<PAGE>
Filed Pursuant to Rule 424B3
REGISTRATION #333-51883
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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)
MARYLAND 52-2097010
- ---------------------------------------------- ----------------
(State or Other Jurisdiction of Incorporation) (I.R.S. Employer
Identification No.)
401 EAST PRATT STREET, 28TH FLOOR, BALTIMORE, MARYLAND 21202
------------------------------------------------------------
(Address of Principal Executive Office)
Issuer's telephone number, including area code: (410) 625-9656
---------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days:
Yes [X ] No [ ]
Securities registered under Section 12(b) of the Exchange Act: None Securities
registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
----------------------------------------
(Title of Class)
As of September 30, 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
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<S> <C>
PART I................................................................ 1
ITEM 1 FINANCIAL STATEMENTS...................................... 1
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 8
PART II............................................................... 14
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS................. 14
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.......................... 14
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The consolidated financial statements for the nine months ended
September 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 nine months ended
September 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
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CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,242,000 $ 3,103,000
Investments 150,000 267,000
Management fees receivable:
From proprietary funds 107,000 132,000
From individually managed accounts 257,000 378,000
Receivables from affiliates 120,000 227,000
Advances to officer 118,000 367,000
Fixed assets, net 21,000 56,000
Prepaids and other assets 123,000 171,000
Intangible assets, net 465,000 294,000
Deferred tax asset 45,000 209,000
----------- -----------
Total assets $ 5,648,000 $ 5,204,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 172,000 $ 309,000
Due to affiliated company 285,000 202,000
Noncompete agreement obligation 150,000 150,000
----------- -----------
Total liabilities 607,000 661,000
----------- -----------
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) (699,000)
----------- -----------
Total stockholders' equity 5,041,000 4,543,000
----------- -----------
Total liabilities and stockholders' equity $ 5,648,000 $ 5,204,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
2
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CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
1998 1999 1998 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Net advisory and administrative fees $ 766,000 $ 993,000 $2,344,000 $3,046,000
Other income 35,000 65,000 39,000 152,000
----------- ---------- ---------- ----------
Total revenue 801,000 1,058,000 2,383,000 3,198,000
----------- ---------- ---------- ----------
OPERATING EXPENSES:
Management fees 286,000 369,000 912,000 1,109,000
Compensation and benefits 159,000 320,000 499,000 836,000
General and administrative 289,000 684,000 680,000 1,713,000
Amortization and depreciation expense 59,000 63,000 174,000 196,000
Interest expense -- -- 26,000 6,000
----------- ---------- ---------- ----------
Total operating expenses 793,000 1,436,000 2,291,000 3,860,000
----------- ---------- ---------- ----------
Income (loss) before income tax
(provision) benefit 8,000 (378,000) 92,000 (662,000)
INCOME TAX (PROVISION) BENEFIT (3,000) 101,000 (33,000) 164,000
----------- ---------- ---------- ----------
Net income (loss) $ 5,000 $ (277,000) $ 59,000 $ (498,000)
=========== ========== ========== ==========
BASIC AND DILUTIVE EARNINGS PER
SHARE DATA:
Net income (loss) $ -- $ (0.08) $ 0.02 $ (0.15)
=========== ========== ========== ==========
Weighted Average Shares Outstanding 2,928,000 3,351,000 2,636,000 3,351,000
=========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
3
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CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1998 1999
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 59,000 $ (498,000)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 174,000 196,000
Unrealized gain on investments -- (17,000)
Deferred tax asset (66,000) (164,000)
Effect of changes in assets and liabilities-
Management fees receivable (43,000) (146,000)
Receivable from affiliates (160,000) (107,000)
Prepaids and other assets (16,000) (48,000)
Accounts payable and accrued expenses 132,000 137,000
Due to affiliated company (801,000) (83,000)
Income taxes payable (15,000) --
Investment in affiliate 2,000 --
----------- -----------
Net cash used in operating activities (734,000) (730,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment -- (60,000)
Purchase of investments -- (100,000)
Advances to officer (44,000) (249,000)
----------- -----------
Net cash used in investing activities (44,000) (409,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net 5,245,000 --
Repayment of due to officer (28,000) --
----------- -----------
Net cash provided by financing activities 5,217,000 --
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 4,439,000 (1,139,000)
CASH AND CASH EQUIVALENTS, beginning of year 9,000 4,242,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 4,448,000 $ 3,103,000
=========== ===========
SUPPLEMENTARY CASH FLOW DISCLOSURE:
Cash Paid For:
Interest $ 25,000 $ 6,000
=========== ===========
Income taxes $ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
4
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CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. 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 nine months ended
September 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.
PLAN OF MERGER
Subsequent to September 30, 1999, the Company signed a merger agreement which is
subject to stockholders approval and the completion of an initial public stock
offering of common stock by eChapman.com, among other things, to merge into a
wholly-owned subsidiary of eChapman.com. This merger would result in the
Company, Chapman Holdings Inc. and Chapman Insurance Holdings, Inc. becoming
wholly-owned subsidiaries of eChapman.com. eChapman is a newly formed
corporation designed to bring these companies together to take advantage of the
unique opportunities presented by the growth of the Internet. eChapman.com is
owned by the major stockholders of the Company.
This planned merger and the operations of eChapman.com after the merger are
subject to certain risks. The negative impact from these risks could have
material adverse effects on the future results of operations and financial
position of the Company. These risk items include the fact that eChapman.com has
not launched a web site and has no internet-related operating history; the web
site must be designed, developed, hosted by a service provider and
5
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marketed; eChapman.com must raise at least $20 million from its planned
public offering to complete this merger; the eChapman.com brand must be
successful in order for it to attract users, advertisers and strategic
partners; and the success of the "Domestic Emerging Markets" strategy through
the use of the Internet.
ASSETS UNDER MANAGEMENT
In order to comply with the expense limitation requirements of a proposed
subdistributor 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 Found 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.
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 not bill or
charge 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, the
fees assessed by service providers can result in expenses significantly in
excess of the fee limitations discussed above, resulting in the Company not
being reimbursed for certain costs paid. During the nine months ended September
30, 1999, the Company incurred costs of approximately $212,000 pursuant to the
above 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 theses 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 were not
included in the diluted earnings per share as the stock options are
antidilutive.
Related party Transactions
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 July 31, 1999. The loan was repaid in full, with
interest, on September 14, 1999.
6
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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 September 30, 1999, the Company has outstanding
unsecured loans to Mr. Chapman in the amount of $367,000.
7
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Note Regarding Forward-Looking Information
Certain statements under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and elsewhere in this Report
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, general economic and business conditions in the
Company's market area, inflation, fluctuations in interest rates, changes in
government regulations, competition and the ability of the Company to implement
its business strategy and other risks discussed in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1998, and in this and other
reports filed by the Company.
Forward-looking statements are intended to apply only at the time they are
made. Moreover, whether or not stated in connection with a forward-looking
statement, the Company undertakes no obligation to correct or update a
forward-looking statement should the Company later become aware that it is not
likely to be achieved. If the Company were to update or correct a
forward-looking statement, investors and others should not conclude that the
Company will make additional updates or corrections thereafter.
The following discussion should be read in conjunction with the financial
statements contained in Item 1 of Part I of this Form 10-QSB.
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
$686.6 million as of September 30 1999, compared to $643.4 million as of June
30, 1999. The $43.2 million increase in assets under management during the
quarter resulted from investment performance and new deposits in the Chapman
US Treasury Fund.
During the quarter ending September 30, 1999, five clients accounted for
approximately 73.4% of the Company's revenue, compared to 67.5% for the period
ended September 30, 1998.
On September 30, 1999 the Company was notified that one of its clients,
accounting for less than 1% of total revenues was withdrawing its funds from a
separate account managed by the Company. The amount withdrawn effective October
14, 1999 was $3.9 million, or less than 1% 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.
8
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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.
On September 30, 1999, the amount under management in the of DEM Index
Fund was $126,242. The Company paid costs of $37,949 for the three month period
ending September 30, 1999 pursuant to the DEM Index Fund expense limitations.
DEM Index costs paid by the Company for the nine month period ending September
30, 1999 total $101,208. 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.
RESULTS OF OPERATIONS
The following table reflects items in the Statements of Operations as
dollar amounts and as percentages of total revenue.
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------------------------------
1998 1999
---------------------------------------- --------------------------------------
Percentage of Percentage of
Amount Total Revenue Amount Total Revenue
-------------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
REVENUE:
Advisory and administrative fees $ 766,000 95.6% $ 993,000 93.9%
Interest and other income 35,000 4.4 65,000 6.1
-------------------- ----------------- ------------------ -----------------
Total revenue 801,000 100.0 1,058,000 100.0
-------------------- ----------------- ------------------ -----------------
EXPENSES:
Management fees 286,000 35.7 369,000 34.9
Compensation and benefits 159,000 19.8 320,000 30.2
General and administrative 289,000 36.1 684,000 64.6
Amortization and depreciation expense 59,000 7.4 63,000 6.0
Interest expense -- -- -- --
-------------------- ----------------- ------------------ -----------------
Total expenses 793,000 99.0 1,436,000 135.7
-------------------- ----------------- ------------------ -----------------
Income (loss) before income tax (provision)
benefit 8,000 1.0 (378,000) (35.7)
INCOME TAX (PROVISION) BENEFIT (3,000) (0.4) 101,000 9.5
-------------------- ----------------- ------------------ -----------------
Net income (loss) $ 5,000 0.6% $ (277,000) (26.2)%
==================== ================= ================== =================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------------------------
1998 1999
---------------------------------------- --------------------------------------
Percentage of Percentage of
Amount Total Revenue Amount Total Revenue
-------------------- ---------------- -------------------- ---------------
<S> <C> <C> <C> <C>
REVENUE:
Advisory and administrative fees $ 2,344,000 98.4% $ 3,046,000 95.2%
Interest and other income 39,000 1.6 152,000 4.8
-------------------- ---------------- ------------------- ---------------
Total revenue 2,383,000 100.0 3,198,000 100.0
-------------------- ---------------- ------------------- ---------------
EXPENSES:
Management fees 912,000 38.3 1,109,000 34.7
Compensation and benefits 499,000 20.9 836,000 26.1
General and administrative 680,000 28.5 1,713,000 53.6
Amortization and depreciation expense 174,000 7.3 196,000 6.1
Interest expense 26,000 1.1 6,000 0.2
-------------------- ---------------- ------------------- ---------------
Total expenses 2,291,000 96.1 3,860,000 120.7
-------------------- ---------------- ------------------- ---------------
Income (loss) before income tax (provision)
benefit 92,000 3.9 (662,000) (20.7)
INCOME TAX (PROVISION) BENEFIT (33,000) (1.4) 164,000 5.1
-------------------- ---------------- ------------------- ----------------
Net income (loss) $ 59,000 2.5% $ (498,000) (15.6)%
==================== ================ =================== ================
</TABLE>
Total Revenue increased by $257,000, or 32.1% to $1,058,000 for the three
months ended September 30, 1999 from $801,000 for the prior comparable period.
Total Revenue increased by $815,000 or 34.2% to $3,198,000 for the nine months
ended September 30, 1999 from $2,383,000 for the prior comparable period. These
increases were primarily due to increased
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assets under management and increased investment income on the investment of
funds from the public offering.
Advisory and administrative fees revenue net of fee waivers increased
by $227,000 or 29.6% to $993,000 for the three months ended September 30,
1999 from $766,000 for the prior comparable period. Advisory and
administrative fees revenue increased by $702,000 or 29.9% to $3,046,000 for
the nine months ended September 30, 1999 from $2,344,000 for the prior
comparable period. These increases were primarily due to increases in assets
under management and investment performance. 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. For the three and nine month periods ended September 30,
1999 the Company waived $29,600 and $101,883, respectively of Treasury Fund
advisory fees.
Interest and other income increased by $30,000 to $65,000 or 85.7% for
the three months ended September 30, 1999 from $35,000 for the prior
comparable period. Interest and other income increased by $113,000 or 289.7%
to $152,000 for the nine months ended September 30, 1999 from $39,000 for the
prior comparable period. These increases were due to investing higher cash
balances associated with the net proceeds from the Company's public offering
of common stock for the entire period and interest earnings on the Chapman
Holdings, Inc. loan.
Total expenses increased by $693,000 or 87.4%, to $1,436,000 for the three
months ended September 30, 1999 from $793,000 for the prior comparable period.
Total expenses increased by $1,569,000, or 68.5%, to $3,860,000 for the nine
months ended September 30, 1999 from $2,291,000 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 $83,000 or 29.0%, to $369,000 for the three
months ended September 30, 1999 from $286,000 for the prior comparable
period. Management fees increased by $197,000 or 21.6%, to $1,109,000 for the
nine months ended September 30, 1999 from $912,000 for the prior comparable
period. These increases in management fees expense largely reflects an
increase in assets under management of the DEM-MET Trust, slightly offset by
a reduction of two sub-advisors working for the DEM-MET Trust.
Compensation and benefits increased by $161,000 or 101.3 %, to $320,000
for the three months ended September 30, 1999 from $159,000 for the prior
comparable period. Compensation and benefits increased by $337,000 or 67.5% to
$836,000 for the nine months ended September 30, 1999 from $499,000 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.
General and administrative expense increased by $395,000 or 136.7%, to
$684,000 for the three months ended September 30, 1999 from $289,000 for the
prior comparable period. General and administrative expense increased by
$1,033,000 or 151.9%, to $1,713,000 for the
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nine months ended September 30, 1999 from $680,000 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. Additionally, the
increase is attributable to new contracts with marketing consultants and legal
expenses of developing and registering four new DEM strategy mutual funds for
which we will not be reimbursed.
The Company did not have any interest expense during the three months
ended September 30, 1999 and 1998. Interest expense decreased by $20,000 or
76.9%, to $6,000 for the nine months ended September 30, 1999 from $26,000
for the prior comparable period. This decrease is attributable the retirement
of a note payable to The Chapman Co., a subsidiary of Chapman Holdings, Inc.
Income taxes decreased by $104,000 to a tax benefit of $101,000 for the
three months ended September 30, 1999 from a tax provision of $3,000 for the
prior comparable period. Income taxes decreased by $197,000 to a tax benefit
of $164,000 for the nine months ended September 30, 1999 from a tax provision
of $33,000, for the prior comparable period. The decreases are due to the
increase in loss before income tax provision.
The Company had a loss of $277,000 for the three months ended September
30, 1999 versus net income of $5,000 for the prior comparable period. The
Company had a loss of $498,000 for the nine months ended September 30, 1999
versus net income of $59,000 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
Chapman Capital Management Holding's total assets held subsequent to July 29,
1999 are liquid. The Company's total assets as of September 30, 1999 were
$5,204,000 compared to $5,648,000 as of December 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. 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., which was seeking
to qualify to participate in a municipal underwriting syndicate. The loan was
issued pursuant to a demand note that required 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
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qualify as regulatory net capital and were held in cash. Chapman Holdings repaid
this loan in full on September 14, 1999
The Company's final payment of $150,000 on a non-compete agreement
pertaining to the DEM-MET Trust is due on demand.
Subsequent to September 30, 1999, the Company signed a merger agreement
which is subject to stockholders approval and the completion of an initial
public stock offering of common stock by eChapman.com, among other things, to
merge into a wholly-owned subsidiary of eChapman.com. This merger would
result in the Company, Chapman Holdings Inc. and Chapman Insurance Holdings,
Inc. becoming wholly-owned subsidiaries of eChapman.com. eChapman is a newly
formed corporation designed to bring these companies together to take
advantage of the unique opportunities presented by the growth of the
Internet. eChapman.com is owned by the major stockholders of the Company.
This planned merger and the operations of eChapman.com after the merger
are subject to certain risks. The negative impact from these risks could have
material adverse effects on the future results of operations and financial
position of the Company. These risk items include the fact that eChapman.com
has not launched a web site and has no internet-related operating history;
the web site must be designed, developed, hosted by a service provider and
marketed; eChapman.com must raise at least $20 million from its planned
public offering to complete this merger; the eChapman.com brand must be
successful in order for it to attract users, advertisers and strategic
partners; and the success of the "Domestic Emerging Markets" strategy through
the use of the Internet.
On December 14, 1998, Chapman Capital Management advanced to Chapman
Limited Partnership I $19,536 for payment of certain taxes and related
payments, interest, and penalties. On October 22, 1999, Chapman Holdings and
Chapman Capital Management Holdings each advanced the partnership $49,037 for
payment of certain taxes and related payments. As of September 30, 1999, all
of these advances remained outstanding. Future lease payments will be applied
to such advances until repaid in full.
On July 29, 1999, the Company advanced Nathan A. Chapman, Jr., and
President of the Company, $242,000 pursuant to an unsecured demand note bearing
interest at the rate of 5.45% per annum. As of September 30, 1999, the Company
had outstanding unsecured loans to Mr. Chapman in the amount of $367,000.
The Company's balance of cash and cash equivalents, was $3,103,000 as of
September 30, 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 September 30, 1999, Chapman Capital
Management Holdings has incurred direct Year 2000 readiness costs of
approximately $75,000 to cover assessment of systems, internal testing,
point-to-point testing, training, replacement and modification of existing
systems, and contingency planning.
Chapman Capital Management Holdings' Year 2000 readiness costs consist of
direct expenses incurred with respect to software, consulting and employee time
and Chapman Capital Management Holdings' share of readiness expenses for
upgraded computers, software, and communication systems to be paid or financed
by Chapman Holdings. Chapman Capital Management Holdings 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.
Chapman Capital Management Holdings estimates its Year 2000 readiness costs
at approximately $94,000. Chapman Capital Management Holdings estimates that its
total Year 2000 readiness costs, direct and allocated by Chapman Holdings, will
be approximately $109,000.
Chapman Capital Management Holdings' management has prepared a written
plan detailing Chapman Capital Management Holdings' software and operating
systems readiness issues for the Year 2000. The plan identifies mission
critical and non-mission critical operating systems of Chapman Capital
Management Holdings. Working with its hardware and software vendors and other
third parties to prepare for the Year 2000, Chapman Capital Management
Holdings substantially completed necessary hardware and software renovations
during the second quarter of 1999. We tested during the third quarter of 1999
to determine the effect of our readiness efforts, and we are currently
working with our hardware and software vendors and other third parties to
complete our Year 2000 contingency plan.
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Chapman Capital Management Holdings' Year 2000 readiness 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 mission critical systems which Chapman Capital Management
was unable to update or certify 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 following
up with third parties as part of our contingency planning activities in
Phase IV.
PHASE III--TESTING. This phase involves testing all systems that are date
dependent and upgrading all non-compliant systems. Chapman Capital
Management Holdings completed this phase during the third quarter of
1999.
PHASE IV--CONTINGENCY PLANNING. This phase involves an assessment of all
mission critical systems for potential problems that would result from
Year 2000 related failures of software or hardware and also the
development of plans and strategies to continue operations should such
failures occur. Chapman Capital Management has prepared an initial plan
and will continue to refine and expand it as required through the first
quarter of 2000.
Within Chapman Capital Management Holdings' Year 2000 readiness plan,
systems are identified as "mission critical" and "non-mission 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
"non-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 following table summarizes Chapman Capital Management
Holdings' estimate of the status of mission critical elements of Chapman Capital
Managements' Year 2000 readiness plan.
<TABLE>
<CAPTION>
NUMBER OF
CRITICAL
NUMBER OF CRITICAL CRITICAL SYSTEMS FOR
CRITICAL SYSTEMS SYSTEMS IN WHICH PHASE
Y2K PLAN PHASE SYSTEMS COMPLETED PROCESS NOT APPLICABLE
- -------------- --------- --------- ---------- --------------
<S> <C> <C> <C> <C>
Assessment....................................... 32 32 -- --
Renovation....................................... 32 23 -- 9
Testing.......................................... 32 23 -- 9
Contingency Planning............................. 32 -- 32 --
</TABLE>
Chapman Capital Management Holdings has relationships with third parties
that may have computer systems that are not Year 2000 ready. Chapman Capital
Management Holdings has identified the third parties upon which it relies for
mission critical systems and has contacted such third parties to confirm that
their systems are Year 2000 ready. 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. Chapman Capital Management Holdings
continues to monitor the progress of its vendors and suppliers. The Chapman
Capital Management Holdings contingency plan calls for the replacement, whenever
feasible, of any vendors of mission critical systems that have not certified
readiness by September 30, 1999. As of November 11, 1999, only four such vendors
had not verified readiness. We have identified alternative vendors in the event
these vendors are not Year 2000 ready.
While Chapman Capital Management Holdings believes that it is taking prudent
and necessary action to become Year 2000 ready, 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 Chapman Capital Management Holdings' business, financial
condition, results of operations and business prospects and may subject Chapman
Capital Management Holdings to liability to its clients. Chapman Capital
Management Holdings is currently building upon its existing contingency plan in
the event that Chapman Capital Management Holdings or third parties do not
successfully complete their readiness efforts, or if vendors or third parties
controlling mission critical systems are unable to confirm that their systems
will be Year 2000 ready. These efforts may result in additional costs in excess
of current allocations and estimates.
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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.
The Company has applied Offering proceeds in the amount of $507,000
toward the creation of new investment products; $856,000 for expanded sales
and marketing efforts; $444,000 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 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits required by Item 601 of Regulation S-B:
Exhibit 10: Agreement and Plan of Merger by and among
eChapman.com, Inc., CCMHI Merger Subsidiary, Inc. and
Chapman Capital Management Holdings, Inc. dated
November 15, 1999 (Filed as Exhibit 10.4 to the
eChapman.com, Inc. Registration Statement on Form
SB-2 (File No. 333-90987) as filed with the Securities
and Exchange Commission on November 15, 1999 and
hereby incorporated by reference.)
Exhibit 27: Financial Data Schedule.
B. Reports on Form 8-K:
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CHAPMAN 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: November 15, 1999
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EXHIBIT INDEX
Exhibit 27: Financial Data Schedule.
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