<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2000
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-28123
ECHAPMAN.COM, INC.
(Name of small business issuer in its charter)
MARYLAND 52-2184621
(State or Other (I.R.S. Employer
Jurisdiction of Incorporation) 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 issued (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)
Yes /X/ No / /
As of September 30, 2000, 14,458,311 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> <C>
PART I................................................................. 1
ITEM 1 FINANCIAL STATEMENTS................................. 1
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION....... 9
PART II................................................................ 18
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS............ 18
ITEM 3 EXHIBITS AND REPORTS ON FORM 8-K..................... 18
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
eChapman.com, Inc. ("eChapman.com") is a newly-formed corporation
that consummated mergers with Chapman Holdings, Inc., Chapman Capital
Management Holdings, Inc. and Chapman Insurance Holdings, Inc. in conjunction
with an initial public offering of its common stock on June 20, 2000.
Therefore, the unaudited consolidated statements of operations reflect the
results of operations for eChapman.com for the periods presented and for each
of the constituent companies from June 20, 2000 to September 30, 2000.
The consolidated financial statements for the nine month period
ended September 30, 2000 have not been audited but, in the opinion of
management, contain all adjustments necessary to present fairly the financial
position and results of operations of eChapman.com as of such date. The
results of operations for the nine months ended September 30, 2000 are not
necessarily indicative of the results of operations that may be expected for
the year ending December 31, 2000 or any future periods.
1
<PAGE>
eCHAPMAN.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000, AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, 2000 1999
---------------- -----------
(UNAUDITED)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 5,867,000 $ --
Cash deposits with clearing organization 11,825,000 --
Investments, available for sale 609,000 --
Receivables from brokers and dealers 1,091,000 --
Management fees receivable 732,000 --
Advances to officer/employee 1,116,000 --
Property, net 103,000 --
Prepaids and other assets 848,000 934,000
Intangible assets 24,213,000 --
------------ ------------
Total assets $ 46,404,000 $ 934,000
============ ============
Liabilities and Stockholders' Equity:
Accounts payable and accrued expenses $ 1,362,000 $ 805,000
Margin loan payable 10,979,000 --
Other liabilities 183,000 410,000
------------ ------------
Total liabilities 12,524,000 1,215,000
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value, 50,000,000 shares
authorized, 14,458,311 and 1 shares issued and
outstanding, respectively 14,000 --
Additional paid-in capital 45,469,000 --
Accumulated deficit (639,000) (281,000)
Proprietary stock of Company held by subsidiary,
at cost, 1,743,000 shares (10,979,000) --
Accumulated comprehensive income adjustment 15,000 --
------------ ------------
Total stockholders' equity (deficit) 33,880,000 (281,000)
------------ ------------
Total liabilities and stockholders' equity $ 46,404,000 $ 934,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
eCHAPMAN.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---------------------------- ----------------------------
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
------------ ----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Commissions $ 738,000 $ 801,000 $ -- $ --
Underwriting and management fees 196,000 260,000 -- --
Investment management fees 1,386,000 1,540,000 -- --
Interest and dividends 232,000 258,000 -- --
Trading, net gains -- 116,000 -- --
----------- ----------- --------- ----------
Total revenue 2,552,000 2,975,000 -- --
----------- ----------- --------- ----------
EXPENSE:
Compensation and benefits 1,107,000 1,319,000 89,000 89,000
Floor brokerage and clearing fees 112,000 131,000 -- --
Management fees 441,000 487,000 -- --
Travel and business development 75,000 84,000 -- --
Advertising, promotion and publicity 74,000 86,000 -- --
Depreciation and amortization expense 352,000 392,000 -- --
Other operating expense 723,000 834,000 131,000 131,000
----------- ----------- --------- ----------
Total expense 2,884,000 3,333,000 220,000 220,000
----------- ----------- --------- ----------
Loss before income tax benefit (332,000) (358,000) (220,000) (220,000)
INCOME TAX BENEFIT -- -- -- --
----------- ----------- ---------- ----------
Net loss $ (332,000) $ (358,000) $(220,000) $(220,000)
=========== =========== ========== ==========
BASIC AND DILUTIVE EARNINGS PER SHARE DATA:
Net loss $ (0.02) $ (0.07) $(220,000) $(220,000)
=========== =========== ========== ==========
Weighted average shares outstanding 14,456,000 5,434,000 -- --
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
eCHAPMAN.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT
------------ ---------- -----------
<S> <C> <C> <C>
BALANCE, December 31, 1999 $ -- $ -- $(281,000)
Comprehensive income:
Net loss -- -- (358,000)
Unrealized gain on investments -- -- --
Comprehensive income
Equity from mergers of CHI, CCMHI and CIH 13,000 8,883,000 --
Proprietary trading stock of Company
held by subsidiary, at cost -- -- --
Goodwill step-up adjustment related to
merger -- 24,330,000 --
Net proceeds from issuance of common
stock 1,000 12,256,000 --
------- ----------- ---------
BALANCE, September 30, 2000 (unaudited) $14,000 $45,469,000 $(639,000)
======= =========== =========
<CAPTION>
PROPRIETARY
STOCK OF ACCUMULATED TOTAL
COMPANY HELD COMPREHENSIVE COMPREHENSIVE INCOME STOCKHOLDERS'
BY SUBSIDIARY INCOME ADJUSTMENTS EQUITY (DEFICIT)
------------- ------------- -------------------- ----------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1999 $ -- -- $ -- $ (281,000)
Comprehensive income:
Net loss -- $(358,000) -- (358,000)
Unrealized gain on investments -- 15,000 15,000 15,000
Comprehensive income -- $(343,000) -- --
Equity from mergers of CHI, CCMHI and CIH -- -- 8,896,000
Proprietary trading stock of Company
held by subsidiary, at cost (10,979,000) -- (10,979,000)
Goodwill step-up adjustment related to
merger -- -- 24,330,000
Net proceeds from issuance of common
stock -- -- 12,257,000
----------- ------------ -----------
BALANCE, September 30, 2000 (unaudited) $(10,979,000) $15,000 $33,880,000
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
eCHAPMAN.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (358,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization expense 392,000
Unrealized gain on investments 15,000
Effect from changes in assets and liabilities--
Receivables from brokers and dealers (429,000)
Management fees receivable (85,000)
Prepaids and other assets 736,000
Accounts payable and accrued expenses (151,000)
Other liabilities (391,000)
------------
Net cash used in operating activities (271,000)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received from merger 5,727,000
Advances to employees (21,000)
------------
Net cash provided by investment activities 5,706,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net 12,257,000
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 17,692,000
CASH AND CASH EQUIVALENTS, beginning of year --
------------
CASH AND CASH EQUIVALENTS, end of year $ 17,692,000
============
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
5
<PAGE>
eCHAPMAN.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
eChapman.com (eChapman) was formed on May 14, 1999, and is designed to bring
together the financial services capabilities of The Chapman Co., Chapman
Capital Management, Inc. and Chapman Insurance Agency Incorporated, while
taking advantage of the unique opportunities presented by the growth of the
Internet. eChapman's web site, eChapman.com, is currently under development.
The web site will offer both financial services and a variety of lifestyle,
educational and cultural content selected to appeal particularly to
African-Americans, Asian-Americans, Hispanic-Americans and women. These
groups are collectively referred to as Domestic Emerging Markets (DEM).
Effective June 20, 2000, Chapman Holdings, Inc., Chapman Capital Management
Holdings, Inc. and Chapman Insurance Holdings, Inc. merged into separate
wholly-owned subsidiaries of eChapman. Also, effective on June 20, 2000,
eChapman completed its initial public offering (IPO) of 1,260,000 shares of
common stock at $13 per share. eChapman received net proceeds of
approximately $12,257,000.
eChapman did not have any operations, except for organizational matters, up
until June 30, 1999. The operations of eChapman from July 1, 1999 to June 20,
2000 consisted mainly of costs incurred for salary and benefit expenses and
professional fees related to organizing eChapman and designing and developing
its web site. As of June 30, 2000, eChapman was in the preliminary stages of
designing and developing its website. These costs include conceptual
formulation, evaluation, technology requirements and vendor software and
consultant selection. These costs have been expensed as incurred in
accordance with SOP 98-1. During the three months ended September 30, 2000,
eChapman entered the development application stage and incurred costs such as
portal development and testing costs, which were capitalized. Once eChapman
enters the operational stage, costs for services will be evaluated, and
expensed as incurred or expensed over the contract period.
6
<PAGE>
The accompanying unaudited consolidated financial statements include the
accounts of eChapman, Chapman Holdings, Inc. (CHI) and its wholly owned
subsidiary, The Chapman Co., Chapman Capital Management Holdings, Inc. (CCMHI)
and its wholly owned subsidiary, Chapman Capital Management and Chapman
Insurance Holdings, Inc. (CIH) and its wholly owned subsidiary, Chapman
Insurance Agency (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, 2000 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 financial statements and
notes thereto as of December 31, 1999, included in the Company's prospectus
dated June 15, 2000. 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.
TREASURY STOCK
The Chapman Co. is a market maker for eChapman. However, as eChapman is the
parent of The Chapman Co., all purchases and sales of eChapman's stock by the
Chapman Co. have been accounted for as treasury stock transactions in the
accompanying consolidated financial statements. As of September 30, 2000, the
Chapman Co. held approximately 1,743,000 shares of eChapman stock in
inventory.
7
<PAGE>
2. ACQUISITIONS
The merger of CHI, CCMHI, and CIH into wholly owned subsidiaries of eChapman
was accounted for using purchase accounting. The merger was accounted for as
a combination of entities under common control; thus, the portion of the
combined entities under common control (i.e. owned by the same stockholders)
was accounted for at historical cost, and the portion of the combined
entities not under common control was stepped-up in basis to the fair market
value at the date of the IPO. The step-up in basis generated approximately
$24.3 million in goodwill. The activity of CHI, CCMHI and CIH included in the
accompanying unaudited consolidated financial statements is only for the
period subsequent to June 20, 2000, the effective date of the mergers.
The unaudited pro forma summary consolidated results of operations for the nine
months ended September 30, 2000 and 1999, assuming the merger of CHI, CCMHI and
CIH had occurred as of January 1, 1999, are as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenue:
Commissions $ 2,243,000 $ 3,278,000
Underwriting and management fees 720,000 554,000
Investment management fees 4,077,000 3,046,000
Interest, dividends and other income 442,000 281,000
(Loss) gain on trading (170,000) 158,000
------------ ------------
Total revenue 7,312,000 7,317,000
------------ ------------
Expense:
Compensation and benefits 3,782,000 3,261,000
Floor brokerage and clearing fees 447,000 528,000
Management fees 1,273,000 1,109,000
Depreciation and amortization expense 1,073,000 1,059,000
Other expenses 3,282,000 4,699,000
------------ ------------
Total expenses 9,857,000 10,656,000
------------ ------------
Loss before income tax benefit (2,545,000) (3,339,000)
------------ ------------
Net loss $ (2,545,000) $ (3,339,000)
============ ============
Basic and dilutive loss per share $ (.18) $ (.23)
============ ============
Shares used to compute basic and 14,458,000 14,458,000
dilutive loss per share ============ ============
</TABLE>
3 SUBSEQUENT EVENT
Subsequent to September 30, 2000, eChapman's Board of Directors approved the
retirement of 1,836,324 shares of proprietary common stock of eChapman held
by The Chapman Co. in inventory. Thus, these shares are no longer available
for sale.
8
<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 Operation" 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 Registration
Statement on Form SB-2 (File No. 333-90987) as it was declared effective by the
Securities and Exchange Commission, 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 and analysis should be read in conjunction with the
Company's consolidated financial statements and related notes included elsewhere
in this document. The discussion of results, causes and trends should not be
construed to imply any conclusion that such result or trend will necessarily
continue in the future.
OVERVIEW
eChapman.com is a newly formed corporation designed to bring together the
financial services capabilities of The Chapman Co., Chapman Capital
Management, Inc. and The Chapman Insurance Agency Incorporated, while taking
advantage of the unique opportunities presented by the growth of the Internet
and online distribution. On November 15, 1999, eChapman.com entered into
separate merger agreements with Chapman Holdings, Chapman Capital Management
Holdings and Chapman Insurance Holdings. The initial public offering of
common stock of eChapman.com occurred on June 15, 2000, and as a result of
the mergers, which closed on June 20, 2000, eChapman.com indirectly controls
The Chapman Co., Chapman Capital Management and The Chapman Insurance Agency.
eChampan.com's common stock began trading on the Nasdaq National Market under
the symbol ECMN on June 20, 2000, and it commenced consolidated operations on
June 20, 2000.
Prior to September 1, 2000, eChapman.com was in the preliminary stages of
designing and developing its online network. The development effort, and
related costs incurred during the three months ended September 30, 2000,
included conceptual formulation, evaluation, technology and software
requirements, consultant selection and portal development.
Subsequent to September 30, 2000, eChapman.com launched the eChapman.com
network. The eChapman.com network is an interactive on-line community
offering both financial services and a variety of lifestyle, news, education
and cultural content.
9
<PAGE>
Chapman Online, Inc., an integral component of the eChapman.com interactive
on-line community, is the online brokerage unit of eChapman.com. Prior to
September 1, 2000, the Chapman Online trading web site was in the
preliminary stages of design and development. The development effort and
related costs incurred during the period ended September 30, 2000 were a
component of the preliminary stage requirements included in the overall
eChapman.com online network design described above.
Subsequent to September 30, 2000, eChapman also launched Chapman Online
through which it offers online stock and options trading. Chapman Online
offers trading and provides online customer service, including instant
messaging with the service center for instant communication with clients.
Chapman Online is separately licensed as a broker dealer with the SEC and in
49 states, with one registration pending, and with the NASD.
We intend to continue to grow the financial services products and services
offered through our traditional channels of distribution and believe that our
traditional services complement the online financial services strategy. The
Chapman Co. is a full service securities brokerage and investment banking
company that engages in corporate and government finance, retail and
institutional brokerage, research and market making and trading. Chapman
Capital Management is a registered investment adviser that acts as financial
adviser to separate accounts, a group trust and a family of mutual funds. The
Chapman Insurance Agency sells annuity products on an agency basis.
RESULTS OF OPERATIONS
eChapman.com, as a consolidated company consisting of Chapman Holdings,
Chapman Capital Management Holdings and Chapman Insurance Holdings, began
operations upon the closing of the mergers on June 20, 2000. The following
discussion and analysis includes the actual results of operations for
eChapman.com prior to the mergers for the three and nine months ended
September 30, 2000 and 1999 and, for its subsidiaries for the period from June
20, 2000 to September 30, 2000, and the results of operations of eChapman.com
on a pro forma basis, giving effect to the mergers as if they occurred at
January 1, 1999. The pro forma data is presented for informational purposes
only and does not purport to present the actual results of operations of
eChapman.com had the assumed transactions occurred on or as of the dates
indicated, nor are they necessarily indicative of the
10
<PAGE>
results of operations which may be achieved in the future. (See Note 2 in the
unaudited financial statements.)
eCHAPMAN.COM
The following table reflects items in the Statement of Operations of
eChapman.com as dollar amounts and as percentages of total revenue.
eCHAPMAN.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------------------------------
2000 1999
-------------------------------- --------------------------------
Percentage of Percentage of
Amount Total Revenue Amount Total Revenue
------ ------------- ------ -------------
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 738,000 28.9% $ - -
Underwriting and management fees 196,000 7.7 - -
Investment management fees 1,386,000 54.3 - -
Interest and dividends 232,000 9.1 - -
Trading, net gains - - -
-------------------------------------------------------------------------
Total revenues 2,552,000 100.0 - -
-------------------------------------------------------------------------
EXPENSES:
Compensation and benefits 1,107,000 43.4 89,000 -
Floor brokerage and clearing fees 112,000 4.4 - -
Management fees 441,000 17.3 - -
Travel and business development 75,000 2.9 - -
Advertising, promotion, publicity 74,000 2.9 -
Depreciation and amortization expense 352,000 13.8 -
Other expenses 723,000 28.3 131,000 -
-------------------------------------------------------------------------
Total expense 2,884,000 (13.0) 220,000 -
-------------------------------------------------------------------------
Loss before income
tax benefit (332,000) (13.0) (220,000) -
INCOME TAX BENEFIT - - -
-------------------------------------------------------------------------
Net loss $ (332,000) (13.0) $ (220,000) -
-------------------------------------------------------------------------
Basic and dilutive loss per share $ (0.02) $ (220,000)
------------- ------------
------------- ------------
Shares used to compute basic and dilutive
loss per share 14,456,000 -
------------- ---------------
------------- ---------------
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------------------------
2000 1999
-------------------------------- --------------------------------
Percentage of Percentage of
Amount Total Revenue Amount Total Revenue
------ ------------- ------ -------------
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 801,000 26.9% $ - -
Underwriting and management fees 260,000 8.7 - -
Investment management fees 1,540,000 51.8 - -
Interest and dividends 258,000 8.7 - -
Trading, net gains 116,000 3.9 - -
------------ ---------- ------------- -----------
Total revenues 2,975,000 100.0 - -
------------ ---------- ------------- -----------
EXPENSES:
Compensation and benefits 1,319,000 44.3 89,000 -
Floor brokerage and clearing fees 131,000 4.4 - -
Management fees 487,000 16.4 - -
Travel and business development 84,000 2.8 - -
Advertising, promotion, publicity 86,000 2.9 -
Depreciation and amortization expense 392,000 13.2 -
Other expenses 834,000 28.0 131,000 -
------------ ---------- ------------- -----------
Total expense 3,333,000 (12.0) 220,000 -
------------ ---------- ------------- -----------
Loss before income
tax benefit (358,000) (12.0) (220,000) -
INCOME TAX BENEFIT - - - -
------------ ---------- ------------- -----------
Net loss $ (358,000) (12.0)% $ (220,000) -
------------ ---------- ------------- -----------
------------ ----------
Basic and dilutive loss per share $ (0.07) (220,000)
------------ -------------
------------ -------------
Shares used to compute basic and dilutive
loss per share 5,434,000 -
------------ -------------
------------ -------------
</TABLE>
11
<PAGE>
ACTUAL RESULTS OF OPERATIONS
The consolidated results of operations for eChapman.com reflect the results
of operations for eChapman.com for the three and nine months ended September
30, 2000 and 1999 and the results of operations of its subsidiaries for the
period from June 20, 2000 to September 30, 2000.
Total revenue was $2,552,000 for the three months ended September 30, 2000.
Total revenue was $2,975,000 for the nine months ended September 30, 2000.
eChapman.com realized commission revenue from brokerage operations of
$801,000, or 26.9% of total revenue, for the nine months ended September 30,
2000. Underwriting and management fees were $260,000, or 8.7% of total
revenue, for the nine months ended September 30, 2000. Investment management
fees were $1,540,000, or 51.8 % of total revenue, for the nine months ended
September 30, 2000. Revenues from interest and trading activities were
$258,000 and $116,000 respectively, or 8.7% and 3.9%, respectively, of total
revenue for the nine months ended September 30, 2000.
During the nine months ended September 30, 1999 eChapman.com incurred startup
costs totaling $220,000 for one staff position and professional fees related
to organization. eChapman.com began consolidated operations with its
subsidiaries on June 20, 2000 and realized total consolidated expenses of
$2,884,000 for the three months ended September 30, 2000 and $3,333,000 for
the nine months ended September 30, 2000. The expenses reflect the
consolidated operations of eChapman.com and its subsidiaries.
Compensation and benefits expenses were $1,107,000 for the three months ended
September 30, 2000, compared to $89,000 for the prior comparable startup
period. Compensation and benefits expenses were $1,319,000 for the nine
months ended September 30, 2000, compared to $89,000 for the prior comparable
startup period. The increase is related to eChapman.com's commencement of
operations as a consolidated entity.
Floor brokerage and clearing fees were $112,000 for the three months ended
September 30, 2000, and $131,000 for the nine months ended September 30,
2000. There were no floor brokerage and clearing fees for the prior
comparable startup periods.
Management fees were $441,000 for the three months ended September 30, 2000,
and $487,000 for the nine months ended September 30, 2000. There were no
management fees for the prior comparable startup periods.
Travel and business development expenses were $75,000 for the three months
ended September 30, 2000, and $84,000 for the nine months ended September 30,
2000. There were no travel and business development expenses for the prior
comparable periods.
12
<PAGE>
Advertising and promotion expenses were $74,000 for the three months ended
September 30, 2000, and $86,000 for the nine months ended September 30, 2000.
There were no advertising and promotion expenses for the prior comparable
startup periods.
Depreciation and amortization expenses were $352,000 for the three months
ended September 30, 2000, and $392,000 for the nine months ended September
30, 2000. The mergers of Chapman Holdings, Chapman Capital Management
Holdings and Chapman Insurance Holdings into subsidiaries of eChapman.com was
accounted for using purchase accounting and the related step-up in basis to
the fair market value at the date of eChapman.com's initial public offering
generated approximately $24.3 million in goodwill, subject to 20 year
amortization. Goodwill amortization was approximately $304,000 and $337,000
for the three months and nine months ended September 30, 2000, respectively.
There were no depreciation or amortization expenses for the prior comparable
periods.
Other expenses were $723,000 for the three months ended September 30, 2000
compared to $131,000 for the prior comparable startup period. Other expenses
were $834,000 for the nine months ended September 30, 2000 compared to
$131,000 for the prior comparable startup period. Other expenses include
professional fees, utility, communications, facility, supplies, maintenance
and subscription fees. The increase is related to eChapman.com's commencement
of operations as a consolidated entity.
Net loss was $332,000 for the three months ended September 30, 2000, compared
to $220,000 for the prior comparable startup period. Net loss was $358,000
for the nine months ended September 30, 2000, compared to $220,000 for the
prior comparable startup period. This change was the result of the items
discussed above. Before depreciation and amortization, eChapman.com would
have had net income of $20,000 and $34,000, respectively, for the three month
and nine month periods ended September 30, 2000.
13
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated statements of operations are
provided for informational purposes only and do not purport to present the
results of operations of eChapman.com had the assumed transactions occurred
on or as of the dates indicated, nor are they necessarily indicative of the
results of operations which may be achieved in the future. The unaudited pro
forma consolidated statements of operations should be read in conjunction
with the historical financial statements of eChapman.com, Chapman Holdings,
Chapman Capital Management Holdings and Chapman Insurance Holdings, including
the related notes, included in eChapman.com's prospectus dated June 15, 2000.
The unaudited pro forma consolidated statement of operations gives
effect to the Chapman Holdings, Chapman Capital Management Holdings and
Chapman Insurance Holdings mergers as if they occurred at January 1, 1999 for
operating results. The unaudited pro forma as adjusted financial data gives
effect to the mergers and the sale of 1,260,000 shares of common stock at an
offering price of $13 per share less underwriting discounts, commissions and
offering costs.
The following table reflects items in the pro forma consolidated
statement of operations of eChapman.com and subsidiaries as dollar amounts
and as percentage of total revenue.
ECHAPMAN.COM, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------------------------------
2000 1999
-------------------------------- --------------------------------
Percentage Percentage
of Total of Total
Amount Revenue Amount Revenue
-------- ------------ -------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Commissions $ 738,000 28.9% $ 908,000 39.1%
Underwriting and management fees 195,000 7.7 175,000 7.5
Investment management fees 1,385,000 54.3 993,000 42.8
Interest, dividends and other income 232,000 9.1 89,000 3.8
Gains on trading - - 158,000 6.8
------------ ---------- ------------ ----------
Total revenues 2,550,000 100.0 2,323,000 100.0
------------ ---------- ------------ ----------
EXPENSE:
Compensation and benefits 1,107,000 43.4 1,152,000 49.6
Floor brokerage and clearing fees 111,000 4.3 174,000 7.5
Management fees 441,000 17.3 369,000 15.9
Depreciation and amortization 352,000 13.8 352,000 15.1
Other expenses 785,000 30.8 1,977,000 85.1
------------ ---------- ------------ ----------
Total expenses 2,796,000 109.6 4,024,000 173.2
------------ ---------- ------------ ----------
Loss before income tax benefit (246,000) (9.6) (1,701,000) (73.2)
------------ ---------- ------------ ----------
Net Loss $ (246,000) (9.6) $(1,701,000) (73.2)%
============ ========== ============ ==========
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------------------------
2000 1999
-------------------------------- --------------------------------
Percentage Percentage
of Total of Total
Amount Revenue Amount Revenue
-------- ------------ -------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Commissions $ 2,243,000 30.7% $ 3,278,000 44.8%
Underwriting and management fees 720,000 9.8 554,000 7.6
Investment management fees 4,077,000 55.8 3,046,000 41.6
Interest, dividends and other income 442,000 6.0 281,000 3.8
Gains on trading (170,000) (2.3) 158,000 2.2
-------------- ---------- ------------- ----------
Total revenues 7,312,000 100.0 7,317,000 100.0
-------------- ---------- ------------- ----------
EXPENSE:
Compensation and benefits 3,782,000 51.7 3,261,000 44.5
Floor brokerage and clearing fees 447,000 6.1 528,000 7.2
Management fees 1,273,000 17.4 1,109,000 15.2
Depreciation and amortization 1,073,000 14.7 1,059,000 14.5
Other expenses 3,282,000 44.9 4,699,000 64.2
-------------- ---------- ------------- ----------
Total expenses 9,857,000 134.8 10,656,000 145.6
-------------- ---------- ------------- ----------
Loss before income tax benefit (2,545,000) (34.8) (3,339,000) (45.6)
-------------- ---------- ------------- ----------
Net Loss $ (2,545,000) (34.8)% $ (3,339,000) (45.6)%
============== ========== ============= ==========
</TABLE>
14
<PAGE>
PRO FORMA RESULTS OF OPERATIONS
Total revenue increased $227,000, or 9.8%, to $2,550,000 for the three
months ended September 30, 2000 from $2,323,000 for the prior comparable period.
Total revenue decreased slightly by $5,000, or .1%, to $7,312,000 for the nine
months ended September 30, 2000 from $7,317,000 for the prior comparable period.
Commission revenue decreased by $170,000, or 18.7%, to $738,000 for
the three months ended September 30, 2000 from $908,000 for the prior
comparable period. Commission revenue decreased by $1,035,000, or 31.6%, to
$2,243,000 for the nine months ended September 30, 2000 from $3,278,000 in
the comparable prior period. The decrease was primarily due to a decline in
revenues from municipal participations that decreased $600,000, or 64.1%, to
$336,000 for the nine months ended September 30, 2000 from $936,000 for the
prior comparable period. eChapman.com participated in 45 municipal deals
during nine months ended September 30, 2000 compared to 36 municipal deals in
the prior comparable period. The decline in municipal revenue can be
attributed to smaller deal size. Commission revenue from the sale of retail
equities increased $20,000, or 2.3%, to $865,000 for the nine months ended
September 30, 2000 from $845,000 for the prior comparable period. Commission
revenue on sale of institutional securities increased $306,000, or 30.6%, to
$1,309,000 for the nine months ended September 30, 2000 from $1,003,000 for
the prior comparable period. Commission revenue on fixed income securities
decreased $321,000, or 68.1%, to $150,000 for the nine months ended September
30, 2000 from $471,000 for the prior comparable period. This decrease in
fixed income can be attributed to higher interest rates during the first nine
months of 2000.
Underwriting and management fee revenue increased by $20,000, or 11.4%,
to $195,000 for the three months ended September 30, 2000 from $175,000 for
the prior comparable period. Underwriting and management fee revenue
increased by $166,000, or 30.0%, to $720,000 for the nine months ended
September 30, 2000 from $554,000 for the prior comparable period. The
increase in underwriting and management fee revenue reflects an increase in
management advisory services.
Investment management fees revenue increased $392,000, or 39.5%, to
$1,385,000 for the three months ended September 30, 2000 from $993,000 for the
prior comparable period. Investment management fees revenue increased by
$1,031,000, or 33.8%, to $4,077,000 for the nine months ended September 30, 2000
from $3,046,000 for the prior comparable period. The increase was primarily due
to a net increase of $149.3 million, or 21.7%, in assets under management to
$835.8 million as of September 30, 2000, from $686.5 million as of September 30,
1999.
Interest and dividend revenue increased by $143,000, or 160.7%, to
$232,000 for the three months ended September 30, 2000 from $89,000 for the
prior comparable period. Interest and dividend revenue increased by $161,000,
or 57.3%, to $442,000 for the nine months ended September 30, 2000 from
$281,000 for the prior comparable period. These increases were due to higher
cash balances associated with the net proceeds from eChapman.com's initial
public offering of its common stock.
The gain on trading decreased by $158,000, or 100%, to $0 for the
three months ended September 30, 2000, from $158,000 for the prior comparable
period. The gain on trading decreased by $328,000, or 207.6%, to a loss on
trading of $170,000 for the
15
<PAGE>
nine months ended September 30, 2000 from a $158,000 gain on trading for the
prior comparable period. eChapman.com's loss on trading is attributable to a
decrease in the market value of its market making securities.
Total expenses decreased by $1,228,000, or 30.5%, to $2,796,000 for the
three months ended September 30, 2000 from $4,024,000 for the prior comparable
period. Total expenses decreased by $799,000, or 7.5%, to $9,857,000 for the
nine months ended September 30, 2000 from $10,656,000 for the prior comparable
period.
Compensation and benefits decreased by $45,000, or 3.9%, to
$1,107,000 for the three months ended September 30, 2000 from $1,152,000 for
the prior comparable period. As a percentage of total revenue, these expenses
were 43.4% and 49.6%, respectively, for the three months ended September 30,
2000 and the prior comparable period. Compensation and benefits increased by
$521,000, or 16.0%, to $3,782,000 for the nine months ended September 30,
2000 from $3,261,000 from the prior comparable period. As a percentage of
revenues, these expenses were 51.7% and 44.5%, respectively, for the nine
months ended September 30, 2000 and the prior comparable period. Compensation
expense includes salaries and sales commissions paid to brokers, which varies
in relation to changes in commission revenue. The increase in compensation
and benefits is primarily attributable to the addition of 20 salaried
employees since the prior comparable period.
Floor brokerage and clearing fees decreased by $63,000, or 36.2%, to
$111,000 for the three months ended September 30, 2000 from $174,000 for the
prior comparable period. Floor brokerage and clearing fees decreased by $81,000,
or 15.3%, to $447,000 for the nine months ended September 30, 2000 from $528,000
for the prior comparable period. The decrease is mainly due to a decline in the
average dollar amount per transaction, as well as administrative cost reductions
realized as a result of changing clearing firms effective June 11, 1999.
Management fees, which consist primarily of Chapman Capital
Management's payments to sub-advisors associated with its multi-manager
investment product, the DEM-MET Trust, increased by $72,000, or 19.5%, to
$441,000 for the three months ended September 30, 2000 from $369,000 for the
prior comparable period. Management fees increased by $164,000, or 14.8%, to
$1,273,000 for the nine months ended September 30, 2000 from $1,109,000 for
the prior comparable period. These increases in management fee expense
largely reflect an increase in assets under management of the DEM-MET Trust
of $149.3 million, or 21.7%, to $835.8 million as of September 30, 2000 from
$686.5 million for the prior comparable period. Management fee expense as a
percentage of revenue increased to 17.4% for the nine months ending September
30, 2000 from 15.2% for the prior comparable period.
Depreciation and amortization expenses remained unchanged at $352,000
for the three months ended September 30, 2000 and 1999. Depreciation and
amortization expenses increased by $14,000, or 1.3%, to $1,073,000 for the
nine months ended September 30, 2000 from $1,059,000 for the prior comparable
period. The increase was due to additional depreciable assets.
Other expenses decreased by $1,192,000, or 60.3%, to $785,000 for the
three months ended September 30, 2000 from $1,977,000 for the prior
comparable period. Other expenses decreased by $1,417,000, or 30.2%, to
$3,282,000 for the nine months ended September 30, 2000 from $4,699,000 for
the prior comparable period. The decrease was primarily due to decreased
professional fees, printing expense, travel expense and conference and
seminar costs. The
16
<PAGE>
decrease in these costs is the result of a change in business strategy from an
expansion and implementation effort to operations and service performance.
Net loss decreased by $1,455,000 to $246,000 for the three months
ended September 30, 2000 from a net loss of $1,701,000 for the prior
comparable period. Net loss decreased by $794,000 to $2,545,000 for the nine
months ended September 30, 2000 from a net loss of $3,339,000 for the prior
comparable period. Before depreciation and amortization, pro forma net income
would have been $106,000 for the three months ended September 30, 2000, and
pro forma net loss would have been $1,349,000 for the prior comparable
period. Before depreciation and amortization, pro forma net loss would have
been $1,472,000 for the nine months ended September 30, 2000 and $2,280,000
for the prior comparable period.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, eChapman.com had cash and cash equivalents of
$17,692,000, which includes a $10,979,000 margin loan payable related to its
investment in proprietary stock.
Subsequent to September 30, 2000, the Board of Directors of eChapman.com
retired 1,836,324 eChapman.com shares held as treasury stock. Cash resources
of $11,058,000 were applied to retire the treasury stock. Following the
retirement, eChapman.com continues to maintain a reasonable level of
liquidity.
17
<PAGE>
PART II
OTHER INFORMATION
ITEM 2--CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 30, 2000, eChapman.com's Registration Statement on Form SB-2
(File No. 333-90987) pertaining to its initial public offering of shares of
its common stock, par value $0.001 per share (the "Offering") was declared
effective.
eChapman.com has applied Offering proceeds in the amount of
approximately $1,370,000 as of September 30, 2000, as follows:
<TABLE>
<S> <C>
Network and branding $ 600,000
Merger consideration $ 120,000
Working capital & general purposes $ 650,000
----------
Total Proceeds Used $1,370,000
----------
</TABLE>
At September 30, 2000 the remaining Offering proceeds had been invested by
eChapman.com pending final application of such proceeds to implement and brand
the eChapman.com strategy. eChapman.com has invested approximately $816,000 of
the Offering proceeds in The Chapman U.S. Treasury Money Fund, an affiliate of
eChapman.com.
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits required by Item 601 of Regulation S-B;
Exhibit 27: Financial Data Schedule
B. Reports on Form 8-k:
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registration has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
eChapman.com, Inc.
By: /s/ NATHAN A. CHAPMAN, JR.
------------------------------
Nathan A. Chapman, Jr.
President, Chairman of the Board
and Director
Date: November 14, 2000
/s/ DEMETRIS B. BROWN
------------------------------
Demetris B. Brown
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
Date: November 14, 2000
19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
20
