<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. SUPPLEMENT DATED
NOVEMBER 16, 1998 TO PROSPECTUS DATED AUGUST 11, 1998.
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 SEPTEMBER
30, 1998
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 0-24213
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
(Name of small business issuer in its charter)
Maryland 52-2097010
- ----------------------------- -------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation) 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)
<PAGE>
As of November 10, 1998, 3,351,334 shares of the registrant's common stock, par
value $0.001 per share, were outstanding.
Transitional Small Business Disclosure Format: Yes No X
---- ----
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I....................................................................................................
ITEM 1 FINANCIAL STATEMENTS............................................................ 4
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 10
Part II...................................................................................................
ITEM 2 CHANGES IN SECURITIES AND USE OF
PROCEEDS...................................................................... 16
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K................................................ 16
</TABLE>
3
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
The consolidated financial statements for the three and nine months
ended September 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 Registration Statement on Form SB-2. The results of operations
for the three and nine months ended September 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.
4
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
--------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF DECEMBER 31, 1997, AND SEPTEMBER 30, 1998
-----------------------------------------------
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
--------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,677 $ 4,447,914
Management fees receivable 253,002 296,319
Receivables from affiliates 35,533 45,750
Advances to officer 72,000 116,127
Investments - 150,000
Office equipment, net 5,204 2,204
Prepaids and other assets 8,645 24,231
Intangible assets, net 693,000 522,000
Investment in affiliate 9,247 7,068
Deferred taxes - 66,000
-------------- --------------
Total assets $ 1,085,308 $ 5,677,613
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 150,997 $ 282,603
Due to affiliated company 800,672 -
Due to officer 28,473 -
Income taxes payable 48,000 32,990
Noncompete agreement obligation 150,000 150,000
-------------- --------------
Total liabilities 1,178,142 465,593
-------------- --------------
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 20,000,000 shares authorized,
2,486,543 and 3,351,334 issued and outstanding, respectively 2,487 3,351
Additional paid-in capital - 5,244,712
Accumulated deficit (95,321) (36,043)
--------------- --------------
Total stockholders' (deficit) equity (92,834) 5,212,020
-------------- --------------
Total liabilities and stockholders' deficit/equity $ 1,085,308 $ 5,677,613
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
5
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
--------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
---------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
September 30, September 30,
-------------------------------------------------------------------
1997 1998 1997 1998
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
REVENUE:
Advisory and administrative fees $ 613,852 $ 765,499 $ 1,657,151 $ 2,343,462
Interest and other income 860 35,108 1,754 39,242
-------------- -------------- -------------- --------------
Total revenues 614,712 800,607 1,658,905 2,382,704
-------------- -------------- -------------- --------------
OPERATING EXPENSE:
Management fees 232,263 286,481 644,044 911,981
Compensation and benefits 123,188 158,796 424,449 499,170
General and administrative 112,040 290,644 354,606 682,790
Amortization expense 57,000 57,000 171,000 171,000
Interest expense 2,130 - 11,390 25,495
-------------- -------------- -------------- --------------
Total operating expense 526,621 792,921 1,605,489 2,290,436
-------------- -------------- -------------- --------------
Income before income tax
provision 88,091 7,686 53,416 92,268
INCOME TAX PROVISION 39,000 3,382 25,400 32,990
-------------- -------------- -------------- --------------
Net income $ 49,091 $ 4,304 $ 28,016 $ 59,278
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
BASIC AND DILUTIVE EARNINGS PER
SHARE DATA:
Net income $ .02 $ - $ .01 $ .02
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted Average Shares Outstanding 2,486,543 3,351,334 2,486,543 2,630,675
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
6
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
--------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
-----------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended September 30,
--------------------------------
1997 1998
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,016 $ 59,278
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 173,982 174,000
Effect of changes in assets and liabilities-
Management fees receivable (39,737) (43,317)
Due from affiliates 1,229 (160,217)
Advances to officer (10,000) (44,127)
Prepaids and other assets 1,053 (15,586)
Accounts payable and accrued expenses 135,625 131,606
Income taxes payable (156,600) (15,010)
Investment in affiliate (29) 2,179
Deferred tax asset - (66,000)
Due to affiliated company 77,262 (800,672)
-------------- --------------
Net cash provided by (used in) operating activities 210,801 (777,866)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment (5,250) -
Repayment of note payable (150,000) -
-------------- -------------
Net cash used in investing activities (155,250) -
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock - 5,245,576
Repayment of due to officer (70,000) (28,473)
-------------- --------------
Net cash (used in) provided by financing activities (70,000) 5,217,103
-------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (14,449) 4,439,237
CASH AND CASH EQUIVALENTS, beginning of period 8,162 8,677
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ (6,287) $ 4,447,914
-------------- -------------
-------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for-
Interest $ 5,000 $ 25,495
-------------- -------------
Taxes $ 174,000 $ 114,000
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
7
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
--------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1998
------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Basis of Presentation
- ---------------------
Chapman Capital Management Holdings, Inc. is an investment advisory and
investment management company.
The accompanying unaudited consolidated financial statements include the
accounts of Chapman Capital Management Holdings, Inc. (CCMH) and its wholly
owned subsidiary, Chapman Capital Management Inc. (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.
The Chapman Co., an affiliated company, pays for routine operating expenses
and provides certain management, data processing, accounting and
administrative services to the Company, for which The Chapman Co. is
reimbursed. The Chapman Co. also pays certain salary and benefit expenses, of
which the Company is allocated a portion. The Chapman Co. allocates those
salary and benefit expenses to the Company based on actual salaries related
to the Company. These financial statements may not necessarily be indicative
of the financial results that would have existed had the Company been
operated as an unaffiliated corporation.
Interim Financial Statements
- ----------------------------
The consolidated financial statements for the three and nine months ended
September 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.
8
<PAGE>
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 Company's operating results are significantly
affected by the size of the portfolio it manages. 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 $4,003,543 of cash invested in the
Chapman U.S. Treasury Money Fund, a fund managed by Chapman Capital
Management, Inc.
2. INITIAL PUBLIC OFFERING:
------------------------
On August 14, 1998, the Company consummated an initial public offering (the
Offering) of its common stock, pursuant to which the Company sold 864,791
shares and received net proceeds of approximately $5,246,000.
3. RELATED PARTY TRANSACTION:
--------------------------
During third quarter 1998, the Company made two advances to the President of
the Company totaling $110,000. There is one note for $65,000, which bears
interest at 5.48% per annum and is payable over three years. The second note
for $45,000 bears interest at 5.48% per annum and is payable on demand.
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 nine months ended September 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 is presently assessing this
statement.
9
<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, the ability of the Company to implement its business strategy
and other risks discussed 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.
The Company's revenues are derived primarily from fees for investment
advisory services provided to institutional and other clients. Investment
advisory fees are generally a function of the overall fee rate charged to each
account and the level of assets under management. Assets under management can be
affected by the addition of new client accounts or client contributions to
existing accounts, withdrawals of assets from or terminations of client accounts
and investment performance, which may depend on general market conditions.
The Company's assets under management were $498.9 million as of
September 30, 1998, compared to $520.8 million under management on June 30,
1998. The net $21.9 million reduction in assets under management during the
quarter resulted from investment losses of $45.0 million and net positive
client cash flow of $23.1 million. As of
10
<PAGE>
September 30, 1998, three clients accounted for approximately 69.7% of the
Company's revenue.
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 September 30,
-------------------------------------------------------------------------
1997 1998
------------------------------- --------------------------------------
Percentage of Percentage of
Amounts Total Revenue Amounts Total Revenue
------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Advisory and administrative $ 613,852 99.9% $ 765,499 95.6%
Interest and other income 860 0.1 35,108 4.4
----------- ----- -------------- -----
Total revenue 614,712 100.0 800,607 100.0
----------- ----- -------------- -----
OPERATING EXPENSE:
Management fees 232,263 37.8 286,481 35.8
Compensation and benefits 123,188 20.0 158,796 19.8
General and administrative support 112,040 18.2 290,644 36.3
Amortization expense 57,000 9.3 57,000 7.1
Interest expense 2,130 0.4 - 0.0
----------- ----- -------------- -----
Total expense 526,621 85.7 792,921 99.0
----------- ----- -------------- -----
Income before income tax provision 88,091 14.3 7,686 1.0
Income tax provision 39,000 6.3 3,382 0.5
----------- ----- -------------- -----
Net income $49,091 8.0% $4,304 0.5%
----------- ----- -------------- -----
----------- ----- -------------- -----
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------------------------------
1997 1998
-------------------------------- --------------------------------
Percentage of Percentage of
Amounts Total Revenue Amounts Total Revenue
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUE:
Advisory and administrative $1,657,151 99.9% $ 2,343,462 98.4%
Interest and other income 1,754 0.1% 39,242 1.6%
---------- ----- ----------- -----
Total revenue 1,658,905 100.0 2,382,704 100.0
OPERATING EXPENSE:
Management fees 644,044 38.8 911,981 38.3
Compensation and benefits 424,449 25.6 499,170 20.9
General and administrative support 354,606 21.4 682,790 28.7
Amortization expense 171,000 10.3 171,000 7.2
Interest expense 11,390 0.7 25,495 1.0
---------- ----- ----------- -----
Total expense 1,605,489 96.8 2,290,436 96.1
---------- ----- ----------- -----
Income before income tax provision 53,416 3.2 92,268 3.9
Income tax provision 25,400 1.5 32,990 1.4
---------- ----- ----------- -----
Net income $28,016 1.7% $59,278 2.5%
---------- ----- ----------- -----
---------- ----- ----------- -----
</TABLE>
Total revenue increased by $185,895, or 30.2%, to $800,607 in the three
months ended September 30, 1998 from $614,712 in the prior comparable period.
Total revenue increased by $723,799 or 43.6 %, to $2,382,704 in the nine months
ended September 30, 1998 from $1,658,905 in the prior comparable period.
Advisory and administrative fee revenue increased by $151,647, or
24.7%, to $765,499 in the three months ended September 30, 1998 from $613,852
in the prior comparable period. Advisory and administrative fee revenue
increased by $686,311 or 41.4%, to $2,343,462 in the nine months ended
September 30, 1998 from $1,657,151 in the prior comparable period. The
increase in advisory and administrative fee revenue reflects an increase in
assets under management due largely to growth in assets under the DEM-MET
Trust and the introduction of the DEM Equity Fund.
Total expense increased by $266,300, or 50.6%, to $792,921 in the
three months ended September 30, 1998 from $526,621 in the prior comparable
period. Total expense increased by $684,947, or 42.7%, to $2,290,436 in the
nine months ended September 30, 1998 from $1,605,489 in the prior comparable
period. The increase is attributable to increased expense associated with
marketing activities, including travel, as well as increases in compensation
and benefits associated with additional staff. As a percentage of total
revenue, total expense increased to 99.0% in the three months ended September
30, 1998 compared to 85.7% in the prior comparable period. As a percentage of
total revenue, total expense decreased to 96.1% in the nine months ended
September 30, 1998 compared to 96.8% in the prior comparable period.
Management fee expense, which consists primarily of the Company's
payments to sub-advisors in connection with its multi-manager investment
product, the DEM-MET Trust, increased by $54,218 or 23.3%, to $286,481 in the
three months ended September 30, 1998 from $232,263 in the prior comparable
period. Management fee expense increased by $267,937, or 41.6% to $911,981 in
the nine months ended September 30, 1998 from $644,044 in the prior comparable
period. The
11
<PAGE>
Company's increase in management fee expense largely reflects an increase in
assets under management of the DEM-MET Trust and the corresponding expenses
associated therewith.
Compensation and benefits expense increased by $35,608, or 28.9%, to
$158,796 in the three months ended September 30, 1998 from $123,188 in the prior
comparable period. Compensation and benefits expense increased by $74,721, or
17.6% to $499,170 in the nine months ended September 30, 1998 from $424,449 in
prior comparable period. The increase in compensation and benefits expense is
due primarily to the Company's addition of five new employees and annual pay
increases. As a percentage of total revenue, compensation and benefits expense
decreased to 19.8% in the three months ended September 30, 1998 from 20.0% in
the prior comparable period. As a percentage of total revenue, compensation and
benefits expense decreased to 20.9% in the nine months ended September 30, 1998
from 25.6% in the prior comparable period.
General and administrative expense increased by $178,604, or 159.4%, to
$290,644 in the three months ended September 30, 1998 from $112,040 in the prior
comparable period. General and administrative expense increased by $328,184, or
92.5%, to $682,790 in the nine months ended September 30, 1998 from $354,606 in
the prior comparable period. The increase in general and administrative expense
is primarily a result of increased marketing and travel expenses associated with
the Company's expanded marketing activities during the period. As a percentage
of total revenue, general and administrative expense increased to 36.3% in the
three months ended September 30, 1998 from 18.2% in the prior comparable period.
As a percentage of total revenue, general and administrative expense increased
to 28.7% in the nine months ended September 30, 1998 from 21.4% in the prior
comparable period.
No interest expense was incurred in the three months ended September
30, 1998 versus $2,130 for the prior comparable period. Interest expense was
$25,495 in the nine months ended September 30, 1998 compared to $11,390 in
the prior comparable period. The increase in interest expense is attributable
to interest owed by the Company on a note owed to an affiliate. The note was
retired in the three month period ended September 30, 1998 by applying
proceeds of the Company's initial public offering of common stock.
The Company's income tax provision decreased by $35,618 in the three
months ended September 30, 1998 to $3,382 from 39,000 in the prior comparable
period. The Company's income tax provision increased by $7,590 to $32,990 in
the nine months ended September 30, 1998 versus 25,400 in the prior
comparable period. The change in income tax provision is due to the change in
the Company's income prior to income taxes during the period.
12
<PAGE>
Net income decreased by $44,787 to $4,304 in the three months ended
September 30, 1998 from $49,091 in the prior comparable period. Net income
increased by $31,262 to $59,278 in the nine months ended September 30, 1998
from $28,016 in the prior comparable period. The change in net income is a
result of each of the items discussed above.
Liquidity and Capital Resources
Historically, the Company has financed its operations through capital
contributions from its principal stockholder, loans from affiliates and cash
flow from operations.
The Company's liquid assets consist primarily of receivables from
advisory clients and the proceeds of its initial public offering of Common
Stock. A relatively small percentage of the Company's total assets are fixed.
The Company's total assets as of September 30, 1998 were $5,677,613.
The final payment of $150,000 on a non-compete agreement pertaining
to the DEM-MET Trust is due in the fourth quarter of 1998. Management expects
that the Company's liquid assets and cash provided by operations will be
sufficient to make this payment
The Company's overall capital and funding needs are continually
reviewed to ensure that the capital base can support the Company's estimated
needs of its business activities. Historically the Company has utilized and
relied upon loans from affiliates to aid in providing additional funds for
operations. Based upon the Company's review of its funding needs, the Company
does not anticipate having to rely upon affiliated loans and intends to
operate on a going forward basis primarily upon its cash from operations and
its liquid assets. The Company believes that its current capital structure is
adequate to support its current operations.
The Company's cash was $4,447,914 as of September 30, 1998.
13
<PAGE>
Year 2000 Software Issue
As the year 2000 approaches, existing software programs and
operating systems need to be critically reviewed to determine if they can
accommodate information that employs dates after December 31, 1999. Pursuant
to an Expense Allocation Agreement dated June 19, 1998 (the "Agreement"),
between the Company and The Chapman Co. ("CCO"), an affiliate of the Company,
upon timely payment by the Company of its allocated share of expenses, CCO
provides for the Company's administrative services and equipment rental needs
in connection with its business operations. These services include shared
information services, telecommunications services and activities intended to
make the Company's software and operating systems year 2000 compliant.
In connection with the Agreement, CCO 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. CCO is working with its hardware and software vendors
and other third parties 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. Any of the Company's external costs, for consultants or advisors,
and any purchase or lease of software or hardware, are covered by the
Agreement.
The Company anticipates that most of the necessary hardware and
software renovations necessary to render the Company year 2000 compliant will be
completed by December 31, 1998. Management plans to test its systems during the
first quarter of 1999 to confirm such compliance. According to CCO's plan, the
testing and implementation phases of the compliance process are scheduled to be
completed by March 31, 1999.
CCO has allocated funds not to exceed $100,000 during fiscal year 1998
to cover CCO's assessment of systems, internal testing and replacement and
modification of existing systems. The Company estimates that costs, not
exceeding $50,000, will be incurred by CCO in fiscal year 1999 for
point-to-point testing, SIA Industry-wide testing, the implementation of
contingency plans and the continuation and advancement of its efforts in fiscal
year 1998. CCO is, however, still analyzing and modifying the Company's systems
and requirements and the Company may incur additional costs.
14
<PAGE>
The Company has relationships with third parties, other than CCO,
who may have computer systems that are not year 2000 compliant. To the extent
CCO or 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. The Company has identified the third parties upon which it relies
for mission-critical systems and is contacting and confirming their year 2000
system compliance is a component of management's year 2000 compliance plan.
The Company intends to conclude its confirmation with third parties in the
last quarter of 1998.
While the Company believes that it is taking prudent and necessary
action to comply with year 2000 requirements, there can be no assurances that
the systems of CCO or another third party will be year 2000 compliant. In the
event that CCO or another third party is not in compliance with year 2000
requirements, the Company could encounter material disruption to its
communications and informations systems, potentially causing material adverse
effects upon its results of operations, liquidity and financial condition and
potentially exposing the Company to liability to its account holders and
managed investment companies.
A contingency plan is currently being prepared in the event that the
Company or third parties do not successfully complete the testing phase, or
vendors of critical systems are unable to confirm that their systems will be
year 2000 compliant. The written contingency plan is being prepared for all
critical systems of the Company. The Company estimates that its contingency plan
is approximately 50% complete and completion is expected in or around mid
February, 1999.
15
<PAGE>
PART II
OTHER INFORMATION
ITEM 2--CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 5, 1998, the Company filed a Registration Statement on
Form SB-2 (File No. 333-51883) to register its offering, on a best efforts
basis, of a minimum of 850,000 shares and a maximum of 1,250,000 shares of
the Company's common stock, par value $.001 (the "Offering"). The Company's
Registration Statement was declared effective with the Commission at 5:30
p.m., Washington, D.C. time, on June 30, 1998. The Company filed
Post-Effective Amendment No. 1 to the Registration Statement on August 11,
1998 and the Company's Offering commenced on August 14, 1998. Upon the sale
of 864,791 shares of the Company's Common Stock by its Placement Agent, The
Chapman Co., the offering was terminated. The Company estimates that in
connection with its Offering, it incurred approximately $807,961 in expenses,
and received net proceeds of $5,245,576. As disclosed in the Company's
Registration Statement, a portion of these expenses included a management fee
paid to the Placement Agent, The Chapman Co., an entity for which the
Company's President and Chief Executive Officer serves in the same capacity.
During this reporting period the Company applied Offering
proceeds in the amount of $703,758 for the repayment of indebtedness to
affiliates of the Company. The Company applied approximately $500,050 of the
Offering proceeds allocated to working capital during the reporting period to
cover general corporate expenditures. The remaining Offering proceeds have
been invested by the Company in The Chapman U.S. Treasury Money Fund, an
affiliate.
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits required by Item 601 of Regulation S-B:
Exhibit 10.1: $65,000 Promissory Note of Nathan A. Chapman, Jr. to the
Company dated August 21, 1998.
Exhibit 10.2: $45,000 Demand Note of Nathan A. Chapman, Jr. to
Chapman Capital Management, Inc. dated July 2, 1998.
Exhibit 27: Financial Data Schedule
B. Reports on Form 8-K:
None.
16
<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 CAPITAL
MANAGEMENT HOLDINGS, INC.
By:/S/ NATHAN A CHAPMAN JR.
------------------------
Nathan A. Chapman, Jr.
President, Chairman of the Board
and Director
/S/ MARIA MARKHAM THOMPSON
--------------------------
Maria Markham Thompson
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: November 13, 1998
17
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. Description of Exhibit
10.1 $65,000 Promissory Note of Nathan A. Chapman, Jr. to the
Company dated August 21, 1998.
10.2 $45,000 Demand Note of Nathan A. Chapman, Jr. to Chapman
Capital Management, Inc. dated July 2, 1998.
27 Financial Data Schedule
18
<PAGE>
Exhibit 10.1
PROMISSORY NOTE
$65,000.00 BALTIMORE, MARYLAND
August 21, 1998
WITHIN THREE YEARS, the undersigned promises to pay to the order of
Chapman Capital Management Holdings, Inc., sixty five thousand dollars
($65,000.00), at its offices in Baltimore, Maryland, together with
interest thereon from the date hereof until paid at the rate of 5.48%
per annum.
/s/ NATHAN A. CHAPMAN, JR.
--------------------------
Nathan A. Chapman, Jr.
<PAGE>
Exhibit 10.2
PROMISSORY NOTE
$45,000.00 BALTIMORE, MARYLAND
July 2, 1998
ON DEMAND, the undersigned promises to pay to the order of Chapman Capital
Management, Inc. forty five thousand ($45,000), at its offices in Baltimore,
Maryland, together with interest thereon from the date hereof until paid at
the rate of 5.48% per annum.
/s/ NATHAN A. CHAPMAN, JR.
--------------------------
Nathan A. Chapman, Jr.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF THE COMPANY FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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