<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 March 31, 1999
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 (I.R.S. Employer Identification No.)
of Incorporation)
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 May 17, 1999, 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...................................................................... 1
ITEM 1 FINANCIAL STATEMENTS.............................................. 1
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................... 7
PART II..................................................................... 13
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS..................... 13
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.............................. 13
</TABLE>
ii
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The consolidated financial statements for the three months ended March
31, 1999 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
Annual Report on Form 10-KSB for the year ended December 31, 1998. The results
of operations for the three months ended March 31, 1999 are not necessarily
indicative of the results of operations that may be expected for the year ending
December 31, 1999 or any future periods.
1
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CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998, AND MARCH 31, 1999
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 3,090,000 $ 2,855,000
Cash deposits with clearing organization 2,389,000 2,419,000
Investments 204,000 239,000
Securities owned 2,080,000 1,856,000
Receivables from brokers and dealers 331,000 368,000
Receivables from affiliates 380,000 97,000
Income taxes receivable 294,000 298,000
Advances to officer/employee 657,000 670,000
Office equipment, net 38,000 105,000
Prepaids and other assets 583,000 561,000
Intangible assets 145,000 134,000
Deferred tax asset 14,000 14,000
------------ ------------
Total assets $ 10,205,000 $ 9,616,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accrued expenses $ 261,000 $ 283,000
Margin loan payable 2,559,000 1,947,000
Accrued compensation 243,000 242,000
Deferred rent 78,000 75,000
Income taxes payable -- 1,000
------------ ------------
Total liabilities 3,141,000 2,548,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 20,000,000 shares authorized,
2,953,622 shares issued and outstanding 3,000 3,000
Additional paid-in capital 7,903,000 7,903,000
Accumulated deficit (842,000) (838,000)
------------ ------------
Total stockholders' equity 7,064,000 7,068,000
------------ ------------
Total liabilities and stockholders' equity $ 10,205,000 $ 9,616,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1998 1999
---------- ----------
(Unaudited)
<S> <C> <C>
REVENUE:
Commissions $ 702,000 $1,214,000
Underwriting and management fees 47,000 62,000
Interest and dividends 56,000 55,000
Gains on trading -- 392,000
---------- ----------
Total revenue 805,000 1,723,000
---------- ----------
EXPENSE:
Compensation and benefits 347,000 761,000
Floor brokerage and clearing fees 89,000 186,000
Communications 45,000 64,000
Occupancy, equipment rental, and depreciation 92,000 171,000
Travel and business development 34,000 79,000
Professional fees 36,000 231,000
Other operating expense 69,000 225,000
---------- ----------
Total expense 712,000 1,717,000
---------- ----------
Income before income tax provision 93,000 6,000
INCOME TAX PROVISION 38,000 2,000
---------- ----------
Net income $ 55,000 $ 4,000
---------- ----------
---------- ----------
BASIC AND DILUTIVE EARNINGS PER SHARE DATA:
Net income $ 0.02 $ --
---------- ----------
---------- ----------
Weighted average shares outstanding 2,311,000 2,954,000
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1998 1999
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 55,000 $ 4,000
Adjustments to reconcile net income to net cash (used in)
operating activities:
Depreciation/amortization expense -- 13,000
Unrealized/realized gain on securities owned -- (392,000)
Effect from changes in assets and liabilities-
Deposits with clearing organization -- (30,000)
Receivables from brokers and dealers 178,000 (37,000)
Receivables from affiliates -- 283,000
Receivables from affiliated company (78,000) --
Income tax receivable -- (4,000)
Advances to officer/employee (309,000) (13,000)
Prepaids and other assets 3,000 22,000
Net assets from discontinued operations 1,045,000 --
Accounts payable and accrued expenses 33,000 22,000
Accrued compensation 24,000 (1,000)
Deferred rent -- (3,000)
Payable to affiliated partnership (10,000) --
Income taxes payable 9,000 1,000
Net liabilities from discontinued operations (1,172,000) --
----------- -----------
Net cash used in operating activities (222,000) (135,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment -- (69,000)
Equity investment in discontinued operations 134,000 --
Purchase of investments (2,000) (35,000)
Proceeds from sale of investments -- 4,000
----------- -----------
Net cash provided by (used in) investing activities 132,000 (100,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 6,925,000 --
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 6,835,000 (235,000)
CASH AND CASH EQUIVALENTS, beginning of year 211,000 3,090,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 7,046,000 $ 2,855,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
Chapman Holdings, Inc. provides securities brokerage and investment banking
services. The accompanying unaudited 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 months ended March 31, 1998
and 1999, 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, 1998, included in the Company's
Form 10-KSB 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.
SECURITIES OWNED AND NOT YET PURCHASED
Securities owned consist of trading proprietary stock, which is carried at
market. The proprietary stock is primarily stock of CHI and Chapman Capital
Management Holdings, Inc. (CCMH), an affiliate. The Chapman Co. is the market
maker for CHI and for CCMH and, thus, holds this stock in inventory. As of March
31, 1999, the Chapman Co. held 113,526 shares of common stock of CHI. The
proprietary stock was purchased on margin.
5
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EARNINGS PER SHARE
As of March 31, 1999, there were 43,900 options outstanding; however the common
stock equivalents of these options was not included in the diluted earnings per
share as the stock options are antidulutive.
6
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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 and other risks discussed in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1998, and in this and other
reports filed by the Company.
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.
The following discussion should be read in conjunction with the
financial statements contained in Item 1 of Part I of this Form 10-QSB.
7
<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 Percentage of Three months ended Percentage of
March 31, 1999 Total Revenue March 31, 1998 Total Revenue
------------------- ------------- ------------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Commissions $1,214,000 70.4% $702,000 87.2%
Underwriting and management fees 62,000 3.6 47,000 5.8
Interest and Dividends 55,000 3.2 56,000 7.0
Gain on trading 392,000 22.8 -- 0.0
----------- ------ -------- ------
Total revenue 1,723,000 100.0 805,000 100.0
----------- ------ -------- ------
Expenses:
Compensation and benefits 761,000 44.2 347,000 43.1
Brokerage and clearing 186,000 10.8 89,000 11.1
Communications 64,000 3.7 45,000 5.6
Occupancy, equipment rental and 171,000 9.9 92,000 11.4
depreciation
Professional fees 231,000 13.4 36,000 4.5
Travel and business development 79,000 4.6 34,000 4.2
Other operating expenses 225,000 13.1 69,000 8.6
----------- ------ -------- ------
Total expenses 1,717,000 99.7 712,000 88.5
----------- ------ -------- ------
Income before income tax provision 6,000 0.3 93,000 11.5
Income Tax provision 2,000 0.1 38,000 4.7
----------- ------ -------- ------
Net income $ 4,000 0.2% $ 55,000 6.8%
----------- ------ -------- ------
----------- ------ -------- ------
</TABLE>
Total Revenue increased $918,000, or 114%, to $1,723,000 for the three
months ended March 31, 1999 from $805,000 for the prior comparable period.
Revenue was higher due to an increase in municipal underwriting participation
combined with a gain on trading stock.
Commission revenue increased $512,000, or 72.9%, to $1,214,000 for the
three months ended March 31, 1999 from $702,000 for the prior comparable period.
The increase was primarily due to targeted growth in revenue from municipal
underwriting which increased $444,000 to $479,000 for the three months ended
March 31, 1999 from $35,000 for the prior comparable period. The Company
participated in 11 underwriting syndicates during the three-months ended March
31, 1999 compared to six underwriting syndicates in the prior comparable period.
Commission revenue from the sale of retail equities increased $84,000, or 55.3%,
to $236,000 for the three months ended March 31, 1999 from $152,000 for the
prior comparable period. This gain was partially offset by a $46,000, or 9.8%
decrease in institutional sales commissions to $423,000 in the three months
ended March 31, 1999 due to volume and price variation of institutional sales
activity compared to $469,000 for the prior comparable period.
8
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Underwriting and management fee revenue increased $15,000, or 31.9%, to
$62,000 for the three months ended March 31, 1999 from $47,000 for the prior
comparable period. This increase was due to an increase in management advisory
services.
The gain on trading inventory was $392,000 for the three months ended
March 31, 1999. The Company's gain on trading is attributable to an increase in
the market value of its market-making securities inventory.
Total expense increased by $1,005,000, or 141.2%, to $1,717,000 for the
three months ended March 31, 1999 from $712,000 for the prior comparable period.
The largest components of the increase in expenses are associated with recently
opened regional offices in selected markets, business development costs
associated with marketing the Domestic Emerging Markets or DEM investment
strategy and increases in staff pursuant to the Company's business expansion
strategy.
Compensation and benefits increased by $414,000 or 119.3%, to $761,000
for the three months ended March 31, 1999 from $347,000 for the prior comparable
period. This increase is largely due to the addition of staff pursuant to the
Company's business expansion strategy. Total staffing at March 31, 1999 and
March 31, 1998 was 49 employees and 20 employees, respectively. Compensation
expense includes sales commissions paid to brokers and varies in relation to
changes in commission revenue. As a percentage of total revenue, these expenses
were 44.2% and 43.1% for the three months ended March 31, 1999 and 1998
respectively.
Floor brokerage and clearing fees increased by $97,000, or 109%, to
$186,000 for the three months ended March 31, 1999 from $89,000 for the prior
comparable period. This increase is attributable to an increase in the number of
brokers and related transaction volume.
Communication expense increased by $19,000, or 42.2%, to $64,000 for
the three months ended March 31, 1999 from $45,000 for the prior comparable
period. This increase was primarily attributable to increased usage associated
with new offices and the Company's business expansion strategy.
Occupancy and equipment expense increased by $79,000, or 85.9%, to
$171,000 for the three months ended March 31, 1999 from $92,000 for the prior
comparable period due to the opening of new offices.
Professional fees increased by $195,000, or 541.7%, to $231,000 for the
three months ended March 31, 1999 from $36,000 for the prior comparable period.
The Company's increased use of legal services, independent audit and review
services and marketing consultants is directly related to the Company's business
expansion strategy.
Travel and business development expense increased by $45,000, or
132.4%, to $79,000 for the three months ended March 31, 1999 from $34,000 for
the prior comparable period due to increased travel related to business
development activities.
Other operating expense increased by $156,000 or 226.1%, to $225,000
for the three months ended March 31, 1999 from $69,000 for the prior comparable
period. Advertising
9
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expense increased by $74,000 from the prior comparable period. The other
operating expense increase also includes increased use of supplies and filing
fees associated with business development and promotions, new offices and the
Company's business expansion.
Income taxes decreased by $36,000 to a tax provision of $2,000 for
the three months ended March 31, 1999 from a tax provision of $38,000 for the
prior comparable period. This decrease was due to the decrease in income from
continuing operations.
Net income decreased by $51,000 to $4,000 for the three months ended
March 31, 1999 from $55,000 for the prior comparable period. This change was a
result of items discussed above.
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 March 31,
1999 was $9,616,000.
The Chapman Co., the Company's wholly-owned 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 March 31, 1999 was $1,026,000,
which was $776,000 in excess of its minimum net capital requirement.
The Company's cash and cash equivalents was $2,855,000 as of March 31,
1999.
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.
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 software programs and operating
systems must be reviewed to determine if they can accommodate information that
employs dates after December 31, 1999. As of March 31, 1999, the Company has
incurred Year 2000 compliance costs of approximately $49,000, to cover
assessment of systems, internal testing, point-to-point testing,
10
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training, and replacement and modification of existing systems. A portion the
Company's Year 2000 compliance costs consisting primarily of expenses for
upgraded computers, software, and communication systems will be allocated to
Chapman Capital Management, Inc. ("CCM"), an affiliate of the Company, through
increased charges for administrative support under its expense allocation
agreement with the Company. See "Certain Transactions."
During 1999, the Company's Year 2000 compliance costs are estimated at
approximately $120,000 of which approximately $32,000 will be allocated to CCM.
The Company estimates that over the next three years its total Year 2000
compliance costs will be approximately $300,000 of which approximately $95,000
will be allocated to CCM.
Management has prepared a written plan detailing the Company's software
and operating systems compliance issues for the Year 2000. The plan identifies
critical and non-critical operating systems of the Company and addresses
external interfaces with third-party computer systems. The Company is currently
working with its hardware and software vendors and other third parties to
prepare for the Year 2000. The Company anticipates that most of the necessary
hardware and software renovations needed to render the Company Year 2000
compliant have been or will be completed by the second quarter of 1999.
Management plans to test its systems during the second quarter of 1999 to
determine the effect of its compliance efforts. According to the Company's plan,
internal testing to prepare for point to point testing will be conducted in May
1999 with follow-up testing in June 1999 if needed. Point to point testing will
be conducted in July 1999 with follow-up testing in August 1999 if needed.
This process involves four phases:
Phase I - Assessment. This phase involves the identification of all
systems that are date dependent. This phase was substantially completed during
the first quarter of 1998.
Phase II - Renovation. This phase involves the identification and
replacement of critical systems that cannot be updated or certified as
compliant. This phase commenced in the first quarter of 1998 and the Company
expects to complete the substantial majority of this phase before the end of the
third quarter of 1999.
Phase III - Testing. This phase involves testing all systems that are
date dependent and upgrading all non-compliant systems. The Company expects to
complete this phase during the third quarter of 1999.
Phase IV - Contingency. This phase involves an assessment of all
critical systems for potential problems that would result from Year 2000
related failures of software or hardware and development of plans and
strategies to continue operations should such failures occur. The Company
expects to complete this phase by the end of the third quarter of 1999.
The table below summarizes the Company's estimate of the status of key
elements of the Company's Year 2000 compliance plan:
11
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<TABLE>
<CAPTION>
Number of Critical
Number of Systems for which
Critical Number of Critical Phase Not
Number of Critical Systems Systems In Process Applicable
Phase Systems Complete
- -------------------------------- ------------------------ ---------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Assessment 32 32
Renovation 32 12 11 9
Testing 32 23 9
Contingency Planning 32 32
- -------------------------------- ------------------------ ---------------- --------------------- ---------------------
</TABLE>
Testing and contingency planning are system-wide phases which can
not be assessed on the basis of separate pieces of hardware or software. The
chart above reports the completion status of these unitary activities.
The Company has relationships with third parties that may have computer
systems that are not Year 2000 compliant. The Company has identified the third
parties upon which it relies for mission-critical systems and has contacted or
is contacting such third parties to confirm that their systems are in compliance
with the Year 2000 requirements.
While the Company believes that it is taking prudent and necessary
action to comply with Year 2000 requirements, there can be no assurance that the
Year 2000 issue will not result in information or communications systems
interruptions. Any such interruptions could be expected to have a material
adverse effect on the Company's business, financial condition, results of
operations and business prospects and may subject the Company to liability to
its clients. The Company is currently building upon its existing contingency
plan in the event that the Company or third parties do not successfully complete
their compliance efforts, or if vendors or third parties controlling systems
critical to the Company are unable to confirm that their systems will be Year
2000 compliant. These efforts may result in additional costs in excess of
current allocations and estimates.
12
<PAGE>
PART II
OTHER INFORMATION
ITEM 2- CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 23, 1998, the Company's Registration Statement on Form SB-2
(File No. 333-43487) pertaining to its initial public offering of shares of the
Company's common stock, par value $0.001 (the "Offering") was declared
effective.
The Company has applied Offering proceeds in the amount of
approximately $3 million to expand net capital to participate in corporate and
government finance transactions, $272,000 to expand market-making and research
capabilities, $150,000 to implement the DEM strategy, $606,000 to expand sales
and marketing efforts, $685,000 to hire sales personnel to staff additional
sales offices and corporate finance staff to implement the DEM strategy and
$1,000,000 for working capital and general corporate purposes. The remaining
Offering proceeds have been invested by the Company in The Chapman U.S. Treasury
Money Fund, an affiliate, pending final application of such proceeds.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits required by Item 601 of Regulation S-B:
Exhibit 10.1 Agreement between the Company and Chapman Capital
Management Holdings, Inc. as to Allocation of Shared
Expenses dated as of January 1, 1999
Exhibit 27: Financial Data Schedule
B. Reports on Form 8-K:
On March 9, 1999, the Company filed a Form 8-K under Item 5 (Other
Events) to report its Fiscal Year 1998 earnings.
13
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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/ DEMETRIS B. BROWN
---------------------------------------------
Demetris B. Brown
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
Date: May 14, 1999
14
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
10.1 Agreement between the Company and Chapman Capital Management
Holdings, Inc. as to Allocation of Shared Expenses dated as of
January 1, 1999
27 Financial Data Schedule
15
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EXPENSE ALLOCATION AGREEMENT
THIS AGREEMENT is made as of the 1st day of January 1999 (the
"Agreement"), by and between Chapman Capital Management, Inc., a District of
Columbia corporation ("CCM") and The Chapman Co., a Maryland corporation ("CCO")
to allocate certain business expenses among CCO and CCM.
WHEREAS, CCM and CCO are affiliated entities, each controlled as of
the date of this Agreement by Nathan A. Chapman, Jr.;
WHEREAS, CCM and CCO have shared and seek to continue to share, certain
administrative, equipment and personnel expenses incurred in connection with the
operation of their respective businesses;
WHEREAS, CCM and CCO desire to enter into this Agreement governing the
future allocation of certain expenses shared between CCM and CCO in connection
with the operation of their respective businesses;
NOW THEREFORE, in consideration of the mutual agreements and terms
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, CCM and CCO do hereby agree as
follows:
AGREEMENT
1. CCM hereby agrees to provide for monthly payment to CCO for shared
expenses incurred in connection with the operation of the businesses of CCM and
CCO as detailed and expressly set forth in the column entitled "Basis of
Allocation" on Schedule I to this Agreement (the "Basis of Allocation").
2. To the extent that the calculation contained in the Basis of
Allocation, does not provide for the payment of a fixed sum each month, the
amount owed by CCM shall be automatically re-valued each month in accordance
with the provisions of the Basis of Allocation and the calculations contained
therein. Such automatic monthly valuations, provided that they do not deviate
from the calculations and provisions of the Basis of Allocation, shall not
constitute an amendment to the Agreement.
3. Payment by CCM, contemplated above, shall be received by CCO by the
tenth (10th) day of each month in which an amount is due. Failure to provide for
payment by this date shall give rise to, at the election of and upon written
notification by CCO, an additional fee at an annualized rate of five percent
(5%) of the late balance outstanding.
<PAGE>
4. CCO hereby agrees to make timely payments, on behalf of CCM, to
lessors, vendors, employees, officers or any other party to whom shared expenses
of CCM and CCO are owed, as contemplated by this Agreement.
5. This Agreement may be amended at any time by mutual written
agreement executed by the parties.
6. This Agreement may be terminated by either party upon 30 days prior
written notice.
7. This Agreement shall continue in effect until properly terminated by
either party.
8. This Agreement shall be governed by and shall be construed in
accordance with the laws of the state of Maryland without regard to principals
of conflicts of law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CHAPMAN CAPITAL MANAGEMENT, INC.
BY: /S/NATHAN A. CHAPMAN, JR.
---------------------------------------
Nathan A. Chapman, Jr.
President
THE CHAPMAN CO.
BY: /S/NATHAN A. CHAPMAN, JR.
---------------------------------------
Nathan A. Chapman, Jr.
President
<PAGE>
SCHEDULE I
EXPENSE ALLOCATION
DESCRIPTION BASIS OF ALLOCATION
Administrative Costs CCM shall pay a fixed sum of $12,000 per
month for various administrative costs such as
supplies, faxes, postage and office space utilized
by CCM.
Salaries Expense CCM shall pay 50% of the base salaries of
its officers. CCM shall pay a percentage of the
compensation expense of its other employees in an
amount equal to the percentage of time such
employees spend on CCM's business.
Equipment Rental CCM shall pay monthly equipment rental fees
in an amount equal to the percentage of total
compensation expense (excluding bonus) allocated
to CCM pursuant to the Basis of Allocation
governing "Salaries Expense" above.
Bonuses CCM shall pay bonuses to its employees and
officers pursuant to terms determined and approved
by its Board of Directors.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of the Company for the fiscal year ended December 31, 1998
and for the three months ended March 31, 1998 and 1999, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999 DEC-31-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999 MAR-31-1998
<CASH> 3,080,000 2,855,000 0
<SECURITIES> 2,284,000 2,095,000 0
<RECEIVABLES> 1,005,000 763,000 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 10,008,000 9,363,000 0
<PP&E> 38,000 105,000 0
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 10,205,000 9,616,000 0
<CURRENT-LIABILITIES> 3,063,000 2,473,000 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 3,000 3,000 0
<OTHER-SE> 7,061,000 7,055,000 0
<TOTAL-LIABILITY-AND-EQUITY> 10,205,000 9,616,000 0
<SALES> 0 1,276,000 749,000
<TOTAL-REVENUES> 0 1,723,000 805,000
<CGS> 0 0 0
<TOTAL-COSTS> 0 712,000 1,717,000
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 925 4,078
<INCOME-PRETAX> 0 6,000 93,000
<INCOME-TAX> 0 2,000 38,000
<INCOME-CONTINUING> 0 4,000 55,000
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 0 4,000 55,000
<EPS-PRIMARY> 0 0.00 0.02
<EPS-DILUTED> 0 0.00 0.02
</TABLE>
