease during the first quarter,
offset by the increase for the second quarter of the six month period.
Professional fees increased by $297 or 1.3%, to $22,933 for the three
months ended June 30, 1998 from $22,636 for the prior comparable period.
Professional fees increased by $24,697 or 73.2%, to $58,400 for the six
months ended June 30, 1998 from $33,721 for the prior comparable period due
primarily to the Company's increased use of accounting and tax advisors.
Other operating expense increased by $44,043 or 72.1%, to $105,116 for
the three months ended June 30, 1998 from $61,073 for the prior comparable
period. Other operating expense increased by $43,873 or 33.6% to $174,356 for
the six months ended June 30, 1998 from $130,483 for the prior comparable
period. The increase is due primarily to an increase in advertising,
supplies, postage and filing fees expense.
Income taxes from continuing operations decreased by $94,170 to a
$78,155 tax benefit in the three months ended June 30, 1998 from a $16,015
tax provision for the prior comparable period. Income taxes from continuing
operations decreased by $37,633 to a $39,944 tax benefit in the six months
ended June 30, 1998 from a $2,311 tax benefit for the prior comparable
period. This decrease was due to the net loss for the periods.
Net income decreased by $136,242 to a $129,530 loss for the three months
ended June 30, 1998 from a net income of $6,712 for the prior comparable
period. Net income decreased by
<PAGE>
$51,568 to a $74,183 loss for the six months ended June 30, 1998 from a net
loss of $22,615 for the prior comparable period.
Liquidity and Capital Resources
The Company's assets are reasonably liquid with a substantial majority
consisting of cash and cash equivalents, investment securities, and
receivables from other broker-dealers and the Company's clearing agent, all
of which fluctuate depending upon the levels of customer business and trading
activity. Receivables from broker-dealers and the Company's clearing agent
turnover rapidly. Both the Company's total assets as well as the individual
components as a percentage of total assets may vary significantly from period
to period because of changes relating to customer demand, economic and market
conditions, and proprietary trading strategies. The Company's total assets as
of June 30, 1998 were $8,849,649.
The Chapman Co., the Company's broker-dealer subsidiary, is subject to
the net capital rules of the NASD. As such, The Chapman Co. is subject to
certain restrictions on the use of capital and its related liquidity. The net
capital position of The Chapman Co. as of June 30, 1998 was $2,491,533, which
was $2,391,533 in excess of its minimum net capital requirement.
The Company's cash and cash equivalents were $6,398,896 as of June 30,
1998. The increase in cash and cash equivalents was primarily due to the
Company's initial public offering during the period.
Historically, the Company has financed its operations through the sale
of equity securities and cash flow from operations. The Company has not
employed any significant leverage or debt. The Company intends to use debt
prudently in the future and may seek to arrange for lines of credit.
On February 26, 1998, the Company consummated an initial public
offering, the Offering, of its Common Stock pursuant to which the Company
received net proceeds of approximately $6,875,000. The net proceeds from the
Offering are invested in U.S. government securities, short term certificates
of deposit, money market funds and other short-term interest-bearing
investments.
The Company's overall capital and funding needs are continually reviewed
to ensure that its capital base can support the estimated needs of its
business. These reviews take into account business needs as well as the
Company's regulatory capital requirements. The Company believes that its
capital structure is adequate for current operations.
Year 2000 Software Issue
As the year 2000 approaches, existing application software
programs and operating systems need to be critically reviewed to determine if
they can accommodate information that employs dates after December 31, 1999.
Management is working with its software vendors to prepare the Company for the
year 2000. Based on information currently available, management does not
anticipate that the Company will be required to incur material costs in order to
be year 2000 compliant. The Company is, however, still analyzing and modifying
its systems and requirements. In addition, the Company has relationships with
third parties that have computer systems that may not be year 2000 compliant. To
the extent such third parties' systems are not fully year 2000 compliant, there
can be no assurance that potential systems interruptions or the cost necessary
to update software would not have a material adverse effect on the Company's
business, financial condition, results of operations or business prospects.
<PAGE>
PART II
OTHER INFORMATION
ITEM 2- CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company's Registration Statement on Form SB-2 (File No. 333-43487)
with respect to the Offering was declared effective by the Commission on
February 23, 1998. As of June 30, 1998, the Company has applied
approximately $2.5 million of the net proceeds to expand its net capital and
$1 million to expand its working capital and for general corporate purposes.
Further, the Company has committed approximately $200,000 to expand research,
approximately $325,000 to open a new office and staff such office and
approximately $300,000 to expand marketing and sales capability. During the
six months ended June 30, 1998, the Company advanced Nathan A. Chapman, Jr.,
the President of the Company, approximately $385,000. The notes related to
this advance bear interest at 5.5% and are payable in three years. The
remainder of the net proceeds have not yet been applied by the Company and,
pending such application, will be invested principally in United States
government securities, short-term certificates of deposit, money market funds
or other short-term interest-bearing investments.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits required by Item 601 of Regulation S-B:
Exhibit 10.1 $100,000 Promissory Note of Nathan A. Chapman,
Jr. to the Company dated May 1 1998
Exhibit 10.2 $285,587.34 Promissory Note of Nathan A. Chapman,
Jr. tothe Company dated March 11, 1998.
Exhibit 27: Financial Data Schedule
B. Reports on Form 8-K:
None.
<PAGE>
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.
CHAPMAN HOLDINGS, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
---------------------------------------
Nathan A. Chapman, Jr.
President, Chairman of the Board and Director
/s/ M. LYNN BALLARD
---------------------------------------
M. Lynn Ballard
Treasurer and Controller
(Principal Financial Officer and Principal
Accounting Officer)
Date: August 13, 1998
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
<S> <C>
10.1 $100,000 Promissory Note of Nathan A. Chapman, Jr. to the Company dated
May 1 1998
10.2 $285,587.34 Promissory Note of Nathan A. Chapman, Jr. to the Company
dated March 11, 1998.
28 Financial Data Schedule
</TABLE>
<PAGE>
PROMISSORY NOTE
- ---------------
$100,000.00 BALTIMORE,MARYLAND
May 1 1998
WITHIN THREE YEARS, the undersigned promises to pay to the order of
Chapman Holdings, Inc., One hundred thousand dollars ($100,000.00), at
its offices in Baltimore, Maryland, together with interest thereon
from the date hereof until paid at the rate of 5.5% per annum.
/S/ NATHAN A. CHAPMAN, JR.
--------------------------
Nathan A. Chapman, Jr.
<PAGE>
Ex. 10.2
PROMISSORY NOTE
$285,587.34 BALTIMORE, MARYLAND
MARCH 11, 1998
WITHIN THREE YEARS, the undersigned promises to pay to the order of Chapman
Holdings, Inc., Two hundred eighty-five thousand five hundred eighty-seven
dollars and thirty-four cents ($285,587.34), at its offices in Baltimore,
Maryland together with interest thereon from the date hereof until paid at the
rate of 5.5% per annum.
/s/ Nathan A. Chapman, Jr.
---------------------------------
NATHAN A. CHAPMAN, JR.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF THE COMPANY FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997 AND JUNE
30, 1998 AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS 3-MOS 6-MOS
<FISCAL-YEAR-END> JAN-01-1998 APR-01-1997 APR-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997 JUN-30-1998 JUN-30-1997
<CASH> 6,447,559 0 0 0
<SECURITIES> 201,250 0 0 0
<RECEIVABLES> 968,076 0 0 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 682,643 0 0 0
<PP&E> 21,071 0 0 0
<DEPRECIATION> 0 0 0 0
<TOTAL-ASSETS> 8,649,649 0 0 0
<CURRENT-LIABILITIES> 529,532 0 0 0
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 2,954 0 0 0
<OTHER-SE> 8,117,163 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 8,649,649 0 0 0
<SALES> 0 622,542 554,006 1,183,606
<TOTAL-REVENUES> 0 635,121 663,895 1,205,341
<CGS> 0 0 0 0
<TOTAL-COSTS> 0 596,800 671,580 1,210,872
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 1,950 493 3,792
<INCOME-PRETAX> 0 38,321 (207,685) (5,531)
<INCOME-TAX> 0 16,015 (78,155) (2,311)
<INCOME-CONTINUING> 0 22,306 (129,530) (3,220)
<DISCONTINUED> 0 (15,594) 0 (19,395)
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 0 6,712 (129,530) (22,615)
<EPS-PRIMARY> 0 0.00 (0.04) 0.01
<EPS-DILUTED> 0 0.00 (0.04) 0.01
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF THE COMPANY FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997 AND JUNE
30, 1998 AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 1,303,616
<TOTAL-REVENUES> 1,469,326
<CGS> 0
<TOTAL-COSTS> 1,583,453
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,418
<INCOME-PRETAX> (114,127)
<INCOME-TAX> (39,944)
<INCOME-CONTINUING> (74,183)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74,183)
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
