<PAGE>
Filed pursuant to 424B3
File No. 333-90987
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, 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 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)
Yes /X/ No / /
As of June 30, 2000, 14,454,786 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
Page
----
PART I ............................................................... 1
ITEM 1 FINANCIAL STATEMENTS ..................................... 1
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ................... 8
PART II .............................................................. 13
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS ................ 13
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K ......................... 13
<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 for the 10 day period from June 20, 2000 to June 30,
2000.
The consolidated financial statements for the six month period ended
June 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 six months ended June 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 JUNE 30, 2000, AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 2000 1999
------------- -----------
(UNAUDITED)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 9,598,000 $ --
Cash deposits with clearing organization 9,792,000 --
Investments, available for sale 637,000 --
Receivables from brokers and dealers 662,000 --
Management fees receivable 647,000 --
Advances to officer/employee 1,095,000 --
Property, net 120,000 --
Prepaids and other assets 650,000 934,000
Intangible assets 24,560,000 --
------------ ------------
Total assets $ 47,761,000 $ 934,000
============ ============
Liabilities and Stockholders' Equity:
Accounts payable and accrued expenses $ 2,454,000 $ 805,000
Margin loan payable 6,367,000 --
Other liabilities 164,000 410,000
------------ ------------
Total liabilities 8,985,000 1,215,000
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value, 50,000,000 shares
authorized, 14,454,786 and 1 shares issued and
outstanding, respectively 14,000 --
Additional paid-in capital 45,436,000 --
Accumulated deficit (307,000) (281,000)
Proprietary stock of Company held by subsidiary,
at cost, 1,288,000 shares (6,367,000) --
------------ ------------
Total stockholders' equity (deficit) 38,776,000 (281,000)
------------ ------------
Total liabilities and stockholders' equity $ 47,761,000 $ 934,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
1
<PAGE>
eCHAPMAN.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
------------ ----------
(UNAUDITED)
<S> <C> <C>
REVENUE:
Commissions $ 63,000 $ 63,000
Underwriting and management fees 64,000 64,000
Investment management fees 154,000 154,000
Interest and dividends 26,000 26,000
Trading, net gains 116,000 116,000
----------- -----------
Total revenue 423,000 423,000
----------- -----------
EXPENSE:
Compensation and benefits 181,000 212,000
Floor brokerage and clearing fees 19,000 19,000
Management fees 46,000 46,000
Travel and business development 9,000 9,000
Professional fees 43,000 44,000
Advertising, promotion and publicity 12,000 12,000
Depreciation and amortization expense 40,000 40,000
Other operating expense 67,000 67,000
----------- -----------
Total expense 417,000 449,000
----------- -----------
Income (Loss) before income tax benefit 6,000 (26,000)
INCOME TAX BENEFIT -- --
----------- -----------
Net income (loss) $ 6,000 $ (26,000)
=========== ===========
BASIC AND DILUTIVE EARNINGS PER SHARE DATA:
Net income (loss) $ -- $ (0.03)
=========== ===========
Weighted average shares outstanding 1,588,000 874,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE>
eCHAPMAN.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
PROPRIETARY
ADDITIONAL STOCK OF TOTAL
COMMON PAID-IN ACCUMULATED COMPANY HELD STOCKHOLDERS'
STOCK CAPITAL DEFICIT BY SUBSIDIARY EQUITY (DEFICIT)
------------ ---------- ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 $ -- $ -- $(281,000) $ -- $ (281,000)
Net loss -- -- (26,000) -- (26,000)
Equity from mergers of CHI, CCMHI and CIH 13,000 8,883,000 -- -- 8,896,000
Goodwill step-up adjustment related to
merger -- 24,297,000 -- -- 24,297,000
Net proceeds from issuance of common
stock 1,000 12,256,000 -- -- 12,257,000
Proprietary trading stock of Company
held by subsidiary, at cost -- -- -- (6,367,000) (6,367,000)
------- ----------- --------- ----------- -----------
BALANCE, June 30, 2000 (unaudited) $14,000 $45,436,000 $(307,000) $(6,367,000) $38,776,000
======= =========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
eCHAPMAN.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (26,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Effect from changes in assets and liabilities--
Deposits with clearing organization (7,441,000)
Prepaids and other assets 934,000
Accounts payable and accrued expenses 332,000
Other liabilities (410,000)
------------
Net cash used in operating activities (6,611,000)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received from merger 3,952,000
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net 12,257,000
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,598,000
CASH AND CASH EQUIVALENTS, beginning of year --
------------
CASH AND CASH EQUIVALENTS, end of year $ 9,598,000
============
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
4
<PAGE>
eCHAPMAN.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 and Chapman Insurance Agency, 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 in to a
wholly-owned subsidiary 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. Once eChapman enters the application development
stage, and enters into commitments and contracts for services for application
security, installation of website, testing, etc., those costs will be
capitalized. Once eChapman enters the operational stage, costs for services
will be evaluated, and expensed as incurred or expensed over the contract
period.
5
<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 six months ended June
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 June 30, 2000, the Chapman
Co. held approximately 1,288,000 shares of eChapman stock in inventory.
6
<PAGE>
2. ACQUISITIONS
The merger of CHI, CCMHI, and CIH into 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 six
months ended June 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 $ 1,505,000 $ 2,370,000
Underwriting and management fees 525,000 379,000
Investment management fees 2,692,000 2,053,000
Interest, dividends and other income 210,000 192,000
Loss on trading (170,000) --
------------ ------------
Total revenue 4,762,000 4,994,000
------------ ------------
Expense:
Compensation and benefits 2,675,000 2,109,000
Floor brokerage and clearing fees 336,000 354,000
Management fees 832,000 740,000
Depreciation and amortization expense 721,000 707,000
Other expenses 2,497,000 2,722,000
------------ ------------
Total expenses 7,061,000 6,632,000
------------ ------------
Loss before income tax benefit (2,299,000) (1,638,000)
Income tax benefit -- --
------------ ------------
Net loss $ (2,299,000) $ (1,638,000)
============ ============
Basic and dilutive loss per share $ (.16) $ (.11)
============ ============
Shares used to compute basis and 14,455,000 14,455,000
dilutive loss per share ============ ============
</TABLE>
7
<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 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.
8
<PAGE>
OVERVIEW
eChapman.com is a newly formed corporation designed to bring
together the financial services capabilities of The Chapman Co., Chapman
Capital Management and The Chapman Insurance Agency, while taking advantage
of the unique opportunities presented by the growth of the Internet. Our web
site, the eChapman.com network, which is currently under development, will
seek to be an interactive on-line community offering both financial services
and a variety of lifestyle, educational and cultural content. Chapman
On-line, Inc., the on-line trading portion of the eChapman.com web site, has
been launched and offers on-line trading with a service center. Chapman
Online is separately licensed as a broker dealer with the SEC and in 49
states, with one registration pending, and with the NASD. Additionally,
mutual funds, variable annuities, research, and corporate and public finance
offerings are in development. We anticipate substantial completion of
content, layout, and other functionality by the end of the fourth quarter of
2000.
We intend to grow the financial services products and services we
have offered through our traditional channels of distribution and believe
these services will compliment our online 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 advisor that acts as financial advisor to separate
accounts, a group trust and a family of mutual funds. The Chapman Insurance
Agency sells annuity products on an agency basis.
On November 15, 1999, eChapman.com entered into separate merger
agreements with Chapman Holdings, Chapman Capital Management Holdings and
Chapman Insurance Holdings. On April 20, 2000 the stockholders of Chapman
Holdings, Chapman Capital Management Holdings and Chapman Insurance Holdings
approved the mergers. Upon closing of the mergers on June 20, 2000,
eChapman.com indirectly controls The Chapman Co., Chapman Capital Management,
and The Chapman Insurance Agency.
The initial public offering of common stock of eChapman.com occurred
on June 15, 2000, and its common stock began trading on the Nasdaq National
Market under the symbol ECMN on June 20, 2000.
9
<PAGE>
RESULTS OF OPERATIONS
Because eChapman.com as a combined company consisting of Chapman
Holdings, Chapman Capital Management Holdings and Chapman Insurance Holdings
did not begin operations until the closing of the merger on June 20, 2000,
the following discussion and analysis includes not only the results of
operations for eChapman.com from June 20, 2000 to June 30, 2000, but also the
results of operations of eChapman.com on a pro forma basis, giving effect to
the mergers as if they at January 1, 1999.
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>
For the six months ended For the three months ended
June 30, 2000 June 30, 2000
------------------------- ----------------------------
Percentage Percentage
of Total of Total
Amount Revenue Amount Revenue
--------- ---------- ------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Commissions $ 63,000 15.0% $ 63,000 15.0%
Underwriting and management fees 64,000 15.1 64,000 15.1
Investment management fees 154,000 36.4 154,000 36.4
Interest, dividends and other income 26,000 6.1 26,000 6.1
Trading, net gains 116,000 27.4 116,000 27.4
--------- ----- -------- -----
Total revenue 423,000 100.0 423,000 100.0
--------- ----- -------- -----
EXPENSE:
Compensation and benefits 212,000 50.1 181,000 42.8
Floor brokerage and clearing fees 19,000 4.5 19,000 4.5
Management fees 46,000 10.9 46,000 10.9
Depreciation and amortization 40,000 9.4 40,000 9.4
Other expenses 132,000 31.2 131,000 31.0
--------- ----- ------- -----
Total expense 449,000 106.1 417,000 98.6
--------- ----- ------- -----
(Loss) income before income
tax benefit (26,000) (6.1) 6,000 1.4
INCOME TAX BENEFIT -- -- -- --
--------- ----- ------- -----
Net (Loss) Income $ (26,000) (6.1%) 6,000 1.4%
========= ===== ======= ======
</TABLE>
Total consolidated revenue for the six months ended June 30, 2000
was $423,000. The consolidated results of operations for eChapman.com reflect
the results of operations for eChapman.com for the three month and six month
periods ended June 30, 2000 and the results of eChapman.com and its
subsidiaries for the 10 day period from June 20, 2000 and June 30, 2000. Each
of the operating subsidiaries contributed to the period revenue, led by
investment management fees of $154,000 and investment gains of $116,000
realized on market making activities.
Total expenses for the six months ended June 30, 2000 were $449,000.
Included in the expenses are compensation and benefit costs of $212,000,
$40,000 of depreciation and amortization expense and other expenses of
$132,000. The amortization of goodwill resulting from the mergers due to the
step up in basis for the period was $33,000. Total goodwill of $24.3 million
will be amortized over a 20 year period.
eChapman.com realized a net loss for the six months ended June 30,
2000 of $26,000.
PRO FORMA FINANCIAL DATA
The unaudited Pro forma consolidated balance sheet and statements of
operations are based on available information and certain assumptions and
adjustments described in the accompanying notes, which we believe are
reasonable. The 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 balance sheet and 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 and as of June 30, 2000 for balance sheet data. 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 June 30, Six Months Ended June 30,
-------------------------------------------- ----------------------------------------------
2000 1999 2000 1999
-------------------------------------------- ----------------------------------------------
Percentage Percentage Percentage Percentage
of Total of Total of Total of Total
Amount Revenue Amount Revenue Amount Revenue Amount Revenue
----------- -------- ----------- --------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Commissions $ 556,000 26.3% $ 1,146,000 43.6% $ 1,505,000 31.6% $ 2,370,000 47.5%
Underwriting and management fees 313,000 14.8% 317,000 12.0% 525,000 11.0% 379,000 7.6%
Investment management fees 1,355,000 64.1% 1,074,000 40.8% 2,692,000 56.5% 2,053,000 41.1%
Interest, dividends and other income 112,000 5.3% 94,000 3.6% 210,000 4.4% 192,000 3.8%
Gains on trading (223,000) (10.5%) -- -- (170,000) (3.6%) -- --
----------- ---- ----------- ---- ----------- ---- ----------- ----
Total revenues 2,113,000 100.0% 2,631,000 100.0% 4,762,000 1.0% 4,994,000 100.0%
----------- ---- ----------- ---- ----------- ---- ----------- ----
EXPENSE:
Compensation and benefits 1,359,000 64.3% 1,130,000 42.9% 2,675,000 56.2% 2,109,000 42.2%
Floor brokerage and clearing fees 155,000 7.3% 168,000 6.4% 336,000 7.1% 354,000 7.1%
Management fees 414,000 19.6% 389,000 14.8% 832,000 17.5% 740,000 14.8%
Depreciation and amortization 361,000 17.1% 354,000 13.5% 721,000 15.2% 707,000 14.2%
Other expenses 1,293,000 61.2% 1,624,000 61.7% 2,497,000 52.4% 2,722,000 54.5%
----------- ---- ----------- ---- ----------- ---- ----------- ----
Total expenses 3,582,000 169.5% 3,665,000 13.3% 7,061,000 148.3% 6,632,000 132.8%
----------- ---- ----------- ---- ----------- ---- ----------- ----
Loss before income tax benefit (1,469,000) (69.5%) (1,034,000) (39.2%) (2,299,000) (48.3%) (1,638,000) (32.8%)
INCOME TAX BENEFIT -- -- (169,000) (6.4%) -- -- (200,000) (4.0%)
----------- ---- ----------- ---- ----------- ---- ----------- ----
Net Loss $(1,469,000) (69.5%) $ (865,000) (32.9%) $(2,299,000) (48.3%) $(1,438,000) (28.8%)
=========== ==== =========== ==== =========== ==== =========== ====
</TABLE>
Total revenue decreased by $518,000, or 19.7%, to $2,113,000 for the
three months ended June 30, 2000 from $2,631,000 for the prior comparable
period. Total revenue decreased by $232,000, or 4.6%, to $4,762,000 for the
six months ended June 30, 2000 from $4,994,000 for the prior comparable
period. The decrease in revenue was primarily related to a decrease in
commission revenue due to the elimination of $802,000 of commission fees
earned by The Chapman Co. from the eChapman.com IPO and lower municipal fees
partially offset by an increase in underwriting and investment management
fees.
Commission revenue decreased by $590,000, or 51.5%, to $556,000 for
the three months ended June 30, 2000 from $1,146,000 for the prior comparable
period. Commission revenue decreased by $865,000, or 36.5%, to $1,505,000 for
the six months ended June 30, 2000 from $2,370,000 in the comparable prior
period. The decrease was primarily due to a decline in revenues from
municipal participations that decreased $589,000, or 78.1%, to $165,000 for
the six months ended June 30, 1999 from $754,000 for the prior comparable
period. The Company participated in 25 municipal deals during the six months
ended June 30, 2000 compared to 22 municipal deals in the prior comparable
period. The decline in municipal revenue can be attributed to smaller deal
sizes. Commission revenue from the sale of retail equities decreased
$388,000, or 74.5%, to $133,000 for the six months ended June 30, 2000 from
$521,000 for the prior comparable period. Commission revenue on sale of
institutional securities increased $355,000, or 54.0%, to $1,012,000 for the
six months ended June 30, 2000 from $657,000 for the prior comparable period.
Commission revenue on fixed income securities decreased $266,000, or 76.2%,
to $83,000 for the six months ended June 30, 2000 from $349,000 for the prior
comparable period. This decrease in fixed income can be attributable to
higher interest rates during the first six months of the year.
10
<PAGE>
Underwriting and management fee revenue decreased $4,000, or 1.3%, to
$313,000 for the three months ended June 30, 2000 from $317,000 for the prior
comparable period. Underwriting and management fee revenue increased by
$146,000, or 38.5%, to $525,000 for the six months ended June 30, 2000 from
$379,000 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 $281,000, or 26.2%, to
$1,355,000 for the three months ended June 30, 2000 from $1,074,000 for the
prior comparable period. Investment management fees revenue increased by
$639,000, or 31.1%, to $2,692,000 for the six months ended June 30, 2000 from
$2,053,000 for the prior comparable period. The increase was primarily due to a
net increase of $169.4 million, or 26.3%, in assets under management to $812.8
million as of June 30, 2000, from $643.4 million as of June 30, 1999.
Interest and dividend revenue increased by $18,000, or 19.1%, to
$112,000 for the three months ended June 30, 2000 from $94,000 for the prior
comparable period. Interest and dividend revenue increased by $18,000, or
9.4%, to $210,000 for the six months ended June 30, 2000 from $192,000 for
the prior comparable period. These increases were due to higher cash balances
associated with the net proceeds from the eChapman.com offering of common
stock.
The loss on trading was $223,000 for the three months ended June 30,
2000. The loss on trading was $170,000 for the six months ended June 30,
2000. The Company's loss on trading is attributable to an decrease in the
market value of its market making securities.
Total expenses decreased by $83,000, or 2.3%, to $3,582,000 for the
three months ended June 30, 2000 from $3,665,000 for the prior comparable
period. Total expenses increased by $429,000, or 6.5%, to $7,061,000 for the six
months ended June 30, 2000 from $6,632,000 for the prior comparable period.
Total expenses increased due to the increase in compensation benefits and
management fees.
Compensation and benefits increased by $229,000, or 20.3%, to
$1,359,000 for the three months ended June 30, 2000 from $1,130,000 for the
prior comparable period. As a percentage of total revenue, these expenses
were 64.3% and 42.9%, respectively, for the three months ended June 30, 2000
and 1999. Compensation and benefits increased by $566,000, or 26.8%, to
$2,675,000 for the six months ended June 30, 2000 from $2,109,000 from the
prior comparable period. As a percentage of revenues, these expenses were
56.2% and 42.2%, respectively, for the six months ended June 30, 2000 and
1999. 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 $13,000, or 7.7%, to
$155,000 for the three months ended June 30, 2000 from $168,000 for the prior
comparable period. Floor brokerage and clearing fees decreased by $18,000, or
5.1%, to $336,000 for the six months ended June 30, 2000 from $354,000 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.
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Management fees, which consist primarily of Chapman Capital
Management's payments to sub-advisors in connection with its multi-manager
investment product, the DEM-MET Trust, increased by $25,000, or 6.4%, to
$414,000 for the three months ended June 30, 2000 from $389,000 for the prior
comparable period. Management fees increased by $92,000, or 12.4%, to
$832,000 for the six months ended June 30, 2000 from $740,000 for the prior
comparable period. These increases in management fees expense largely reflect
an increase in assets under management of the DEM-MET Trust of $169.4
million, or 26.3%, to $812.8 million as of June 30, 2000 from $643.4 million
for the prior comparable period, offset by a reduction in fees due to one
less sub-advisor working for the DEM-MET Trust. Management fees expense as a
percentage of revenue increased to 17.5% for the six months ending June 30,
2000 from 14.8% for the prior comparable period.
Depreciation and amortization increased by $7,000, or 2.0%, to
$361,000 for the three months ended June 30, 2000 from $354,000 for the prior
comparable period. Depreciation and amortization increased by $14,000 or
2.0% to $721,000 for the six months ended June 30, 2000 from $707,000 for
the prior comparable period. These increases are due to the purchase of
property and equipment. Included in depreciation and amortization expense is
$608,000 of amortization related to the goodwill step-up in basis resulting
from the mergers.
Other expenses decreased by $331,000, or 20.4%, to $1,293,000 for
the three months ended June 30, 2000 from $1,624,000 for the prior comparable
period. Other expenses decreased by $225,000, or 8.3%, to $2,497,000 for the
six months ended June 30,2000 from $2,722,000 for the prior comparable
period. The decrease was primarily due to decreased professional fees,
printing expense, travel expense, and conference and seminar cost. The
decrease in these costs is the result of the eChapman.com business strategy.
The income tax benefit decreased by $169,000 to a tax benefit of $0
for the three months ended June 30, 2000 from $169,000 for the prior
comparable period. The income tax benefit decreased by $200,000 to a tax
benefit of $0 for the six months period ended June 30, 2000 from $200,000 for
the prior comparable period. The tax benefit decreased due to the valuation
reserve established for a deferred tax asset.
The net loss increased by $604,000 to $1,469,000 for the three
months ended June 30, 2000 from a net loss of $865,000 for the prior
comparable period. The net loss increased by $861,000 to $2,299,000 for the
six months ended June 30, 2000 from a net loss of $1,438,000 for the prior
comparable period. This change was a result of the items discussed above, as
presented on a pro forma basis.
LIQUIDITY AND CAPITAL RESOURCES
A substantial portion of eChapman.com's assets are reasonably
liquid. At June 30, 2000, eChapman.com had cash and cash equivalents of
$19,390,000.
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PART II
OTHER INFORMATION
ITEM 2--CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 15, 1999, eChapman.com filed a Registration Statement on
Form SB-2 (File No. 333-90987) to register its offering, on a firm commitment
basis, of shares of its common stock, par value $0.001 per share (the
"Offering"). The Securities and Exchange Commission declared eChapman.com's
Registration Statement effective at 9:00 a.m., Washington, D.C. time, on May
30, 2000. eChapman.com commenced its offering of 1,260,000 shares of its
common stock at $13.00 through the managing underwriter, The Chapman Co., on
June 15, 2000, and the Offering closed on June 20, 2000. eChapman.com
received gross proceeds of $16,380,000 in the Offering. eChapman.com
estimates that in connection with its offering, it incurred approximately
$4,123,000 in expenses and received net proceeds of $12,257,000. As disclosed
in eChapman.com's Registration Statement, a portion of these expenses
included underwriting discounts and commissions paid to The Chapman Co., an
indirect subsidiary of eChapman.com for which eChapman.com's president and
chief executive officer serves in the same capacity, as the managing
underwriter in the Offering.
eChapman.com has applied Offering proceeds in the amount of
approximately $345,000 for working capital and general corporate purposes.
The remaining Offering proceeds have been invested by eChapman.com pending
final application of such proceeds to implement and brand the eChapman.com
strategy. eChapman.com has invested approximately $2.2 million 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.
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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 HOLDINGS, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
--------------------------------
Nathan A. Chapman, Jr.
President, Chairman of the Board
and Director
Date: August 14, 2000
/s/ DEMETRIS B. BROWN
--------------------------------
Demetris B. Brown
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
Date: August 14, 2000
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
27 Financial Data Schedule
15
