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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
Commission file number 0-24213
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
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(Name of Small Business Issuer in Its Charter)
MARYLAND 52-2097010
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
401 EAST PRATT STREET, 28TH FLOOR, BALTIMORE, MARYLAND 21202
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (410) 625-9656
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Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
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(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 No X
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Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained herein, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were: $3,218,326.
The aggregate market value of the voting stock and non-voting common equity
held by non-affiliates computed by reference to the average bid and asked
price of such common equity on March 10, 1999 was $6,990,221.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of outstanding shares of Common Stock of the registrant as of
March 10, 1999 was 3,351,334. Transitional Small Business Disclosure Format
(check one). Yes [ ] No [ X ]
Documents Incorporated by Reference
Selected portions of the Registrant's Annual Report to Stockholders for the
year ended December 31, 1998 and selected portions of the Proxy Statement
pertaining to the Annual Meeting are incorporated herein by reference into
Parts II and III.
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TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS....................................... 3
ITEM 2. DESCRIPTION OF PROPERTY....................................... 8
ITEM 3. LEGAL PROCEEDINGS............................................. 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 9
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...... 9
ITEM 5A. RISK FACTORS..................................................10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...........................15
ITEM 7. FINANCIAL STATEMENTS..........................................15
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...........................15
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT....15
ITEM 10. EXECUTIVE COMPENSATION........................................15
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................16
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................16
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K.........................16
Domestic Emerging Markets(R) and DEM(R) are registered trademarks and DEM
Profile(TM), DEM Universe(TM), DEM Company(TM) DEM Index (TM) and the stylized
C-Eagle logo are trademarks of Nathan A. Chapman, Jr.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Chapman Capital Management Holdings, Inc. (the "Company") is an
African-American owned and controlled holding company. The Company's
wholly-owned operating subsidiary, Chapman Capital Management, Inc. ("CCM"), is
an investment management company that is registered with the Securities and
Exchange Commission (the "Commission") as an investment adviser. CCM manages the
assets of registered investment companies and the funds of individual and
institutional investors on a separate account basis. As of February 28, 1999,
CCM had approximately $619.0 million in total assets under management. (Unless
the context otherwise indicates, the Company and CCM are hereinafter referred to
collectively as the "Company")
The Company manages assets for two registered open-end investment
portfolios, the DEM Equity Fund and The Chapman U.S. Treasury Money Fund, each a
portfolio of The Chapman Funds, Inc. The DEM Equity Fund and The Chapman U.S.
Treasury Money Fund are sometimes referred to herein as the "Funds." In December
1996, the Company established a private group trust, the Domestic Emerging
Markets-Minority Equity Trust Fund for Qualified Employee Benefit Plans (the
"DEM-MET Trust") for which it provides investment management services.
The Company is headquartered at the World Trade Center--Baltimore, 401
East Pratt Street, 28th Floor, Baltimore, Maryland 21202 and its telephone
number is (410) 625-9656. The Company was incorporated in Maryland on January 8,
1998. CCM, a District of Columbia corporation, was established as an investment
advisor in 1988.
STRATEGY
The Company has implemented a strategic initiative called the Domestic
Emerging Markets ("DEM") strategy which seeks investment in domestic companies
controlled by African-Americans, Asian-Americans, Hispanic-Americans and women
(the "DEM Profile"). The Company believes that there exists a substantial
demand, especially from government entities and large institutions, to invest in
companies that meet the DEM Profile ("DEM Companies") and has designed its
investment products to provide a single source for meeting this objective while
achieving a competitive rate of return.
In addition, in December 1996, the Company established and currently
acts as advisor to the DEM-MET Trust. As advisor, the Company allocates a
portion of the investment responsibility for the trust's assets among investment
management companies that meet the DEM Profile. The Company introduced this
strategy, the DEM Multi-Manager strategy, with the DEM-MET Trust and will seek
to increase its assets under management through the development of additional
products under this strategy.
The Company's DEM and DEM Multi-Manager strategies are in the early
stages of implementation. The Company has not conducted any marketing surveys to
test their marketability nor has the Company engaged in any significant
marketing of these strategies.
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Therefore, the viability of the DEM and DEM Multi-Manager strategies and
their level of market acceptance is largely unknown.
INVESTMENT PRODUCTS
The Company currently manages two registered investment portfolios, the
DEM Equity Fund and The Chapman U.S. Treasury Money Fund, each a portfolio of
The Chapman Funds, Inc. The Company has formed and manages one private
investment trust, the DEM-MET Trust. The Company also advises corporate,
institutional and individual investors on a separate account basis.
DEM EQUITY FUND is a non-diversified portfolio of The Chapman Funds,
Inc., a diversified, open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "Investment Company Act"). The
principal investment objective of the DEM Equity Fund is aggressive long-term
growth through investment in equity securities of companies meeting the DEM
Profile. As of February 28, 1999, the DEM Equity Fund had approximately $9.96
million in assets. The DEM Equity Fund commenced operations in April 1998.
THE CHAPMAN U.S. TREASURY MONEY FUND, also a portfolio of The Chapman
Funds, Inc., invests solely in short-term direct obligations of the U.S.
Government and repurchase agreements collateralized fully by direct obligations
of the U.S. Government. This fund is intended primarily for state and local
governments and their authorities and agencies. As of February 28, 1999, The
Chapman U.S. Treasury Money Fund had approximately $74.4 million in assets. The
Chapman U.S. Treasury Money Fund began operations in June 1989.
DEM-MET TRUST was organized in 1996 under New York law. The DEM-MET
Trust is intended to qualify as a tax-exempt pooled trust for qualified employee
benefit plans and certain governmental plans. The DEM-MET Trust is the first
product introduced by the Company that employs the DEM Multi-Manager strategy.
See "--Strategy." The DEM-MET Trust allocates its assets to investment
portfolios managed by money managers meeting the DEM Profile. These money
managers invest their allocated assets in the securities of domestic and foreign
issuers which may consist of common stock, or other types of equity investments,
or temporary money market funds chosen by the Company. The Company acts as
investment advisor to the DEM-MET Trust and in such capacity is responsible for
selecting and monitoring the sub-advisors, all of whom meet the DEM Profile. As
of February 28, 1999, the Company had sub-advisory relationships with fourteen
investment advisors, all of which meet the DEM Profile. The Company evaluates
such sub-advisors monthly and reallocates assets among existing sub-advisors and
new sub-advisors as necessary. The DEM-MET Trust was created in December 1996
pursuant to an agreement between The Chapman Co. and Bankers Trust Company, as
custodial trustee. As of February 28, 1999, the DEM-MET Trust had approximately
$265.5 million in assets.
SEPARATE ACCOUNTS The Company also provides investment advisory
services to separate accounts under individual investment advisory agreements.
The Company manages equity and debt portfolios with varied investment objectives
including long term capital appreciation and current income. As of February 28,
1999, approximately 40.5% of the separate accounts under management incorporate
the DEM strategy as an investment objective. The Company will continue to
attempt to differentiate itself from other investment managers by providing the
DEM strategy as an investment objective. As of February 28, 1999, the Company
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managed approximately $269.1 million in assets for separate accounts, of
which $109.1 million was invested pursuant to the DEM Strategy.
Compensation for individual investment advisory services is typically
based upon assets under management.
All of the Company's investment advisory services including portfolio
management, marketing, research and customer service are provided from the
Company's Baltimore headquarters and each of Company's affiliated investment
companies maintains its office at the Baltimore headquarters.
MARKETING AND CUSTOMER SERVICE
The Company's marketing strategy is to provide a single source for
investing in DEM companies while achieving a competitive rate of return. The
Company aggressively markets to large corporations, government entities and
other institutions seeking investment in DEM Companies.
The Company targets its marketing efforts to the various types of
customers that use its investment advisory and asset management services. The
Company's separate accounts are typically large institutional investors. The
Company markets to these accounts through customer support activities and
personal sales efforts by officers of the Company. This strategy has also been
utilized with the DEM-MET Trust due to the small number of large investors that
have invested in the trust.
The Company's proprietary investment products are distributed by The
Chapman Co., an affiliate of the Company. To date, the Company's investment
product marketing activities have been providing "wholesale" marketing
assistance to support The Chapman Co.'s direct retail selling efforts. The
Company intends to offer proprietary investment funds to banks, insurance
companies, providers of 401(k) deferred compensation plans and other
institutions ("Institutional Resellers") for resale to their customers. The
Company will provide support to The Chapman Co. in marketing to Institutional
Resellers and to the Institutional Resellers' own retail sales forces. The
Company may also undertake some limited advertising of its proprietary
investment products.
In addition to separate accounts and proprietary investment products,
the Company will seek to enter into agreements with other investment advisors
whereby the Company will act as a sub-advisor with respect to their proprietary
investment products. The Company will provide wholesale marketing assistance to
the distributors of such third-party proprietary investment products to ensure
that such products are effectively marketed by the third-party distributors to
the investment community.
RESEARCH
As of February 28, 1999, the Company employed two portfolio managers.
The Company intends to hire additional portfolio managers to support its
existing investment advisory and management services and to facilitate the
introduction and maintenance of new investment products.
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The Company currently employs a buy-side analyst to assist the
portfolio managers in investment research, monitoring of investment
opportunities and the development and maintenance of the Company's proprietary
DEM valuation and screening model. The Company also utilizes the research
services of The Chapman Co. for coverage on certain companies meeting the DEM
Profile. The Company intends to expand its research staff by hiring additional
buy-side analysts.
INDUSTRY
Revenues in the investment management industry are fee-based and
determined primarily by assets under management. Therefore, the principal
determinant of growth in the industry is the growth of assets under management.
The major factors which influence changes in assets under management are changes
in the market value of securities; net cash flow into or out of existing
accounts; gains of new or losses of existing accounts; and the introduction of
new products by the industry or by particular firms.
In general, assets under management in the industry have increased
steadily. According to the Investment Company Institute, the combined assets of
the nation's mutual funds increased by $1,062.2 billion in 1998 to a total of
$5.530 trillion under management. Assets under management rose approximately 24%
for the year 1998, reflecting both the performance of the stock markets as well
as new investment by mutual fund owners. Net new cash flow into mutual funds
rose for the fourth straight year to a record $478.9 billion in 1998 with
increases in all fund categories including equity, bond and income, and money
market.
Although as of February 28, 1999, the Company's total assets under
management attributable to mutual funds are approximately 13.6% of its total
assets under management, the Company intends to emphasize the creation of new
mutual fund investment products as part of its ongoing strategy.
GOVERNMENT REGULATION
The Company's business is subject to various federal and state laws and
regulations. These laws and regulations are primarily intended to protect
investment advisory clients and stockholders of registered investment companies.
Under these laws and regulations, agencies that regulate investment advisors
have broad administrative powers, including the power to limit, restrict, or
prohibit an advisor from carrying on its business in the event that it fails to
comply with applicable laws and regulations. Possible sanctions that may be
imposed include the suspension of individual employees, limitations on engaging
in certain lines of business for specified periods of time, revocation of
investment advisor and other registrations, censures, and fines. The Company
believes that it is in substantial compliance with all material laws and
regulations.
The Company is registered with the Commission under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), and is subject to
examination by the Commission. Under Section 206 of the Advisers Act, it is
unlawful for any investment advisor to: (i) employ any device, scheme, or
artifice to defraud any client or prospective client; (ii) engage in any
transaction, practice, or course of business which operates as a fraud or deceit
upon any client or prospective client; or (iii) engage in any act, practice, or
course of business which is fraudulent, deceptive or manipulative. The Advisers
Act imposes numerous other obligations on registered investment advisors
including fiduciary duties, recordkeeping requirements, operational
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requirements, and disclosure obligations. The Commission is authorized to
institute proceedings and impose sanctions for violations of the Advisers Act,
ranging from censure to termination of an investment adviser's registration. The
failure of the Company to comply with the requirements of the Commission could
have a material adverse effect on the Company.
An investment advisor to a registered investment company, its
principals, and its employees may also be subject to proceedings initiated by
the Commission to impose remedial sanctions for violation of any provision of
the federal securities laws and the regulations adopted thereunder, and the
Commission may prohibit such investment advisor to an investment company from
continuing to act in such capacity. Stockholders of registered investment
companies or the Commission may also bring an action against the officers,
directors, and investment advisor for breach of fiduciary duty in establishing
the compensation paid to the investment advisor.
The Funds are registered with the Commission under the Investment
Company Act and the sale of shares in the Funds has been registered under the
Securities Act of 1933, as amended (the "Securities Act"). Investment companies
such as The Chapman Funds, Inc. and any future registered investment companies
established and/or advised by the Company, are subject to considerable
substantive regulation. Such companies must comply with periodic reporting
requirements. Proxy solicitations are subject to the general proxy rules as well
as to special proxy rules applicable only to investment companies. Shares of
open-end investment companies such as the DEM Equity Fund and The Chapman U.S.
Treasury Money Fund, can only be offered at a uniform public offering price
based on the current net asset value per share plus the sales load. No more than
60% of the directors of registered investment companies can be interested
persons, defined to include, among others, persons affiliated with the
management company or underwriter, and a majority of the directors must not be
affiliated with the underwriter. The advisory agreement must have initially been
approved by a majority of the outstanding shares and, after two years, must be
annually approved, either by the board or by the outstanding voting shares. The
advisory agreement must be subject to termination upon 60 days notice by the
board or by the outstanding voting shares. The underwriting agreement must be
annually approved by the board or by a vote of a majority of the outstanding
voting shares, and must provide for automatic termination in the event of an
assignment. With limited exceptions, transactions between the investment company
and an affiliate can be entered into only if approved by the Commission, after
notice and opportunity for hearing, as fair and equitable.
The Company derives a large portion of its revenues from its investment
company management agreements. Under the Advisers Act, the Company's investment
management agreements terminate automatically if assigned without the client's
consent. Under the Investment Company Act, advisory agreements with registered
investment companies such as the Funds terminate automatically upon assignment.
The term "assignment" is broadly defined and includes direct assignments as well
as assignments that may be deemed to occur, under certain circumstances, upon
the transfer, directly or indirectly, of a controlling interest in the Company.
COMPETITION
The Company's investment advisory business competes with a number of
larger, more established investment advisors and securities firms. Competition
is influenced by various factors, including product offering, quality of service
and price. All aspects of Company's advisory business are competitive, including
competition for assets to manage. Large national
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firms, often with more personnel, have much greater marketing, financial,
technical, research, and other capabilities. These firms offer a broader
range of financial services than the Company and compete not only with the
Company and among themselves but also with commercial banks, insurance
companies and others for retail and institutional clients. The investment
funds managed by the Company are similarly subject to competition from
nationally and regionally distributed funds offering equivalent financial
products with returns equal to or greater than those offered by the Company's
affiliated investment funds.
The Company's investment management operations compete with a large
number of other investment management firms, commercial banks, insurance
companies, broker/dealers and other financial service firms. Most of these firms
are larger and have access to greater resources than the Company. The investment
advisory industry is characterized by relatively low cost of entry and the
formation of new investment advisory entities which may compete directly with
the Company is a frequent occurrence. The Company directly competes with many
firms which are of similar or larger size. The Company's ability to increase and
retain assets under management could be materially adversely affected if client
accounts or the Company's affiliated investment funds under-perform specified
market benchmarks. The ability of the Company to compete with other investment
management firms also is dependent, in part, on the relative attractiveness of
their investment philosophies and methods under prevailing market conditions.
A large number of investment products including mutual funds, are sold
to the public by investment management firms, broker/dealers, insurance
companies and banks in competition with the investment products offered by the
Company. Many of the Company's competitors apply substantial resources to
advertising and marketing their investment products which may adversely affect
the ability of the Company's investment products to attract new assets. The
Company expects that there will be increasing pressures among investment
advisors to obtain and hold market share.
PERSONNEL
At February 28, 1999, the Company had approximately nine full-time
employees and shares three employees with affiliated companies. None of the
Company's personnel is covered by a collective bargaining agreement.
Management considers the Company's relationship with its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The principal executive offices of the Company are located at the World
Trade Center--Baltimore, 401 East Pratt Street, 28th Floor, Baltimore, Maryland
21202 where the Company shares approximately 10,000 square feet of office space
under a lease maintained by The Chapman Co. The Chapman Co.'s lease for these
premises expires in 2000. The Company is allocated furniture and equipment
leased by The Chapman Co. from an affiliated entity.
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ITEM 3. LEGAL PROCEEDINGS
Many aspects of the Company's business involve substantial risks of
liability, including exposure under federal and state securities laws. The
Company maintains an errors and omissions insurance policy in the amount of $1
million insuring it against these risks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended December 31, 1998, the following
securities were issued by the Company without registration under the Securities
Act:
On January 8, 1998, the Company issued 1,989,235 shares of Common stock to The
Chapman Co. in exchange for all of the outstanding shares of capital stock of
Chapman Capital Management, Inc. This transaction was exempt from registration
under the Securities Act under Section 4(2) because it did not involve a public
offering. Such transaction was completed without an underwriter.
On April 30, 1998, the Company issued 497,308 shares of Common Stock to its
stockholders of record as of April 29, 1998 as a stock dividend. This
transaction was exempt from registration under the Securities Act under Section
4(2) because it did not involve a public offering. Such transaction was
completed without an underwriter.
PROCEEDS OF THE OFFERING
On June 30, 1998, the Company's Registration Statement on Form SB-2
(File No. 333-51883) pertaining to its initial public offering of shares of the
Company's common stock, par value $0.001 (the "Offering") was declared
effective.
During this reporting period the Company applied Offering proceeds
in the amount of approximately $813,000 for the repayment of indebtedness to
affiliates of the Company. The Company applied approximately $179,000 to the
creation of new investment products, $230,000 to expand sales and marketing
efforts; $134,000 to promote the DEM strategies, $813,000 for repayment of
indebtedness to affiliates of the Company and $500,000 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.
The remainder of the information required by Item 5 is incorporated by
reference from the information set forth under the heading "Stockholder
Information" in the selected portions of the 1998 Annual Report filed as Exhibit
13.01 to this Form 10-KSB.
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ITEM 5A. RISK FACTORS
The words "believes," "intends," "anticipates," and "expects," and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements are based on our current expectations and are subject
to a number of risks and uncertainties. In light of these risks and
uncertainties, many of which are described in detail in the risk factors set
forth below, actual results could differ materially from the forward-looking
statements contained in this document.
NET LOSS; RISK OF INABILITY TO MANAGE GROWTH
We have experienced and expect to continue to experience significant
growth in our business activities and the number of our employees. This growth
requires increased investment in personnel, financial and management systems and
controls and facilities. In addition, we intend to add personnel to support the
increase in assets under management that we will seek in executing our
strategies. Unless we achieve revenue growth in line with our growth in
expenses, we will continue to incur operating losses. Furthermore, our inability
to manage such growth could have a material adverse effect on our continued
operations. During 1998, we had a net loss of $106,000.
Further, as is common in the investment advisory business, we are, and
will continue to be, highly dependent on the effective and reliable operation of
our communications and information systems. Any difficulty in the operation of
existing systems, the implementation of new systems or the training of personnel
could adversely affect our ability to manage growth. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Software Issue."
DEPENDENCE ON KEY INVESTMENT MANAGEMENT CLIENTS
All of our agreements with our advisory clients are terminable by the
client upon short notice (typically 30-60 days prior written notice). If the
DEM-MET Trust or any of our key investment management clients were to terminate
their advisory arrangements with us or if large investors of the DEM-MET Trust
were to withdraw their funds, our advisory fee revenue would be materially and
adversely affected.
The DEM-MET Trust, with $265.5 million in assets under management,
represents approximately 42.8% of our assets under management as of February 28,
1999, 58.6% of our revenues in 1998 and 22.6% of our net advisory and
administrative fees in 1998 after deducting fees paid by the Company to
sub-advisers on behalf of the DEM-MET Trust. The largest of four investors in
the DEM-MET Trust represents approximately 30.2% of our assets under management
as of February 28, 1998. Excluding the DEM-MET Trust and its clients, the
Company's two largest clients represent 26.8% of the Company's assets under
management as of February 28, 1999 and 14.4% of the Company's revenues for 1998.
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HIGHLY COMPETITIVE INDUSTRY
The investment advisory business is extremely competitive. We encounter
intense competition in all aspects of the investment advisory business and
compete directly with other firms, a significant number of which have greater
capital, experience and other resources than ours. Competition also exists for
experienced personnel including technical personnel and account executives. In
addition to competition from firms currently in the investment advisory
business, recently there has been increasing competition from other sources,
such as commercial banks and insurance companies offering financial services.
UNPROVEN NATURE OF DEM AND DEM MULTI-MANAGER STRATEGIES
We have implemented and intend to use substantial resources to promote
our DEM and DEM Multi-Manager strategies. The Domestic Emerging Markets, or DEM,
strategy seeks investment in domestic companies that meet the DEM Profile in
that they are controlled by African-Americans, Asian-Americans,
Hispanic-Americans and women. The DEM Multi-Manager strategy seeks investment
management clients who wish to allocate investment responsibility for their
assets among multiple investment managers that meet the DEM Profile. As of
February 28, 1999, we had approximately $119.1 million and $265.5 million in
assets under management using the DEM and DEM-Multi-Manager investment
strategies, respectively.
The success of the DEM and DEM Multi-Manager strategies will be
dependent upon our ability to attract funds earmarked for investment in such
strategies on both an institutional and retail basis. The DEM strategy is
further dependent on our ability to identify appropriate investments from the
universe of DEM companies. Because the DEM and DEM Multi-Manager strategies are
in the initial stages of introduction, their market acceptance is unknown and
there can be no assurance that we will be able to attract significant amounts of
investment capital for management under such strategies. Moreover, our belief
that these strategies offer a significant opportunity for the growth of our
business is not based upon marketing studies, or demographic or feasibility
reports, but is based solely upon the judgment of our management team and our
experience to date from our limited marketing of DEM and DEM Multi-Manager
products. Further, we have and will continue to incur significant marketing,
legal and accounting expenses in the creation of new investment products. Such
expenses are ordinarily incurred significantly in advance of the introduction of
such products. If such products do not gain broad market acceptance, we would
likely lose such initial investments. Although, we have identified approximately
180 publicly-traded companies that meet the DEM Profile, there can be no
assurance that the investment portfolios of such companies will attract initial
or continued investment or that the companies meeting the DEM Profile will be
able to maintain continued growth.
DEPENDENCE ON KEY PERSONNEL; DUTIES TO OTHER COMPANIES
For the foreseeable future, we will place substantial reliance upon the
personal efforts and abilities of Nathan A. Chapman, Jr., our President, who
will not devote his full time to our activities. The loss of the services of Mr.
Chapman may have a material adverse effect on our business, operations, revenue
and/or business prospects.
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POTENTIAL ADVERSE EFFECTS OF CHANGES IN ECONOMY AND MARKET CONDITIONS
The financial markets and businesses operating in the securities
industry are highly volatile and are directly affected by, among other factors,
domestic and foreign economic conditions and general trends in business and
finance, all of which are beyond our control. There can be no assurance that
broad market performance will be favorable in the future. Any decline in the
financial markets or a lack of sustained growth may result in a corresponding
decline in performance by our investment products and separate accounts, which
may adversely affect assets under management and/or fees. Our revenues from
investment management are directly related to fluctuations in the dollar amount
of assets under management.
RELATIONSHIPS WITH OTHER CHAPMAN ENTITIES AND POTENTIAL CONFLICTS OF INTEREST
We act as investment advisor, pursuant to investment advisory
agreements, for two active registered investment portfolios, the DEM Equity
Fund, and The Chapman U.S. Treasury Money Fund, each an open-end portfolio of
The Chapman Funds, Inc. Our revenues in connection with these related-party
agreements accounted for 12.4% and 12.7% of our revenues in the years ended
December 31, 1997 and 1998, respectively. At our request, Nathan A. Chapman,
Jr., our President and Chairman of the Board; Earl U. Bravo, Sr., our Vice
President, Secretary and Assistant Treasurer; and M. Lynn Ballard, our Treasurer
and Assistant Secretary; serve as President and Chairman of the Board; Secretary
and Assistant Treasurer; and Treasurer and Assistant Secretary, respectively, of
The Chapman Funds, Inc. In addition, several of our key executives, including
Mr. Chapman, are also officers and/or directors of holding companies owning all
of the outstanding equity securities of The Chapman Co. and The Chapman
Insurance Agency Incorporated. The common management and/or ownership among the
Company and these other companies may involve potential conflicts of interest
with respect to the terms of business transactions, allocations of shared
expenses for overhead (including compensation of shared employees, lease
payments and other expenses) and the allocation of business opportunities
between us and such other companies. Further, because our key executives are
also senior executives of other companies, they will not be able to devote all
of their time to our business affairs. Although there is no written agreement,
we expect that Mr. Chapman will devote no less than 33% of his time to our
operations and entities that he serves at our request. All business transactions
and allocations of overhead between us and such other companies are approved by
a committee of the Board of Directors composed of independent, outside
directors. Furthermore, the compensation of our President will be approved by
the Compensation Committee of the Board of Directors, a majority of the members
of which are independent, outside directors.
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EFFECT ON MARKET PRICE OF SHARES ELIGIBLE FOR FUTURE SALE/CONTROL BY
PRINCIPAL STOCKHOLDER
Nathan A. Chapman, Jr. directly holds 2,285,143 shares, or
approximately 68.1%, of the outstanding shares of Common Stock. All of such
shares are available for resale in the public market under Rule 144 promulgated
pursuant to the Securities Act. As of February 28, 1998, an additional 151,620
shares, or approximately 4.5% of the outstanding Common Stock, where held in
inventory by a subsidiary of an affiliate of the Company and Mr. Chapman, The
Chapman Co., in its capacity as market-maker for the Common Stock. All of the
shares held by The Chapman Co. are available for immediate resale. Sales of a
significant number of shares of Common Stock in the public market could have a
material adverse effect on the market price of the Common Stock. Further, due to
his share ownership, Mr. Chapman controls the outcome of all matters submitted
to our stockholders for approval, including the election of all of our
directors.
YEAR 2000 SOFTWARE ISSUE
As the year 2000 approaches, an issue has emerged regarding how
existing application software programs and operating systems can accommodate
information that employs dates after December 31, 1999. We are working with our
software vendors to prepare our systems for the year 2000. Based on information
currently available, we do not anticipate that we will incur significant
operating expenses or be required to incur material costs to be year 2000
compliant. We are, however, still analyzing and modifying our systems and
requirements. In addition, we have relationships with third parties that have
computer systems that may not be year 2000 compliant. To the extent that their
systems are not fully year 2000 compliant, we can not be sure that potential
systems interruptions or the cost necessary to update software would not have a
material adverse effect on our business, financial condition, results of
operations, or business prospects. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Software Issue."
REGULATORY RISKS
Our business, and the investment management industry generally, are
subject to regulation at both the federal and state levels. Pursuant to the
National Securities Markets Improvement Act of 1996, regulatory oversight of
investment advisors is divided between the Securities and Exchange Commission
and state regulatory authorities. Because our wholly-owned subsidiary, Chapman
Capital Management, Inc., or CCM, has assets under management in excess of $25
million, CCM is required to be registered with, and is subject to regulation by,
the Securities and Exchange Commission and, with the exception of state
anti-fraud regulations, CCM is generally exempt from registration and regulation
at the state level. These regulations are designed primarily for the protection
of our clients rather than our stockholders. Failure of CCM or its employees to
comply with any of the laws, rules or regulations of any state or federal
regulatory authority could result in a fine, injunction, suspension or expulsion
from the industry, which could have a material adverse impact upon us. Although
we have implemented procedures designed to achieve compliance with such laws,
rules and regulations, we cannot be sure that a failure to comply will not have
a material adverse effect upon us. Furthermore, amendments to existing statutes
and regulations or the adoption of new statutes and regulations could require us
to alter our methods of operation at costs which could be substantial.
NO DIVIDENDS
13
<PAGE>
To date, we have not paid any cash dividends on our Common Stock and do
not expect to declare or pay any cash dividends in the foreseeable future. We
intend to retain all earnings, if any, for the foreseeable future for our
continued growth.
14
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information required by Item 6 is incorporated by reference from the
information set forth under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the selected portions of the
1998 Annual Report filed as Exhibit 13.01 to this Form 10-KSB.
ITEM 7. FINANCIAL STATEMENTS
Information required by Item 7 is incorporated by reference from the
information set forth under the heading "Financial Statements" in the selected
portions of the 1998 Annual Report filed as Exhibit 13.01 to this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information regarding directors and executive officers required by
Item 9 is incorporated by reference from the information set forth under the
heading "Proposal 1 - Election of Directors -- Directors and Executive Officers"
and "-- Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's definitive proxy statement for its annual meeting of stockholders to
be held on May 25, 1999.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from
the information set forth under the heading "Executive Compensation" in the
Company's definitive proxy statement for its annual meeting of stockholders to
be held on May 25, 1999.
15
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated by reference from
the information set forth under the heading "Principal Stockholders" in the
Company's definitive proxy statement for its annual meeting of stockholders to
be held on May 25, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is incorporated by reference from
the information set forth under the heading "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for its annual meeting
of stockholders to be held on May 25, 1999.
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this Registration Statement:
EXHIBIT
NO. DESCRIPTION
1.1 Form of Underwriting Agreement between the Company and
The Chapman Co. (1)
1.2 Form of Qualified Independent Underwriter Agreement between
the Company and Ferris Baker Watts Incorporated (1)
1.3 Form of Escrow Agreement between the Company and
UMB Bank, N.A (1).
3.1 Articles of Incorporation (2)
3.2 Bylaws (3)
4 Form of Common Stock Certificate (4)
10.1 Advisory and Administrative Services Agreement between Chapman
Capital Management, Inc. and DEM Equity Fund dated
October 28, 1997 (2)
10.2 Advisory and Administrative Services Agreement between Chapman
Capital Management, Inc. and The Chapman Funds, Inc. dated
April 30, 1997 (2)
16
<PAGE>
10.3 Advisory and Administrative Services Agreement between
Chapman Capital Management, Inc. and DEM, Inc. dated
November 30, 1995 (2)
10.4 Chapman Capital Management Holdings, Inc. 1997 Omnibus
Stock Plan (2)
10.5 Advisory Agreement for Separate Account dated June 1, 1995 (1)
10.6 Agreement & Declaration of Trust between Chapman Capital
Management, Inc. and Bankers Trust Company dated
September 1996 (2)
10.7 Agreement between Bankers Trust Company and Chapman Capital
Management, Inc. dated November 1, 1996 (2)
10.8 Agreement between Bankers Trust Company and Chapman Capital
Management, Inc. dated November 1, 1996, Tremont Partners, Inc.
and Stamberg Prestia, Ltd. (2)
10.9 Agreement between the Company and Chapman Holdings, Inc. as to
Allocation of Shared Expenses dated as of June 19, 1998 (1)
10.10 License Agreement between the Company. and Nathan A.
Chapman, Jr. dated as of June 9, 1998 (1)
10.11 Lock-up Agreement between the Company and Nathan A.
Chapman, Jr. dated December 28, 1997 (1)
10.12 $100,000 Promissory Note of Nathan A. Chapman, Jr. to the
Company dated May 1, 1998 (4)
10.13 $285,587 Promissory Note of Nathan A. Chapman, Jr. to the
Company dated March 11, 1998 (4)
13 Certain Information from Registrant's Annual Report to
Stockholders for the year ended December 31, 1998 which is
incorporated by reference in this Form 10-KSB (3)
21 Subsidiaries of Company (2)
23.1 Consent of Arthur Andersen, LLP (3)
24 Power of Attorney (3)
17
<PAGE>
27 Financial Data Schedule (3)
- --------------------
(1) Incorporated by reference to Pre-Effective Amendment 2 to the Company's
Registration Statement on Form SB-2 (File No. 333-51883) as filed with the
Securities and Exchange Commission on June 22, 1998.
(2) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 333-51883) as filed with the Securities and Exchange Commission
on May 5, 1998.
(3) Filed herewith.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1998, as filed with the Securities and Exchange
Commission.
(b) Reports on Form 8-K:
The Company has filed no reports on Form 8-K during the fourth quarter
of fiscal year 1998.
18
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHAPMAN CAPITAL MANAGEMENT
HOLDINGS, INC.
Dated: March 30, 1999 By: /S/ NATHAN A. CHAPMAN, JR.
-------------------------------
Nathan A. Chapman, Jr.
Chairman of the Board of
Directors, and President
In accordance with the Exchange Act, this report is signed below by the
following persons on behalf of the Registrant in the capacities and on the dates
indicated.
SIGNATURES TITLE AND CAPACITY DATE
/S/ NATHAN A. CHAPMAN, JR. President and Chairman of the March 30, 1999
- -------------------------- Board (Principal Executive
Nathan A. Chapman, Jr. Officer)
/S/ MARIA MARKHAM-THOMPSON Chief Financial Officer March 30, 1999
- -------------------------- (Principal Financial Officer
Maria Markham-Thompson and Principal Accounting
Officer)
The Entire Board of Directors
Nathan A. Chapman, Jr.
Theron Stokes
Earl U. Bravo, Sr.
Robert L. Wallace
/S/ NATHAN A. CHAPMAN, JR. March 30, 1999
- ------------------------------
Nathan A. Chapman, Jr.
Attorney-in-Fact
19
<PAGE>
EXHIBIT INDEX
Exhibit Exhibit Description
No.
13.1 Certain information from Registrant's Annual Report to
Stockholders for the year ended December 31, 1998 which is
incorporated by reference in this Form 10-KSB
23.1 Consent of Arthur Andersen, LLP
24 Power of Attorney
27 Financial Data Schedule
20
<PAGE>
EXHIBIT 13.01
Certain information from the Annual Report to stockholders of CHAPMAN CAPITAL
MANAGEMENT HOLDINGS, INC. for the year ended December 31, 1998 which is
incorporated by reference in this Form 10-KSB
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Chapman capital Management Holdings, Inc. Consolidated Financial
Statements and the notes thereto included elsewhere in this document. The
discussion of results, causes and trends should not be construed to imply any
conclusion that such result or trends will necessarily continue in the
future. When used in this document, the words "believes," "intends,"
"expects," "anticipates" and similar expressions are intended to identify
forward-looking statements. These forward-looking statements are largely
based on the current expectations of management and are subject to a number
of risks and uncertainties. In light of these risks and uncertainties, many of
which are described in the "Risk Factors" section of this document, actual
results could differ materially from the forward-looking statements contained
herein.
OVERVIEW AND GENERAL INDUSTRY CONDITIONS
Advisory and administrative revenue is earned by the Company through its
investment advisory and administrative services operations. For the fiscal
year ended December 31, 1998, the Company generated revenue of $3,218,326 and
loss before income taxes of $151,000. For the fiscal year ended December 31,
1997, the Company generated revenue of $2,286,615 and income before income
taxes of $88,101.
The Company's primary source of revenue is advisory and administrative
fees. The Company's principal business activities are by their nature
affected by many factors, including general economic and financial
conditions, movement of interest rates and competitive conditions. Although
the Company seeks to maintain cost controls, a significant portion of the
Company's expenses are fixed and do not vary significantly with the factors
listed above. As a result, substantial fluctuations can occur in the
Company's revenue and net income from period to period.
2
<PAGE>
RESULT OF OPERATIONS
The following table sets forth for the period indicated, summary income
statement data:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1998 1997
------------------------ ------------------------
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
AMOUNTS REVENUES REVENUES AMOUNTS
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES:
Advisory and administrative fees............................. $ 3,136,456 97.5% $ 2,284,054 99.9%
Other income................................................. 81,370 2.5 2,561 0.1
------------ ----- ------------ -----
Total revenues......................................... 3,218,326 100.0 2,286,615 100.0
------------ ----- ------------ -----
OPERATING EXPENSES:
Management fees.............................................. 1,177,681 36.6 869,355 38.0
Compensation and benefits.................................... 856,945 26.6 594,993 26.0
Professional fees............................................ 179,427 5.6 195,066 8.5
Administrative support....................................... 72,000 2.2 72,000 3.1
Interest expenses............................................ 25,802 0.8 13,522 0.6
Amortization expenses........................................ 228,000 7.1 228,000 10.0
Other operating expenses..................................... 829,471 25.8 225,578 9.9
------------ ----- ------------ -----
Total operating expenses............................... 3,369,326 104.7 2,198,514 96.1
------------ ----- -----
(Loss) income before income tax (benefit) allocation......... (151,000) (4.7) 88.101 3.9
Income tax (benefit) allocation.............................. (45,000) (1.4) 40,000 1.8
------------ ----- ------------ -----
Net (loss) income............................................ $ (106,000) (3.3%) $ 48,101 2.1%
------------ ----- ------------ -----
------------ ----- ------------ -----
</TABLE>
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997.
Total revenue increased by $931,711, or 40.8%, to $3,218,326 in 1998 from
$2,286,615 in 1997. Advisory and administrative fee revenue increased by
$852,402, or 37.3%, to $3,136,456 in 1998 from $2,284,054 in 1997 reflecting
increased fees as a result of an increase in total assets under management due
largely to investment performance, the addition of the DEM Equity Fund, new
separate accounts under the DEM strategy, and additional assets from a DEM-MET
client.
Total expense increased by $1,170,812, or 53.3%, to $3,369,326 in 1998 from
$2,198,514 in 1997. As a percentage of total revenue, total expense increased to
104.7% in 1998 compared to 96.1% in 1997 reflecting the Company's efforts to
expend its operations.
Management fee expense, which consists primarily of the Company's payments
to sub-advisors in connection with the Company's multi-manager investment
product, the DEM-MET Trust, increased by $308,326, or 35.5%, to $1,177,681 in
1998 from
3
<PAGE>
$869,355 in 1997. The increase in such fees reflects an increase in assets
under management in the DEM-MET Trust, including approximately $40 million of
new assets added by an existing trust client.
Compensation and benefits expenses increased by $261,952, or 44.0%, to
$856,945 in 1998 from $594,993 in 1997 due primarily to the addition of new
employees connected with the Company's efforts to expand its operations,
annual pay increases and bonuses. As a percentage of total revenue,
compensation and benefits expenses increased to 26.6% for 1998 from 26.0% for
1997.
Interest expenses increased by $12,280, or 90.8%, to $25,802 in 1998
from $13,522 in 1997 substantially due to the cost of debt to affiliates that
was outstanding prior to the public offering.
Other operating expenses increased by $603,893, or 267.7%, to $829,471
for 1998 from $225,578 for 1997. This increase is attributable to additional
travel, advertising, publicity and business development expenses connected
with the Company's efforts to expand its operations.
The Company's income tax provision decreased by $85,000, or 212.5%, to a
tax benefit of $45,000 in 1998 from a tax provision of $40,000 in 1997 due to
the operating loss incurred during the year.
Net loss of $106,000 was incurred for 1998 as compared to net income of
$48,101 for 1997 as a result of the items discussed above.
4
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through capital contributions from
its principal stockholder, loans from affiliates, cash flow from operations
and the public offering of its stock.
A majority of the Company's assets are liquid and consist primarily of
cash and cash equivalents and receivables from advisory clients. A
relatively small percentage of the Company's total assets are fixed. The
Company's total assets as of December 31, 1998 and December 31, 1997 were
$5,647,742 and $1,085,308, respectively.
The final payment of $150,000 on a noncompete agreement pertaining to
the DEM-MET Trust is due on demand. Management expects that the Company's
liquid assets and cash provided by operations will be sufficient to make this
demand payment. The Company may seek lines of credit in the future.
The Company's overall capital and funding needs are continually reviewed
to ensure that the capital base can support the estimated needs of the
business. Based upon these reviews, the Company believes its capital base is
sufficient to implement the Company's DEM and DEM Multi-Manager strategies
for the foreseeable future.
The Company's cash was $4,241,523 as of December 31, 1998 as compared to
$8,677 as of December 31, 1997.
EFFECTS OF INFLATION
The Company's assets are to a large extent liquid in nature and,
accordingly, may be significantly affected by inflation. The Company's
expenses, such as employee compensation and occupancy expenses are subject to
inflation and the effects of inflation may not be readily recoverable in the
prices of services offered to the Company's customers. To the extent
inflation results in rising interest rates or has adverse effects upon the
securities market, it may adversely affect the Company's financial position,
results of operations and assets under management.
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 February 28, 1999, the
Company has incurred direct Year 2000 compliance costs of $16,500, to cover
assessment of systems, internal testing, point-to-point testing, training,
and replacement and modification of existing systems, of which $11,000 has
been paid. The Company's Year 2000 compliance costs consist of direct
expenses incurred in respect of software, consulting and employee time and
the Company's share of compliance expenses for upgraded computers, software,
and communication systems to be paid or financed by Chapman Holdings, Inc.,
an affiliate of the Company. The Company will reimburse Chapman Holdings,
Inc. for its share of
5
<PAGE>
these Year 2000 expenses through increased charges for administrative support
under its expense allocation agreement with Chapman Holdings, Inc. See
"Certain Transactions."
During 1999, the Company's Year 2000 compliance costs are estimated at
approximately $65,000. The Company estimates that over the next three years
its total Year 2000 compliance costs, direct and allocated by Chapman
Holdings, Inc., will be approximately $145,000.
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 first 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, the testing phase is scheduled to be completed by June 30, 1999.
The table below summarizes the status of key elements of the Company's
Year 2000 compliance plan:
<TABLE>
<CAPTION>
PHASE PERCENTAGE OF COMPLETION
- -------------------------------- -----------------------------------------------------
<S> <C>
Assessment...................... 90%
Remediation and Renovation...... 90%
Testing......................... 25%
Contingency Planning............ 33%
</TABLE>
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
6
<PAGE>
2000 compliant. These efforts may result in additional costs in excess of
current allocations and estimates.
7
<PAGE>
STOCKHOLDER INFORMATION
The Company's Common Stock is quoted on The Nasdaq SmallCap Market under the
symbol "CMGT." As of February 28, 1999, there were approximately 45 holders of
record and approximately 428 beneficial owners of the Company's Common Stock.
PRICE RANGE PER SHARE
Set forth below is the range of high and low bid information on the Nasdaq
SmallCap Market for the Company's Common Stock for each quarter since the
Company's initial public offering. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, an may not represent actual
transactions.
<TABLE>
<CAPTION>
1998
------------------
QUARTER HIGH LOW
- -------------------------------------------------------------------------- ------- -------
<S> <C> <C>
January to March.......................................................... N/ A N/ A
April to June............................................................. N/ A N/ A
July to September*........................................................ 8 7
October to December....................................................... 8 3/8 7 1/16
</TABLE>
- ------------------------
* The Common Stock commenced trading on the Nasdaq SmallCap Market in August,
1998.
DIVIDENDS
The Company has never declared or paid cash or other dividends on its Common
Stock and does not anticipate doing so in the foreseeable future. The payment of
dividends, if any, in the future is within the discretion of the Board of
Directors and will depend upon the Company's earnings, if any, its financial
condition, and other relevant factors. The Company intends to retain any
earnings in the foreseeable future for the Company's continued growth.
8
<PAGE>
FINANCIAL STATEMENTS
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheet as of December 31, 1998......................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1998 and 1997....................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 1998
and 1997................................................................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997....................... F-6
Notes to the consolidated financial statements............................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Chapman Capital Management Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Chapman
Capital Management Holdings, Inc. (a Maryland corporation) and Subsidiary as of
December 31, 1998, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the two years ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Chapman
Capital Management Holdings, Inc. and Subsidiary as of December 31, 1998, and
the results of their operations and their cash flows for the two years ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
Baltimore, Maryland,
March 5, 1999
F-2
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents............................................................................................. $4,241,523
Investments........................................................................................................... 150,000
Management fees receivable:
From proprietary funds.............................................................................................. 107,086
From individually managed accounts.................................................................................. 256,855
Receivables from affiliates........................................................................................... 120,047
Advances to officer................................................................................................... 118,547
Office equipment, net................................................................................................. 20,805
Prepaids and other assets............................................................................................. 122,879
Intangible assets, net................................................................................................ 465,000
Deferred tax asset.................................................................................................... 45,000
----------
Total assets...................................................................................................... $5,647,742
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses................................................................................. $ 171,923
Due to affiliated company............................................................................................. 284,906
Due to officer........................................................................................................ --
Income taxes payable.................................................................................................. --
Noncompete agreement obligation....................................................................................... 150,000
----------
Total liabilities................................................................................................. 606,829
----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 20,000,000 shares authorized, 3,351,334 issued and outstanding....................... 3,351
Additional paid-in capital.......................................................................................... 5,238,883
Accumulated deficit................................................................................................. (201,321)
----------
Total stockholders' equity........................................................................................ 5,040,913
----------
Total liabilities and stockholders' equity........................................................................ $5,647,742
----------
----------
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
REVENUES:
Advisory and administrative fees.................................................... $ 3,136,456 $ 2,284,054
Other income........................................................................ 81,870 2,561
------------ ------------
Total revenues.................................................................... 3,218,326 2,286,615
------------ ------------
OPERATING EXPENSES:
Management fees..................................................................... 1,177,681 869,355
Compensation and benefits........................................................... 856,945 594,993
Professional fees................................................................... 179,427 195,066
Administrative support.............................................................. 72,000 72,000
Interest expense.................................................................... 25,802 13,522
Amortization expense................................................................ 228,000 228,000
Other operating expenses............................................................ 829,471 225,578
------------ ------------
Total operating expenses.......................................................... 3,369,326 2,198,514
------------ ------------
(Loss) income before income tax (benefit) allocation.............................. (151,000) 88,101
INCOME TAX (BENEFIT) ALLOCATION....................................................... (45,000) 40,000
------------ ------------
Net (loss) income................................................................... $ (106,000) $ 48,101
------------ ------------
------------ ------------
BASIC AND DILUTIVE EARNINGS PER SHARE DATA:
Net (loss) income................................................................... $ (.04) $ .02
------------ ------------
------------ ------------
Weighted Average Shares Outstanding................................................... 2,810,839 2,486,543
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'
COMMON PAID-IN ACCUMULATED (DEFICIT)
STOCK CAPITAL DEFICIT EQUITY
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996.................................. $ 2,487 $ -- $ (143,422) $ (140,935)
Net income................................................ -- -- 48,101 48,101
----------- ------------ ------------ ------------
BALANCE, December 31, 1997.................................. 2,487 -- (95,321) (92,834)
Proceeds from initial public offering..................... 864 5,238,883 -- 5,239,747
Net loss.................................................. -- -- (106,000) (106,000)
----------- ------------ ------------ ------------
BALANCE, December 31, 1998.................................. $ 3,351 $ 5,238,883 $ (201,321) $5,040,913
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income.................................................................... $ (106,000) $ 48,101
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
Depreciation and amortization...................................................... 231,455 231,982
Deferred tax asset................................................................. (45,000) --
Effect of changes in assets and liabilities-
Management fees receivable....................................................... (110,939) (71,508)
Receivable from affiliates....................................................... (84,514) (30,654)
Advances to officer.............................................................. (46,547) (84,200)
Prepaids and other assets........................................................ (114,234) (4,326)
Accounts payable and accrued expenses............................................ 20,926 134,295
Due to affiliated company........................................................ (515,766) 151,104
Income taxes payable............................................................. (48,000) (134,000)
------------ -----------
Net cash (used in) provided by operating activities............................ (818,619) 240,794
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment......................................................... (19,056) (5,250)
Sale of investments.................................................................. 9,247 --
Purchase of investments.............................................................. (150,000) (29)
------------ -----------
Net cash used in investing activities.......................................... (159,809) (5,279)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering................................................ 6,053,335 --
Issuance costs....................................................................... (813,588) --
Proceeds from officer................................................................ (28,473) (85,000)
Payment of noncompete agreement...................................................... -- (150,000)
------------ -----------
Net cash provided by (used in) financing activities............................ 5,211,274 (235,000)
------------ -----------
NET INCREASE IN CASH................................................................... 4,232,846 515
CASH, beginning of year................................................................ 8,677 8,162
------------ -----------
CASH, end of year...................................................................... $ 4,241,523 $ 8,677
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. ORGANIZATION:
Chapman Capital Management Holdings, Inc. is an investment advisory and
investment management company.
During February 1998, Chapman Capital Management, Inc. became the
wholly-owned subsidiary of Chapman Capital Holdings Management, Inc. ("CCMH,"
the "Company"), a newly formed corporation. CCMH was the wholly-owned subsidiary
of The Chapman Co. until it spun off from The Chapman Co. as part of the initial
public offering (IPO) of Chapman Holdings, Inc. on February 26, 1998.
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. As of December
31, 1998, the Company owed The Chapman Co. $284,906 for the costs of these
services. The Chapman Co. also pays for 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
and based on cost sharing arrangements approved by the Board of Directors. 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.
2. SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The accompanying 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.
ACQUISITION
In December 1996, the Company acquired DEM-MET, a tax-exempt pooled interest
trust for qualified employee benefit plans. As part of the acquisition of this
trust, the Company entered into a noncompete agreement for $300,000 and paid
$640,000 in costs related to acquiring the trust. These amounts are included in
intangible assets (see Note 4).
During 1998 and 1997, the Company paid Bankers Trust management fees for
managing the trust. Those fees are included in management fees in the
accompanying statements of operations for the years ended December 31, 1998 and
1997.
CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents is $4,046,298 of cash invested in the
Chapman U.S. Treasury Money Fund, a fund managed by Chapman Capital Management,
Inc.
F-7
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INVESTMENTS
Investments consist of common stock of another company. As this company does
not have a readily available market, management believes costs approximate
market value.
OFFICE EQUIPMENT
Office equipment is depreciated using the straight-line method over the
estimated useful life of 3 to 5 years. As of December 31, 1998, accumulated
depreciation was $10,257.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheet for cash,
investments, receivables, accounts payable and accrued expenses approximate fair
value.
EARNINGS PER SHARE
As of December 31, 1997, the Company adopted Financial Accounting Standards
Board Statement No. 128, "Earnings Per Share" (SFAS No. 128). Under SFAS No.
128, a company must disclose basic earnings per share (the principal difference
being that common stock equivalence would not be considered in the compilation
of basic earnings per share) and diluted earnings per share. The Company adopted
this pronouncement which required restatement of all prior periods presented.
Earnings per share are based on the weighted average number of common and
dilutive common equivalent shares outstanding during the period the calculation
is made. Common equivalent shares consist of shares issuable upon the exercise
of stock warrants, using the treasury stock method. The weighted average shares
outstanding as of December 31, 1998 and 1997, are the weighted average common
shares outstanding of 2,810,839 and 2,486,543, respectively.
SEGMENT REPORTING
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" as of December 31, 1998, and has determined
that the Company has only one segment, investment advisory and investment
management services. The Company came to this conclusion because the Company
operates in one regulatory environment and has only one management group that
manages the entire Company. Information on the Company's operating results are
provided as one segment to the key decision-maker to make decisions.
COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income" and
has determined that the Company does not have any comprehensive income
adjustments for the periods presented, and therefore, comprehensive income
equals net income.
INCOME TAXES
The Company accounts for income taxes under the separate company liability
method, whereby deferred income taxes are recognized for the tax consequences of
temporary differences by applying
F-8
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities.
Prior to the Company being spun off from its Parent, the Company was
included in the consolidated Federal income tax return of its Parent on a cash
basis. The Parent allocated Federal tax expense to the Company based on its
portion of consolidated taxable income and its taxes on that income if the
Company were taxed on a stand-alone basis.
3. 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, after offering costs, of approximately $5,240,000.
4. INTANGIBLE ASSETS:
Intangible assets consists of a noncompete agreement and start-up costs (see
Note 2). The $300,000 noncompete agreement is being amortized over 3 years, the
term of the agreement. The $640,000 in acquisition costs is being amortized over
5 years. The noncompete agreement will be paid in two equal installments.
Accumulated amortization as of December 31, 1998 and 1997, is $475,000 and
$247,000, respectively.
5. COMMON STOCK:
The Company effected a 25% stock split effected as a stock dividend. As
such, all share data related to the Company prior to the stock split have been
restated.
6. TRANSACTIONS WITH AFFILIATES:
The Company provides investment advisory and administrative services to The
Chapman Funds, Inc. (the Funds), an affiliated group of mutual funds, under an
investment advisory and administrative services agreement which sets forth the
services to be provided and the fees to be charged. The agreement also provides
that expense reimbursements be made to the Funds for specified expenses and to
the extent that any Funds' expenses exceed specified limitations. Included in
the accompanying statements of operations for the years ended December 31, 1998
and 1997, are advisory management fees related to The Chapman Funds totaling
$259,991 and $144,935, respectively.
The Company provided investment advisory and administrative services to DEM,
Inc. (DEM), a registered non-diversified closed-ended management investment
company, under an investment advisory and administrative services agreement
which sets forth the services to be provided and the fees to be charged. During
the fourth quarter of 1998, DEM was dissolved. Included in the accompanying
statements of operations for the years ended December 31, 1998 and 1997, is an
advisory management fee related to DEM totaling $149,669 and $138,614,
respectively.
Included in management fees receivable as of December 31, 1998, is $107,086
due from proprietary funds for services provided under the above described
agreement.
F-9
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
6. TRANSACTIONS WITH AFFILIATES: (CONTINUED)
Included in receivables from affiliates as of December 31, 1998, is $31,976
due from Chapman Insurance Agency ("CIA") for expenses paid on their behalf.
Also included in receivables from affiliates as of December 31, 1998, is $88,071
due from newly created funds using the DEM strategy. The receivable from these
new funds represents reimbursement of start-up costs paid on their behalf.
As of December 31, 1998, the Company had outstanding advances to the
majority stockholder of the Company of $118,547.
As of December 31, 1998 and 1997, the Company owes The Chapman Co. $284,906,
which is recorded as due to affiliated company in the accompanying consolidated
balance sheets.
The Chapman Co. has entered into an agreement in which it leases furniture
and equipment from Chapman Limited Partnership, an entity in which certain
officers and stockholders of The Chapman Co. are partners. The Chapman Co.
allocates a portion of the $9,846 monthly payment to the Company based on the
space used by the Company. The Chapman Co. allocated $59,076 and $39,384 in
lease expense for the years ended December 31, 1998 and 1997, respectively.
These amounts are included in other operating expenses in the statements of
operations for the years ended December 31, 1998 and 1997, respectively.
7. INCOME TAXES:
A reconciliation of the statutory income taxes to the recorded income tax
(benefit) provision for the years ended December 31, 1998 and 1997, is as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Statutory tax (at 35% rate)............................................ $ (53,000) $ 30,800
Effect of state income taxes........................................... (7,500) 4,000
Effect of graduated tax rate........................................... 5,500 --
Effect of permanent book to tax differences............................ 10,000 5,200
---------- ---------
Income tax (benefit) provision......................................... $ (45,000) $ 40,000
---------- ---------
---------- ---------
</TABLE>
The components of the income tax (benefit) provision for the years ended
December 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Current................................................................ $ -- $ 40,000
Deferred............................................................... (45,000) --
Discontinued operations................................................ -- --
---------- ---------
Income tax (benefit) provision......................................... $ (45,000) $ 40,000
---------- ---------
---------- ---------
</TABLE>
The Company's deferred income tax assets as of December 31, 1998, consists
of the following:
<TABLE>
<S> <C>
Deferred tax asset:
NOL carryforward................................................. $ 25,000
Other............................................................ 20,000
---------
Net deferred tax asset recorded on the consolidated balance
sheet........................................................ $ 45,000
---------
---------
</TABLE>
F-10
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
8. STATEMENT OF CASH FLOWS--SUPPLEMENTAL DISCLOSURE:
Supplemental cash flow disclosures for the years ended December 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Dividend reinvestment in affiliate...................................... $ -- $ 29
Cash paid for:
Interest.............................................................. 25,495 5,000
Income taxes.......................................................... 114,000 174,000
</TABLE>
9. CONCENTRATION OF CREDIT RISKS:
One client accounted for 59% of the Company's advisory and administrative
fees during the year ended December 31, 1998. Two clients accounted for 72% of
the Company's advisory and administrative fees for the year ended December 31,
1997. As of December 31, 1998, receivables due from this client was $67,746.
10. STOCK OPTIONS PLANS:
In 1998, the Company established the Chapman Capital Management Holdings,
Inc. Omnibus Stock Plan (the Plan) to enable the Company to grant equity
compensation to the Company's directors, officers, employees and consultants.
Under the Plan, 150,000 shares of common stock have been reserved for issuance
upon exercise of stock options granted. The price per share of each option
exercised will be determined by the Compensation Committee of the Board of
Directors. No options have been issued pursuant to this Plan as of December 31,
1998.
F-11
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports in this Form 10-KSB. It should be noted that we have not audited any
financial statements of the Company subsequent to December 31, 1998 or
performed any audit procedures subsequent to the date of our report.
/S/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
March 30, 1999
<PAGE>
Exhibit 24
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Directors and
Executive Officers of Chapman Capital Management Holdings, Inc., incorporated in
the State of Maryland, hereby constitute and appoint Nathan A. Chapman, Jr. and
Earl U. Bravo, Sr., and either of them, the true and lawful agents and
attorney-in-fact of the undersigned with full power and authority in either said
agent and attorney-in-fact, to sign for the undersigned and in their respective
names as Directors and/or Executive Officers of Chapman Capital Management
Holdings, Inc., the Annual Report on Form 10-KSB, and any and all further
amendments to said report, hereby ratifying and confirming all acts taken by
such agent and attorney-in-fact, as herein authorized.
Dated as of: March 5, 1999
/S/ NATHAN A. CHAPMAN, JR. /S/ ROBERT L. WALLACE
- ------------------------------------------- -----------------------------
Nathan A. Chapman, Jr., President, Chairman Robert L. Wallace, Director
of the Board and Director (Principal
Executive Officer)
/S/ EARL U. BRAVO, SR. /S/ THERON STOKES
- ------------------------------------------- -----------------------------
Earl U. Bravo, Sr., Director Theron Stokes, Director
/S/ MARIA MARKHAM-THOMPSON
- -------------------------------------------
Maria Markham-Thompson, Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer)
<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, 1998 and 1997,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 4,241,523 0
<SECURITIES> 150,000 0
<RECEIVABLES> 602,535 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,161,937 0
<PP&E> 31,062 0
<DEPRECIATION> 10,257 0
<TOTAL-ASSETS> 5,647,742 0
<CURRENT-LIABILITIES> 606,829 0
<BONDS> 0 0
0 0
0 0
<COMMON> 3,351 0
<OTHER-SE> 5,037,562 0
<TOTAL-LIABILITY-AND-EQUITY> 5,647,742 0
<SALES> 3,128,326 2,286,615
<TOTAL-REVENUES> 3,128,326 2,286,615
<CGS> 3,369,325 2,198,514
<TOTAL-COSTS> 3,369,325 2,198,514
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 25,802 13,522
<INCOME-PRETAX> (151,000) 88,101
<INCOME-TAX> (45,000) 40,000
<INCOME-CONTINUING> (106,000) 48,101
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (106,000) 48,101
<EPS-PRIMARY> (0.04) 0.02
<EPS-DILUTED> 0 0
</TABLE>
