<PAGE>
FILED PURSUANT TO RULE 424(B)(3)
FILE NO: 333-51883
PROSPECTUS SUPPLEMENT DATED AUGUST 20, 1999 TO
PROSPECTUS DATED APRIL 5, 1999
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED June 30, 1999
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)
<TABLE>
<S> <C>
MARYLAND 52-2097010
- --------------------------------------------- ------------------------------------
(State or Other Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
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)
As of August 10, 1999, 3,351,334 shares of the issuer's common stock, par value
$0.001 per share, were outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I................................................................................................................ 1
ITEM 1 FINANCIAL STATEMENTS........................................................................................ 1
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................... 7
PART II............................................................................................................... 14
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS................................................................... 14
ITEM 4 SUBMISSION OF MATTERS TO SECURITY HOLDERS................................................................... 14
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K............................................................................ 14
</TABLE>
i
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The consolidated financial statements for the six months ended June 30,
1999 have not been audited but, in the opinion of management, contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position and results of operations of the Company
as of such date and for such periods. The unaudited consolidated financial
statements should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto appearing in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998. The results
of operations for the six months ended June 30, 1999 are not necessarily
indicative of the results of operations that may be expected for the year ending
December 31, 1999 or any future periods.
1
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998, AND JUNE 30, 1999
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ --------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 4,242,000 $ 3,620,000
Investments 150,000 252,000
Management fees receivable:
From proprietary funds 107,000 123,000
From individually managed accounts 257,000 308,000
Receivables from affiliates 120,000 24,000
Advances to officer 118,000 122,000
Fixed Assets, net 21,000 33,000
Prepaids and other assets 123,000 283,000
Intangible assets, net 465,000 351,000
Deferred income taxes 45,000 108,000
-------------- --------------
Total assets $ 5,648,000 $ 5,224,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 172,000 $ 193,000
Due to affiliated company 285,000 61,000
Noncompete agreement obligation 150,000 150,000
-------------- --------------
Total liabilities 607,000 404,000
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 20,000,000 shares authorized,
3,351,334 issued and outstanding 3,000 3,000
Additional paid-in capital 5,239,000 5,239,000
Accumulated deficit (201,000) (422,000)
-------------- --------------
Total stockholders' equity 5,041,000 4,820,000
-------------- --------------
Total liabilities and stockholders' equity $ 5,648,000 $ 5,224,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1999
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------------------
1998 1999 1998 1999
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Net Advisory and administrative fees $ 809,000 $ 1,074,000 $ 1,578,000 $ 2,053,000
Other income 1,000 44,000 4,000 87,000
-------------- -------------- -------------- --------------
Total revenues 810,000 1,118,000 1,582,000 2,140,000
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Management fees 319,000 389,000 626,000 740,000
Compensation and benefits 166,000 302,000 340,000 516,000
Professional fees 32,000 225,000 59,000 299,000
General and administrative 180,000 514,000 333,000 749,000
Amortization expense 57,000 57,000 114,000 114,000
Interest expense 12,000 - 26,000 6,000
-------------- -------------- -------------- --------------
Total operating expenses 766,000 1,487,000 1,498,000 2,424,000
-------------- -------------- -------------- --------------
Income (loss) before income tax
provision (benefit) 44,000 (369,000) 84,000 (284,000)
INCOME TAX PROVISION (BENEFIT) 15,000 (93,000) 29,000 (63,000)
-------------- -------------- -------------- --------------
Net income (loss) $ 29,000 $ (276,000) $ 55,000 $ (221,000)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
BASIC AND DILUTIVE EARNINGS PER
SHARE DATA:
Net income (loss) $ .01 $ (0.08) $ .02 $ (0.07)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted Average Shares Outstanding 2,487,000 3,351,000 2,487,000 3,351,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
June 30,
-------------------------------
1998 1999
--------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 55,000 $ (221,000)
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 116,000 125,000
Deferred tax asset (66,000) (63,000)
Effect of changes in assets and liabilities-
Management fees receivable (49,000) (67,000)
Receivables from affiliates 2,000 96,000
Advances to officer 66,000 (4,000)
Prepaids and other assets (10,000) (160,000)
Accounts payable and accrued expenses 87,000 21,000
Income taxes payable (18,000) -
Investment in affiliate (2,000) -
Due to affiliated company (103,000) (224,000)
-------------- --------------
Net cash provided by (used in) operating activities 78,000 (497,000)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment - (23,000)
Purchase of investments - (102,000)
-------------- --------------
Net cash used in investing activities - (125,000)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of due to officer (28,000) -
-------------- -------------
Net cash used in financing activities (28,000) -
-------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 50,000 (622,000)
CASH AND CASH EQUIVALENTS, beginning of period 9,000 4,242,000
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 59,000 $ 3,620,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
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.
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements for the three and six months ended June
30, 1998 and 1999, are unaudited, but in the opinion of management, such
financial statements have been presented on the same basis as the audited
consolidated financial statements and include all adjustments, consisting only
of normal recurring adjustments necessary for a fair presentation of the
financial position and results of operations, for the periods.
As permitted under the applicable rules and regulations of the Securities and
Exchange Commission, these financial statements do not include all disclosures
normally included with audited consolidated financial statements, and
accordingly, should be read in conjunction with the consolidated financial
statements and notes thereto as of December 31, 1998, included in the Company's
Form 10-KSB filed. The 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.
ASSETS UNDER MANAGEMENT
During June 1999, the Company was notified that two of its clients,
accounting for 6.3% and 2.5% of the Company's total revenues respectively,
were withdrawing portions of each of their separate accounts managed by the
Company. The amounts withdrawn, effective June 30, 1999, collectively totaled
$66.5 million, or 10.3% of the Company's assets under management as of
June 30, 1999.
5
<PAGE>
In June 1999, one of the four participants in the Company's DEM-MET Trust
decided to withdraw the entire amount of their funds totaling approximately
$13.7 million, or approximately 4.5%, of the total assets managed by the DEM-MET
Trust or 2.1% of the total assets managed by the Company as of June 30, 1999.
In order to comply with the expense limitation requirements of a
proposed sub-distributor of Institutional Shares of the DEM portfolios of The
Chapman Funds, Inc., the Company has agreed to a fee limitation of 2% of
average daily net assets in favor of the Institutional Shares of DEM Equity
Fund and DEM Index Fund, each of which is active, and DEM Multi-Manager
Equity Fund, DEM Multi-Manager Bond Fund and DEM Fixed Income Fund, each of
which is currently inactive. The DEM Index Fund and DEM Equity Fund expense
limitations went into effect as of March 23, 1999 and July 1, 1999,
respectively.
In order to facilitate retail distribution of the Investor Shares of
the DEM portfolios, the Company has agreed to fee limitations in favor of the
Investor Shares of the following portfolios in the following percentages of
average daily net assets: DEM Equity Fund, 3.00%; DEM Index Fund, 2.69%; DEM
Multi-Manager Equity Fund, 2.99%; and DEM Multi-Manager Bond Fund, 2.99%. The
DEM Index Fund and DEM Equity Fund expense limitations went into effect as of
March 23, 1999 and July 1, 1999, respectively.
Pursuant to these expense limitations, the Company has agreed to
reimburse the portfolios for all fees and expenses in excess of their
respective expense limitations until at least December 31, 2000. The service
providers to the portfolios typically charge a fixed fee combined with a
variable fee determined by such factors as the number of accounts and the net
assets of the portfolio. Due to these fixed fees, when the assets of a
portfolio are low, as they typically are at the commencement of operations,
the fees assessed by service providers can result in expenses significantly
in excess of the fee limitations discussed above, requiring reimbursement or
direct payments by the Company. During the three months ended June 30, 1999,
the average net assets of DEM Index Fund were $110,237 and the Company
incurred costs of $70,579 pursuant to the DEM Index Fund expense limitations.
The Company believes that it will be required to reimburse expenses
for DEM Index Fund in progressively lower amounts as net assets rise until
the expiration of the expense limitations or until the net assets of DEM
Index Fund is sufficient. Further, the Company expects that the amounts that
it is required to reimburse may increase in future periods with the
implementation of the DEM Equity Fund expense limitations and the
commencement of operations of additional DEM portfolios with their own
expense limitations. There can be no assurance that these portfolios will
attract net assets sufficient to lower their expenses below their respective
expense limitations. To the extent these portfolios are unsuccessful in
lowering their expenses below their respective expense limitations, the
Company's results of operations could be materially adversely affected.
EARNINGS PER SHARE
On May 14, 1999, there were 24,000 stock options issued at a stock price
range of $8.38 to $9.22 per share. These options expire over a three-year
period and vest immediately. The common stock equivalents of these options
was not included in the diluted earnings per share as the stock options are
antidilutive.
SUBSEQUENT EVENTS
On July 29, 1999, the Company made an unsecured loan of $3,220,000
to Chapman Holdings, Inc., an affiliate of the Company ("Chapman Holdings")
in connection with its broker-dealer subsidiary, The Chapman Co., seeking to
qualify to participate in a municipal underwriting syndicate. The loan was
issued pursuant to a demand note that requires Chapman Holdings to repay the
amount of the loan upon the Company's demand and with interest due thereon at
the brokers call rate which was 7.0% as of June 30, 1999. The proceeds of the
loan were immediately transferred by Chapman Holdings to The Chapman Co. on a
subordinated basis, to qualify as regulatory net capital and are held in
cash, until at least September 14, 1999. As such, the obligation of The
Chapman Co. to repay this loan to its parent is subordinate to the claims of
other creditors of The Chapman Co. that have not been similarly subordinated
and repayment prior to September 14, 1999 is subject to compliance with
regulatory requirements. As of July 31, 1999, the net capital and excess net
capital, for regulatory purposes, of The Chapman Co., after giving effect to
this loan, were $5 million and $4.7 million, respectively.
On July 29, 1999, the Company advanced Nathan A. Chapman, Jr., President of
the Company, $242,000 pursuant to a demand note that requires him to repay
the amount of the loan upon the Company's demand and with interest due equal
to a rate of 5.45% per annum. As of July 29, 1999, the Company had
outstanding unsecured loans to Mr. Chapman in the amount of $364,000.
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Note Regarding Forward-Looking Information
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in
this Report constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, general
economic and business conditions in the Company's market area, inflation,
fluctuations in interest rates, changes in government regulations,
competition and the ability of the Company to implement its business strategy
and other risks discussed in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1998, and in this and other reports filed by the
Company. In addition to the risks discussed above and in the Company's Form
10-KSB for the year ended December 31, 1998, the Company's liquidity has been
affected by a loan to an affiliate on July 29, 1999. See "Liquidity" below.
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 $643.4 million as of June
30, 1999, compared to $637.1 million as of March 31, 1999. The net $6.3 million
increase in assets under management during the quarter resulted from investment
performance.
During the quarter ending June 30, 1999, five clients accounted for
approximately 67.5% of the Company's revenue, compared to 71.5% for the
period ended March 31, 1999. During June 1999, the Company was notified that
two of its clients, accounting for 6.3% and 2.5% of the Company's total
revenues, respectively, were withdrawing portions of each of their separate
accounts managed by the Company. The amounts withdrawn effective June 30,
1999, collectively totaled $66.5 million, or 10.3% of the Company's assets
under management. The reduction in assets under management is expected to
have a corresponding reduction in the management and advisory fee revenues
received by the Company in future periods.
7
<PAGE>
The Company was also notified in June 1999, that one of the four
participants in the Company's DEM-MET Trust had decided to withdraw the
entire amount of their funds totaling approximately $13.7 million , or
approximately 4.5% of the total assets managed by the DEM-MET Trust. As of
June 30, 1999, the DEM-MET Trust accounted for 47.5% of the Company's assets
under management. The Company expects that the reduced management and
advisory fee revenues associated with the reduction in assets under
management will be partially offset by a reduction in expenses incurred by
the Company for sub-advisory management fees.
In order to comply with the expense limitation requirements of a
proposed sub-distributor of Institutional Shares of the DEM portfolios of The
Chapman Funds, Inc., the Company has agreed to a fee limitation of 2% of
average daily net assets in favor of the Institutional Shares of DEM Equity
Fund and DEM Index Fund, each of which is active, and DEM Multi-Manager
Equity Fund, DEM Multi-Manager Bond Fund and DEM Fixed Income Fund, each of
which is currently inactive. The DEM Index Fund and DEM Equity Fund expense
limitations went into effect as of March 23, 1999 and July 1, 1999,
respectively.
In order to facilitate retail distribution of the Investor Shares of
the DEM portfolios, the Company has agreed to fee limitations in favor of the
Investor Shares of the following portfolios in the following percentages of
average daily net assets: DEM Equity Fund, 3.00%; DEM Index Fund, 2.69%; DEM
Multi-Manager Equity Fund, 2.99%; and DEM Multi-Manager Bond Fund, 2.99%. The
DEM Index Fund and DEM Equity Fund expense limitations went into effect as of
March 23, 1999 and July 1, 1999, respectively.
Pursuant to these expense limitations, the Company has agreed to
reimburse the portfolios for all fees and expenses in excess of their
respective expense limitations until at least December 31, 2000. The service
providers to the portfolios typically charge a fixed fee combined with a
variable fee determined by such factors as the number of accounts and the net
assets of the portfolio. Due to these fixed fees, when the assets of a
portfolio are low, as they typically are at the commencement of operations,
the fees assessed by service providers can result in expenses significantly
in excess of the fee limitations discussed above, requiring reimbursement or
direct payments by the Company. During the three months ended June 30, 1999,
the average net assets of DEM Index Fund were $110,237 and the Company
incurred costs of $70,579 pursuant to the DEM Index Fund expense limitations.
The Company believes that it will be required to reimburse expenses
for DEM Index Fund in progressively lower amounts as net assets rise until
the expiration of the expense limitations or until the net assets of DEM Index
Fund exceed approximately $17 million. Further, the Company expects that the
amounts that it is required to reimburse may increase in future periods with
the implementation of the DEM Equity Fund expense limitations and the
commencement of operations of additional DEM portfolios with their own
expense limitations. There can be no assurance that these portfolios will
attract net assets sufficient to lower their expenses below their respective
expense limitations. To the extent these portfolios are unsuccessful in
lowering their expenses below their respective expense limitations, the
Company's results of operations could be materially adversely affected.
8
<PAGE>
RESULTS OF OPERATIONS
The following table reflects items in the Statements of Operations as
dollar amounts and as percentages of total revenue.
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC AND SUBSIDIARY
ANALYSIS OF STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June, 30
----------------------------------------------- --------------------------------------------
1999 1998 1999 1998
------------------------ ---------------------- ---------------------- -----------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL OF TOTAL OF TOTAL
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------------- ---------- ----------- ---------- ------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Net advisory and administrative
fees $1,074,000 96.1% $809,000 99.9% $2,053,000 95.9% $1,578,000 99.7%
Other income 44,000 3.9 1,000 .1 87,000 4.1 4,000 0.3
---------- ------- -------- ------ ---------- ------ ---------- ------
Total revenues 1,118,000 100.0 810,000 100.0 2,140,000 100.0 1,582,000 100.0
------------ ------- -------- ------ ---------- ------ ---------- ------
OPERATING EXPENSES
Management fees 389,000 34.8 319,000 39.4 740,000 34.6 626,000 39.6
Compensation and benefits 302,000 27.0 166,000 20.5 516,000 24.1 340,000 21.5
Professional Fees 225,000 20.1 32,000 4.0 299,000 14.0 59,000 3.7
General and Administrative 514,000 46.0 180,000 22.2 749,000 35.0 333,000 21.0
Amortization Expense 57,000 5.1 57,000 7.0 114,000 5.3 114,000 7.2
Interest expense - - 12,000 1.5 6,000 0.3 26,000 1.6
------------ ------- -------- ------ ---------- ------ ---------- ------
Total operating expenses 1,487,000 133.0 766,000 94.6 2,424,000 113.3 1,498,000 94.6
------------ ------- -------- ------ ---------- ------ ---------- ------
(Loss) income before income tax
(benefit) provision (369,000) (33.0) 44,000 5.4 (284,000) (13.3) 84,000 5.4
Income tax (Benefit) Provision (93,000) (8.3) 15,000 1.8 (63,000) (2.9) 29,000 1.8
------------- ------- ------- ------ ---------- ------ ---------- ------
Net (loss) income $(276,000) (24.7)% 29,000 3.6% $ (221,000) (10.4)% $ 55,000 3.6%
------------- ------- ------- ------ ---------- ------ ---------- ------
------------- ------- ------- ------ ---------- ------ ---------- ------
</TABLE>
Total Revenues increased by $308,000 or 38.0% to $1,118,000 for the
three months ended June 30, 1999 from $810,000 for the prior comparable
period. Total Revenues increased by $558,000 or 35.3% to $2,140,000 for the
six months ended June 30, 1999 from $ 1,582,000 for the prior comparable
period. These increases were primarily due to increased assets under
management and investment income on the investment of funds from the public
offering.
Advisory and administrative fees revenue increased $265,000 or 32.8%
to $1,074,000 for the three months ended June 30, 1999 from $809,000 for the
prior comparable period. Advisory and administrative fees revenue increased
$475,000 or 30.1% to $2,053,000 for the six months ended June 30, 1999 from
$1,578,000 for the prior comparable period. These increases were primarily due
to increases in assets under management. Advisory fees are net of amounts
waived pursuant to The Chapman US Treasury Money Fund fee waiver. Pursuant to
such waiver, the Company has agreed to limit its advisory and administrative
fee to ensure that the annual expense ratio of The Chapman US Treasury Money
Fund is below 0.65% of average daily net assets; provided however, that the
Company is not required to reimburse amounts in excess of its advisory and
administrative fee.
9
<PAGE>
Interest and other income increased by $43,000 to $44,000 for the
three months ended June 30, 1999 from $1,000 for the prior comparable period.
Interest and other income increased by $83,000 to $87,000 for the six months
ended June 30, 1999 from $4,000 for the prior comparable period. These
increases were due to higher cash balances associated with the net proceeds
from the Company's public offering of common stock.
Total expenses increased by $721,000, or 94.1%, to $1,487,000
for the three months ended June 30, 1999 from $766,000 for the prior
comparable period. Total expenses increased by $926,000, or 61.8%, to
$2,424,000 for the six months ended June 30, 1999 from $1,498,000 for the
prior comparable period. Expenses increased in all areas due to expanded
operations, including the hiring of additional staff and associated expenses,
as well as increased marketing efforts.
Management fees, which consist primarily of the Company's payments
to sub-advisors in connection with its multi-manager investment product, the
DEM-MET Trust, increased by $70,000 or 21.9%, to $389,000 for the three
months ended June 30, 1999 from $319,000 for the prior comparable period.
Management fees increased by $114,000 or 18.2%, to $740,000 for the six
months ended June 30, 1999 from $626,000 for the prior comparable period.
These increases in management fee expense largely reflect an increase in
assets under management of the DEM-MET Trust as a result of investment
performance and additional investments from existing clients in the DEM-MET
Trust.
Compensation and benefits increased by $136,000 or 82.0%, to
$302,000 for the three months ended June 30, 1999 from $166,000 for the prior
comparable period. Compensation and benefits increased by $176,000 or 52.0%,
to $516,000 for the six months ended June 30, 1999 from $340,000 for the
prior comparable period. These increases are largely due to the addition of
five employees and increases in annual compensation to certain existing
employees.
Professional fees increased by $193,000, or 603.1% to $225,000 for
the three months ended June 30, 1999 from $32,000 for the prior comparable
period. Professional fees increased by $240,000, or 406.8% to $299,000 for
the six months ended June 30, 1999 from $59,000 for the prior comparable
period. These increases are attributable to new contracts with marketing
consultants, legal expenses of developing and registering four new DEM
strategy mutual funds for which the Company will not be reimbursed.
General and administrative expense increased by $334,000 or 185.6%,
to $514,000 for the three months ended June 30, 1999 from $180,000 for the
prior comparable period. General and administrative expense increased by
$416,000 or 124.9%, to $749,000 for the six months ended June 30, 1999 from
$333,000 for the prior comparable period. General and administrative expense
increased due to increases in charges under the Company's expense allocation
arrangement with Chapman Holdings, Inc., an affiliate, to pay costs
associated with additional employees, ancillary activities to support the
Company's increased marketing efforts and costs incurred pursuant to the DEM
Index Fund expense limitations.
10
<PAGE>
Interest expense decreased by $12,000, or 100%, to $0 for the three
months ended June 30, 1999 from $12,000 for the prior comparable period.
Interest expense decreased by $20,000, or 76.9%, to $6,000 for the six months
ended June 30, 1999 from $26,000 for the prior comparable period. These
decreases are attributable the retirement of a note payable to The Chapman
Co., a subsidiary of Chapman Holdings, Inc.
Income taxes decreased by $108,000 to a tax benefit of $93,000 for
the three months ended June 30, 1999 from a tax provision of $15,000 for the
prior comparable period. Income taxes decreased by $92,000 to a tax benefit
of $63,000 for the six months ended June 30, 1999 from a tax provision of
$29,000 for the prior comparable period. These increases were due to the
losses from operations before the provisions.
The Company had a loss of $276,000 for the three months ended June
30, 1999 verses net income of $29,000 for the prior comparable period. The
Company had a loss of $221,000 for the six months ended June 30, 1999 verses
net income of $55,000 for the prior comparable period. This change is the
result 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,
cash flow from operations and the sale of equity securities.
The Company's liquid assets consist primarily of receivables from
advisory clients. Due to a recent loan discussed below, only a small
percentage of the Company's total assets held subsequent to July 29, 1999 are
liquid. The Company's total assets as of June 30, 1999 were $5,224,000
compared to 5,648,000 as of March 31, 1999.
On August 14, 1998, the Company consummated an initial public
offering of its Common Stock (the "Offering") pursuant to which the Company
received net proceeds of approximately $5,240,000. Prior to the Company's
loans made on July 29, 1999, Offering proceeds were invested in The Chapman
U.S. Treasury Money Fund which invests in short-term U.S. government
securities and repurchase agreements collateralized by such securities.
On July 29, 1999, the Company made an unsecured loan of $3,220,000
to Chapman Holdings, Inc., an affiliate of the Company ("Chapman Holdings")
in connection with its broker-dealer subsidiary, The Chapman Co., seeking to
qualify to participate in a municipal underwriting syndicate. The loan was
issued pursuant to a demand note that requires Chapman Holdings to repay the
amount of the loan upon the Company's demand and with interest due thereon at
the brokers call rate as in effect from time to time. The proceeds of the
loan were immediately transferred by Chapman Holdings to The Chapman Co. on a
subordinated basis, to qualify as regulatory net capital and are held in
cash, until at least September 14, 1999. As such, the obligation of The
Chapman Co. to repay this loan to its parent is subordinate to the claims of
other creditors of The Chapman Co. that have not been similarly subordinated
and repayment prior to September 14, 1999 is subject to compliance with
regulatory requirements. As of July 31, 1999, the net capital and excess net
capital, for regulatory purposes, of The Chapman Co., after giving effect to
this loan, were $5 million and $4.7 million, respectively.
The Company's final payment of $150,000 on a non-compete agreement
pertaining to the DEM-MET Trust is due on demand. In the event the Company
requires additional liquidity during the period the loan to Chapman Holdings
is outstanding, the Company will demand immediate repayment of such portion
of such loan as is necessary to meet its liquidity requirements.
On July 29, 1999, the Company advanced Nathan A. Chapman, Jr.,
President of the Company, $242,000 pursuant to an unsecured demand note
bearing interest at the rate of 5.45% per annum. As of July 29, 1999, the
Company had outstanding unsecured loans to Mr. Chapman in the amount of
$364,000.
The Company's balance of
11
<PAGE>
cash and cash equivalents, following the transactions above, was $158,000 as of
July 31, 1999.
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 June 30, 1999,
the Company has incurred direct Year 2000 compliance costs of approximately
$52,000, to cover assessment of systems, internal testing, point-to-point
testing, training, and replacement and modification of existing systems. The
Company's Year 2000 compliance costs consist of direct expenses incurred with
respect to 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. The Company will
reimburse Chapman Holdings for its share of these Year 2000 expenses through
increased charges for support under the terms of its expense allocation
agreement with Chapman Holdings.
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, 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, working with
its hardware and software vendors and other third parties to prepare for the
Year 2000, substantially completed necessary hardware and software renovations
during the second quarter of 1999. Management plans to test its systems during
the third 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
during the third quarter of 1999. The Company is also currently working with its
hardware and software vendors and other third parties to complete its Year 2000
contingency plan.
The Company's Year 2000 compliance plan involves four phases:
Phase I - Assessment. This phase involved the identification of all
systems that are date dependent. This phase was substantially completed during
the first quarter of 1998.
Phase II - Renovation. This phase involved the identification and
replacement of critical systems unable to be updated or certified as compliant.
This phase commenced in the first quarter of 1998 and was substantially
completed in the second quarter of 1999. Remaining activities relate to
monitoring and follow-up with third parties.
Phase III - Testing. This phase involves testing all systems that are
date dependent and upgrading all non-compliant systems. The Company expects to
complete this phase during the third quarter of 1999.
Phase IV - Contingency. This phase involves an assessment of all
critical systems for potential problems that would result from Year 2000 related
failures of software or hardware and development of plans and strategies to
continue operations should such failures occur. The Company expects to complete
this phase by the end of the third quarter of 1999.
12
<PAGE>
Within the Company's Year 2000 compliance plan, systems are identified
as critical and non critical. Systems were identified as "Mission Critical" if
the loss of the system, software or facility would cause an immediate stoppage
of activity or a significant impairment of a core business area. Systems were
determined to be non-Y2K compliant based on information from manufacturers.
Systems were identified as "Not Mission Critical" if loss of the system,
although inconvenient, would NOT cause an immediate stoppage of activity or
significant impairment of a core business area. The table below summarizes the
Company's estimate of the status of mission critical elements of the Company's
Year 2000 compliance plan:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER
NUMBER OF OF CRITICAL SYSTEMS
NUMBER OF CRITICAL CRITICAL SYSTEMS NUMBER OF CRITICAL FOR WHICH PHASE NOT
SYSTEMS COMPLETED SYSTEMS IN PROCESS APPLICABLE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assessment............................ 32 32
- ----------------------------------------------------------------------------------------------------------------------
Renovation............................ 32 12 11 9
- ----------------------------------------------------------------------------------------------------------------------
Testing............................... 32 17 6 9
- ----------------------------------------------------------------------------------------------------------------------
Contingency Planning.................. 32 32
- ----------------------------------------------------------------------------------------------------------------------
</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. Responses from the majority of these vendors
during the first and second quarters indicated that they expected to reach
compliance by the third quarter of 1999. The Company continues to monitor the
progress of its vendors and suppliers. The Company's contingency plan calls for
the replacement, whenever feasible, of any vendors of mission critical systems
that have not certified compliance by September 30, 1999.
While the Company believes that it is taking prudent and necessary
action to comply with Year 2000 requirements, there can be no assurance that the
Year 2000 issue will not result in information or communications systems
interruptions. Any such interruptions could be expected to have a material
adverse effect on the Company's business, financial condition, results of
operations and business prospects and may subject the Company to liability to
its clients. The Company is currently building upon its existing contingency
plan in the event that the Company or third parties do not successfully complete
their compliance efforts, or if vendors or third parties controlling systems
critical to the Company are unable to confirm that their systems will be Year
2000 compliant. These efforts may result in additional costs in excess of
current allocations and estimates.
13
<PAGE>
PART II
OTHER INFORMATION
ITEM 2- CHANGES IN SECURITIES AND USE OF PROCEEDS
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.
As of June 30, 1999, the Company has applied Offering proceeds in
the amount of $447,000 toward the creation of new investment products;
$280,000 for expanded sales and marketing efforts; $259,000 for promotion of
the Company's Domestic Emerging Markets and DEM Multi-Manager Strategies;
$813,000 for repayments of indebtedness to affiliates and $850,000 for
working capital and general corporate purposes.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on May 25, 1999.
The following directors of the Company were re-elected at the meeting: Nathan
A. Chapman, Jr., Earl U. Bravo, Sr., Robert Wallace, and Theron Stokes. In
addition to the election of directors, the Company's stockholders voted at
the annual meeting to ratify and approve the selection of Arthur Andersen LLP
as the Company's independent public accountants. The following chart
indicates the number of shares voting in favor of the matters presented at
the annual meeting, the number of shares voting against the matters presented
at the annual meeting and the number of abstentions:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Shares Voting in Favor of Shares Voting Against Shares Abstaining on
Matters Proposed Matters Proposed Matters Proposed
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock 2,662,883 0 9,575
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits required by Item 601 of Regulation S-B:
Exhibit 10.1: $3,220,000 Promissory of Chapman Holdings, Inc. to the
Company dated as of July 29, 1999.
Exhibit 10.2: $242,000 Promissory Note of Nathan A. Chapman, Jr. to
the Company dated as of July 29, 1999.
Exhibit 27: Financial Data Schedule.
B. Reports on Form 8-K:
None.
14
<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, CPA
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
Date: August 20, 1999
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit 10.1: $3,220,000 Promissory of Chapman Holdings, Inc. to the Company dated as of July 29, 1999.
Exhibit 10.2: $242,000 Promissory Note of Nathan A. Chapman, Jr. to the Company dated as of July 29, 1999.
Exhibit 27: Financial Data Schedule.
</TABLE>
16
<PAGE>
Exhibit 10.1
PROMISSORY NOTE
$3,220,000.00 BALTIMORE, MARYLAND
JULY 29 1999
ON DEMAND, the undersigned promises to pay to the order of Chapman Capital
Management Holdings, Inc. Three million two hundred and twenty thousand dollars
($3,220,000,00) at its offices in Baltimore, Maryland together with interest
thereon from the date hereof until paid at the brokers call rate as in effect
from time to time.
/s/ NATHAN A. CHAPMAN, JR.
----------------------------------------------
CHAPMAN HOLDINGS, INC.
NATHAN A. CHAPMAN, JR.
PRESIDENT
17
<PAGE>
Exhibit 10.2
PROMISSORY NOTE
$242,000.00 BALTIMORE, MARYLAND
JULY 29 1999
ON DEMAND, the undersigned promises to pay to the order of Chapman Capital
Management Holdings, Inc. Two hundred and forty-two thousand dollars
($242,000.00) at its offices in Baltimore, Maryland together with interest
thereon from the date hereof until paid at the rate of 5.45% per annum.
/s/ NATHAN A. CHAPMAN, JR.
------------------------------------------
NATHAN A. CHAPMAN, JR.
18
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements of the Company for the fiscal year ended December 31, 1998 and for
the three and six months ended June 30, 1998 and 1999, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999 DEC-31-1998
<PERIOD-END> DEC-31-1998 JUN-30-1999 JUN-30-1998
<CASH> 4,242,000 3,620,000 0
<SECURITIES> 0 0 0
<RECEIVABLES> 364,000 431,000 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 5,117,000 4,732,000 0
<PP&E> 31,000 49,000 0
<DEPRECIATION> (10,000) (16,000) 0
<TOTAL-ASSETS> 5,648,000 5,224,000 0
<CURRENT-LIABILITIES> 607,000 404,000 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 3,000 3,000 0
<OTHER-SE> 5,038,000 4,817,000 0
<TOTAL-LIABILITY-AND-EQUITY> 5,648,000 5,224,000 0
<SALES> 0 0 809,000
<TOTAL-REVENUES> 0 0 810,000
<CGS> 0 0 0
<TOTAL-COSTS> 0 0 766,000
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 12,000
<INCOME-PRETAX> 0 0 44,000
<INCOME-TAX> 0 0 15,000
<INCOME-CONTINUING> 0 0 29,000
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 0 0 29,000
<EPS-BASIC> 0 0 0.01
<EPS-DILUTED> 0 0 0.01
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements of the Company for the fiscal year ended December 31, 1998 and for
the three and six months ended June 30, 1998 and 1999, and is qualified in its
etirety by reference to such financial statements.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1999
<PERIOD-END> JUN-30-1999 JUN-30-1998 JUN-30-1999
<CASH> 0 0 0
<SECURITIES> 0 0 0
<RECEIVABLES> 0 0 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 0 0
<PP&E> 0 0 0
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 0 0 0
<CURRENT-LIABILITIES> 0 0 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0 0
<SALES> 1,074,000 1,578,000 2,053,000
<TOTAL-REVENUES> 1,118,000 1,582,000 2,140,000
<CGS> 0 0 0
<TOTAL-COSTS> 1,487,000 1,498,000 2,424,000
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 26,000 6,000
<INCOME-PRETAX> (369,000) 84,000 (284,000)
<INCOME-TAX> (93,000) 29,000 (63,000)
<INCOME-CONTINUING> (276,000) 55,000 (221,000)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (276,000) 55,000 (221,000)
<EPS-BASIC> (0.08) 0.02 (0.07)
<EPS-DILUTED> (0.08) 0.02 (0.07)
</TABLE>
