<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                        OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ________ TO ________

                         Commission file number 0-23587

                            CHAPMAN HOLDINGS, INC.
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

             MARYLAND                                       52-2069777
    -------------------------------                    -------------------
    (State or Other Jurisdiction of                     (I.R.S.   Employer
    Incorporation or Organization)                     Identification No.)

          401 EAST PRATT STREET, 28TH FLOOR, BALTIMORE, MARYLAND 21202
          ------------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

Issuer's telephone number, including area code: (410) 625-9656 
                                                --------------
Securities registered pursuant to Section 12(b) of the Exchange Act:   None 
                                                                     ---------
Securities registered pursuant to Section 12(g) of the Exchange Act:

                    COMMON STOCK, PAR VALUE $0.001 PER SHARE
                    -----------------------------------------
                                (Title of Class)

Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes  /X/   No / / 
                                                               ---      ---

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained herein, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. /X/

The issuer's revenues for its most recent fiscal year were:  $2,935,069.
                                                            ------------

The aggregate market value of the voting stock and non-voting common equity held
by non-affiliates computed by reference to the average bid and asked price of
such common equity on March 10, 1999 was $5,129,691.

                     APPLICABLE ONLY TO CORPORATE REGISTRANTS

The number of outstanding shares of Common Stock of the registrant as of 
March 10, 1999 was 2,953,622. Transitional Small Business Disclosure Format 
(check one).   Yes [ ]   No [ X ]

                       DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the Registrant's Annual Report to Stockholders for the
year ended December 31, 1998 and selected portions of the Proxy Statement
pertaining to the Annual Meeting are incorporated herein by reference into
Parts II and III.


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                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                               PAGE

<S>               <C>                                                                                            <C>
PART I                                                                                                            3

ITEM 1.           DESCRIPTION OF BUSINESS                                                                         3

ITEM 2.           DESCRIPTION OF PROPERTY                                                                         8

ITEM 3.           LEGAL PROCEEDINGS                                                                               8

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                             8


PART II                                                                                                           9

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                        9

ITEM 5A.          RISK FACTORS                                                                                   10

ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          17

ITEM 7.           FINANCIAL STATEMENTS                                                                           17

ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           17


PART III                                                                                                         17

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                  COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT                                              17

ITEM 10.          EXECUTIVE COMPENSATION                                                                         17

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                 18

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                 18

ITEM 13.          EXHIBIT, LIST AND REPORTS ON FORM 8-K                                                          18

</TABLE>


Domestic Emerging Markets-Registered Trademark-and DEM-Registered 
Trademark-are registered trademarks and DEM Profile--TM--, DEM 
Universe--TM--, DEM Company--TM--, DEM Index--TM--and the stylized C-Eagle 
logo are trademarks of Nathan A. Chapman, Jr.

                                        2


<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         Chapman Holdings, Inc. (the "Company") is an African-American owned and
controlled holding company. The Company's full service securities brokerage and
investment banking subsidiary, The Chapman Co., is registered as a broker-dealer
with the Commission and in 34 states and the District of Columbia, and is a
member firm of the National Association of Securities Dealers, Inc. (the
"NASD"). (Unless the context otherwise indicates, the Company and The Chapman
Co. are hereinafter referred to collectively as the "Company")

         The Company is headquartered at the World Trade Center--Baltimore, 401
East Pratt Street, 28th Floor, Baltimore, Maryland and its telephone number is
(410) 625-9656. The Company was incorporated in Maryland on December 12, 1997.
The Chapman Co. was incorporated in Maryland in 1986.

         The Company is headquartered in Baltimore, Maryland with sales offices
in Alabama, California, Colorado, Illinois, Mississippi, Pennsylvania, Tennessee
and Texas.

         The Company's primary sources of revenue are derived from brokerage
services, corporate finance, and government finance activities. These activities
are supported by the Company's research capabilities.

BROKERAGE SERVICES

         The Company provides brokerage services to institutional and retail
clients. Commissions are charged to these clients for executing buy and sell
orders for securities on national and regional exchanges and in the
over-the-counter market. The Company's primary source of revenue for its
brokerage business has historically been commissions generated from
institutional brokerage. The Company's institutional clients include investment
managers, corporate retirement plans and municipal retirement plan sponsors. The
Company maintains floor broker relationships on the New York, American and
Chicago Stock Exchanges and executes buy and sell orders in the over-the-counter
markets. Approximately 46% and 40% of the Company's revenue during 1998 and
1997, respectively, was derived from its brokerage business.

         The Company also participates in fixed income secondary market trading
in government securities primarily for fixed income investment managers,
municipal treasurers and other investment professionals. This business is done
on a competitive basis where the Company acts as a broker. Approximately 4% and
29% of the Company's revenue during 1998 and 1997, respectively, was derived
from secondary market trading.

         As of December 31, 1998, the Company employed 12 brokers.

         The Company is a market-maker with respect to the securities of five
companies.


                                       3


<PAGE>


CORPORATE FINANCE

         To date, the Company's corporate finance activities have been limited
primarily to participation in syndicates. The Company has been a member of over
200 underwriting syndicates for corporate issues, substantially all of which
were equity offerings. During 1998 and 1997, approximately 20% and 16%,
respectively, of the Company's revenue was derived from corporate finance
transactions. In 1998, over half of the Company's corporate finance revenue was
derived from the sale of the stock of Chapman Capital Management Holdings, Inc.,
an affiliate and former subsidiary of the Company for whom the Company acted as
sole underwriter. In 1997, over half of the Company's corporate finance revenue
was derived from the sale of the stock of DEM, Inc. for which the Company was
the sole underwriter. DEM, Inc. was a publicly-traded closed-end company managed
by Chapman Capital Management, Inc., a former subsidiary of the Company.

GOVERNMENT FINANCE

         The Company participates in the tax-exempt public finance market and
has managed, primarily as co-manager, over 250 transactions in 22 states and the
District of Columbia, including approximately 59 transactions in the past two
years. Over half of the total dollar amount of these transactions has been with
jurisdictions located in Alabama, California, Pennsylvania and Tennessee.

         During 1998 and 1997, approximately 17% and 13%, respectively, of the
Company's revenue was derived from management fees, financial advisory fees and
selling concessions in public finance transactions. The Company currently
employs four investment bankers whose primary responsibility is the development
of the Company's public finance business.

STRATEGY

         The Company intends to utilize its available resources to both exploit
its DEM strategic initiative and to expand its existing business activities.

         DOMESTIC EMERGING MARKETS

         The Company has implemented its Domestic Emerging Markets, or DEM,
strategy pursuant to which the Company markets financial services, primarily
investment banking services to domestic companies that are owned or controlled
by African-Americans, Asian-Americans, Hispanic Americans or women. As part of
the DEM strategy, the Company makes markets in the stocks of selected DEM
companies. The Company believes that the DEM market is underserved and its DEM
strategy will permit the Company to develop a market niche for its corporate
finance business.

         The Company has identified approximately 180 DEM companies and seeks to
establish relationships with such companies that intend to raise additional
equity or debt financing. The Company's target clients are small capitalization
companies traded in the over-the-counter market and privately-held companies
undertaking an initial public offering. While the size of any particular
offering may vary, the Company anticipates that most such transactions would
range from $2 million to $15 million. The Company seeks to manage or co-manage a
substantial portion of these underwritings in which it participates.


                                        4


<PAGE>


         The Company's ability to exploit its DEM strategy in the context of
corporate underwritings is dependent upon its ability to identify potential
clients fitting the DEM company profile and convincing such potential clients
that the Company is the right investment banking firm for their needs. The
Company has not conducted any independent research to test the marketability of
the DEM strategy, nor has the Company engaged in any significant marketing of
the strategy. Therefore, while the Company believes the concept to be viable,
the level of market acceptance is largely unknown. The Company intends to devote
a substantial amount of its resources to the execution of the DEM strategy.

         EXPANSION OF EXISTING BUSINESS

         The Company is expanding its existing business as follows:

         The Company is expanding its research capabilities, focusing primarily
on DEM companies, hiring additional brokers and marketing specialized products
to retail and institutional clients.

         In addition to the DEM corporate finance strategy discussed above, the
Company is aggressively seeking larger allocations in corporate underwriting
syndicates managed by other investment banking firms.

         The Company is seeking larger positions in state and local public 
finance transactions. As a result of its ability to undertake larger 
participations, the Company believes it is better positioned to seek manager 
roles in these transactions, entitling the Company to receive management fees 
in addition to selling concessions. The Company intends to expand its 
participation in the state and local public finance market by establishing a 
presence in states with major issuers of negotiated tax-exempt bonds and by 
seeking more assignments as manager of such transactions. The Company has 
identified California, New York, Texas, Illinois, Pennsylvania, Michigan, 
Ohio and Florida as representing over 45% of the dollar amount of aggregate 
tax-exempt bonds issued in the U.S. in 1997. In addition to its other 
offices, the Company currently has offices in Texas, Illinois and 
Pennsylvania and has recently opened an office in California. The Company 
intends to use its increased capital to expand its participation in federal 
agency debt transactions as a member of selling groups in direct offerings 
and syndicates, as well as aggressively seeking management roles in these 
offerings.

RESEARCH

         The Company currently employs four research analysts and provides
research primarily on selected DEM companies. The Company intends to
substantially increase the number of DEM companies covered by its research.

         The Company has created the DEM Index which tracks the results of
certain of those companies meeting the DEM profile. The Company believes that
inclusion of a DEM company in the DEM Index offers certain advantages such as
facilitating identification by fund managers and other institutions seeking to
invest in minority or women controlled businesses. The Company will seek to earn
fees from subscriptions to the DEM Index and the sale of limited information
regarding the companies included in the DEM Index.


                                       5


<PAGE>

CLEARING AGENT AND CUSTOMER CREDIT

         The Company utilizes the services of RPR Clearing Services, Inc. as 
its clearing agent on a fully disclosed basis (the "Clearing Agent"). The 
Clearing Agent processes all securities transactions and maintains the 
accounts of customers. Customer accounts are protected through the Securities 
Investor Protection Corporation for up to $500,000, of which coverage for 
cash balances is limited to $100,000. The Company has selected the Pershing 
Division of Donaldson, Lufkin & Jenrette Securities Corporation to replace 
RPR Clearing Services, Inc. as the Clearing Agent. The Company expects that 
Pershing will commence operations as the Company's clearing agent in 
mid-Summer 1999.

         The services of the Clearing Agent include billing, credit control,
receipt and custody and delivery of securities. The Clearing Agent provides the
operational support necessary to process, record and maintain securities
transactions for the Company's brokerage and distribution activities. The total
cost of the Clearing Agent's services to the Company is less than the cost the
Company would incur to provide these services itself.

         The Clearing Agent lends funds to the Company's customers through the
use of margin credit. These loans are made to customers on a secured basis, with
the Clearing Agent maintaining collateral in the form of salable securities,
cash or cash equivalents. Under the terms of the Company's clearing agreement,
the Company indemnifies the Clearing Agent for any loss on these credit
arrangements. As of December 31, 1998, the Company had approximately $2,559,189
of margin credit outstanding to its customers through its Clearing Agent. There
have been no defaults on margin loans in the last two years. The net interest
income to the Company from margin activities for the years ending December 31,
1997 and 1998 was not material.

GOVERNMENT REGULATION

         The securities business is subject to extensive and frequently changing
federal and state laws and substantial regulation under such laws by the
Commission and various state agencies and self-regulatory organizations, such as
the NASD. The Company is registered as a broker-dealer with the Commission and
is a member firm of the NASD. Much of the regulation of broker-dealers has been
delegated to self-regulatory organizations, principally the NASD, which has been
designated by the Commission as the Company's primary regulator. The NASD adopts
rules (which are subject to approval by the Commission) that govern its members
and conducts periodic examinations of member firms' operations. Securities firms
are also subject to regulation by state securities administrators in those
states in which they conduct business. The Company is registered as a
broker-dealer in 34 states and the District of Columbia.

         Broker-dealers are subject to regulations which cover all aspects of
the securities business, including sales methods and supervision, trading
practices among broker-dealers, use and safekeeping of customers' funds and
securities, capital structure of securities firms, record keeping and the
conduct of directors, officers and employees. Additional legislation, changes in
rules promulgated by the Commission and self-regulatory organizations, or
changes in the interpretation or enforcement of existing laws and rules, may
directly affect the mode of operation and profitability of broker-dealers.


                                        6


<PAGE>


         The Commission, self-regulatory organizations and state securities
commissions may conduct administrative proceedings which can result in censure,
fine, the issuance of cease-and-desist orders or the suspension or expulsion of
a broker-dealer, its officers or employees. The principal purpose of regulation
and discipline of broker-dealers is the protection of customers and the
integrity of the securities markets.

         The Company's mutual fund distribution business is subject to extensive
regulation as to its duties, affiliations, conduct and limitations on fees under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Investment Company Act of 1940, as amended (the "1940 Act"), and the regulations
of the NASD. As discussed above, the Company is an NASD member. The NASD has
prescribed rules (Rule 2830 of the NASD Conduct Rules) with respect to maximum
commissions, charges and fees related to investment in any open-end investment
company registered under the 1940 Act.

         NET CAPITAL REQUIREMENTS

         As a registered broker-dealer and a member firm of the NASD, the
Company is subject to the net capital rule of the Commission. The net capital
rule, which specifies minimum net capital requirements for registered brokers
and dealers, is designed to measure the general financial integrity and
liquidity of a broker-dealer and requires that at least a minimum part of its
assets be kept in relatively liquid form. Net capital is essentially defined as
net worth (assets minus liabilities), plus qualifying subordinated borrowings
and less certain mandatory deductions that result from excluding assets not
readily convertible into cash and from valuing certain other assets, such as a
firm's positions in securities, conservatively. Among these deductions are
adjustments in the market value of securities to reflect the possibility of a
market decline prior to disposition. The Company has elected to compute its net
capital under the standard aggregate indebtedness method permitted by the net
capital rule, which requires that the ratio of aggregate indebtedness to net
capital, both as defined, shall not exceed a 15-to-1 ratio. At December 31,
1998, the Company had net capital and a net capital requirement of $797,382 and
$100,000, respectively. The Company's ratio of aggregate indebtedness to net
capital was .7 to 1.

         Failure to maintain the required net capital may subject a firm to
suspension or expulsion by the NASD, the Commission and other regulatory bodies
and ultimately may require its liquidation. The Company entered into a consent
agreement with the NASD regarding alleged violations of the net capital rules in
late 1993 and early 1994. Pursuant to such agreement, the Company and Mr.
Chapman were jointly fined $30,000 and Mr. Chapman was suspended from
association with the Company for 10 days. The Company has exceeded all net
capital requirements since such alleged violations. The net capital rule also
prohibits payments of dividends, redemption of stock and the prepayment or
payment in respect of principal of subordinated indebtedness if net capital,
after giving effect to the payment, redemption or repayment, would be less than
a specified percentage (currently 120%) of the minimum net capital requirement.
Compliance with the net capital rule could limit those operations of the
Company's brokerage subsidiary that require the intensive use of capital, such
as underwriting and trading activities, and also could restrict the Company's
ability to withdraw capital from its operating subsidiary, which in turn, could
limit the Company's ability to pay dividends, repay debt and redeem or purchase
shares of its outstanding capital stock.


                                       7


<PAGE>


COMPETITION

         The Company encounters intense competition in all aspects of its
securities business and competes directly with other securities firms, a
significant number of which have greater capital and other resources. In
addition to competition from firms currently in the securities business, there
has recently been increasing competition from other sources, such as commercial
banks and insurance companies offering financial services, and from other
investment alternatives. The Company believes that the principal factors
affecting competition in the securities industry are the quality and abilities
of professional personnel, including their ability to effectuate a firm's
commitments, and the quality, range and relative prices of services and products
offered.

         Although the Company may expand the financial services it can offer to
its customers, it does not now offer as broad a range of financial services as
national stock exchange member firms, commercial banks, insurance companies and
others.

PERSONNEL

         At December 31, 1998, the Company had 35 full-time employees, including
25 registered representatives. None of the Company's personnel is covered by a
collective bargaining agreement. The Company considers its relationships with
its employees to be good.

ITEM 2.  DESCRIPTION OF PROPERTY

         The principal executive offices of the Company are located at The World
Trade Center--Baltimore, 401 East Pratt Street, 28th Floor, Baltimore, Maryland
21202 where the Company leases approximately 10,000 square feet of office space.
The lease for these premises expires in 2000. The Company leases furniture and
equipment from an affiliated entity.

ITEM 3.  LEGAL PROCEEDINGS

         Many aspects of the Company's business involve substantial risks of
liability, including exposure under federal and state securities laws in
connection with the underwriting and distribution of securities. The Company
does not presently maintain an errors and omissions insurance policy insuring it
against these risks. In recent years, there has been an increasing incidence of
litigation involving the securities industry, including class actions which
generally seek rescission and substantial damages. Additionally, securities
brokerage firms become parties to arbitrations brought by dissatisfied customers
in the general course of business. The Company has been and is currently a party
to such proceedings, none of which has resulted or is expected to result in any
material liability.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


                                       8


<PAGE>


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

RECENT SALES OF UNREGISTERED SECURITIES

         Since its organization, the following securities were issued by the
Company without registration under the Securities Act:

         On December 12, 1997, in connection with the organization of the
Company, the Company issued one share of Common Stock, to Nathan A. Chapman, Jr.
for an aggregate price of $8.00. This transaction was exempt from registration
under the Securities Act under Section 4(2) because it did not involve a public
offering. Such transaction was completed without an underwriter.

         On December 22, 1997, the Company issued 196,594 shares of Common Stock
to Mr. Chapman in consideration for which Mr. Chapman contributed a warrant for
1,048,500 shares of The Chapman Co., currently the Company's wholly-owned
subsidiary, then exercisable at a price of $0.10 per share. This transaction was
exempt from registration under the Securities Act under Section 4(2) because it
did not involve a public offering. Such transaction was completed without an
underwriter.

         On December 29, 1997, the Company issued 1,792,640 shares of Common
Stock to 19 former stockholders of The Chapman Co. in a statutory merger
pursuant to a vote of the security holders of The Chapman Co. Specifically, a
wholly-owned subsidiary of the Company was organized and merged into The Chapman
Co. with The Chapman Co. surviving the merger as a wholly-owned subsidiary of
the Company. All shares of Common Stock, Preferred Stock and Preferred
Stock--Series B of The Chapman Co. that were outstanding prior to the merger
automatically converted at the effective time of the merger into shares of
Common Stock of the Company. This transaction was exempt from registration under
the Securities Act under Section 4(2) because it did not involve a public
offering. Such transaction was completed without an underwriter.

PROCEEDS OF THE OFFERING

         On February 23, 1998, the Company's Registration Statement on Form SB-2
(File No. 333-43487) 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
approximately $3 million to expand net capital to participate in corporate and
government finance transactions, $200,000 to expand market-making and research
capabilities, $150,000 to implement the DEM strategy, $400,000 to expand sales
and marketing efforts, $400,000 to hire sales personnel to staff additional
sales offices and corporate finance staff to implement the DEM strategy and $1
million for working capital and general corporate purposes. The remaining
Offering proceeds


                                       9


<PAGE>


have been invested by the Company in The Chapman U.S. Treasury Money Fund, an
affiliate, pending final application of such proceeds.

         The remainder of the information required by Item 5 is incorporated by
reference from the information set forth under the heading "Stockholder
Information" in the selected portions of the 1998 Annual Report filed as Exhibit
13.01 to this Form 10-KSB.

ITEM 5A. RISK FACTORS

         The words "believes," "intends," "anticipates," and "expects," and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements are based on our current expectations and are subject
to a number of risks and uncertainties. In light of these risks and
uncertainties, many of which are described in detail in the risk factors set
forth below, actual results could differ materially from the forward-looking
statements contained in this document.

NET LOSS; RISK OF INABILITY TO MANAGE GROWTH

         We have experienced and expect to continue to experience significant 
growth in our business activities and the number of our employees. This 
growth requires increased investment in personnel, financial and management 
systems and controls and facilities. Unless we achieve revenue growth in line 
with our growth in expenses, we will continue to incur losses. During 1998, 
we had a net loss of $1,130,758. Furthermore, our inability to manage such 
growth could have a material adverse effect on our continued operations.

         In addition, as is common in the securities industry, we continue to be
highly dependent on the effective and reliable operation of its communications
and information systems. We believe that our future growth will require
implementation of new and enhanced communications and information systems and
training of its personnel to operate such systems. Any difficulty or significant
delay in the implementation or operation of existing or new systems or the
training of personnel could adversely affect the our ability to manage growth.

RISKY NATURE OF SECURITIES BUSINESS

         Our business is concentrated in the securities industry which is
subject to numerous and substantial risks, particularly in volatile or illiquid
markets and in markets influenced by sustained periods of low or negative
economic growth. Such risks include the risk of losses resulting from:

o        underwriting or ownership of securities
o        trading and principal activities
o        counterparty failure to meet commitments
o        customer fraud
o        employee errors
o        misconduct and fraud (including unauthorized transactions by traders)
o        failures in connection with the processing of securities transactions


                                       10


<PAGE>


In addition, our revenue may decline in periods of reduced demand for public
offerings or reduced activity in the secondary markets and when there is reduced
spreads on the trading of securities.

RISKS OF MAKING A MARKET IN THINLY-TRADED ISSUES

         A key element of our strategy is to make a market in selected
securities of small capitalization, emerging U.S. companies. We currently make a
market in the securities of 5 small capitalization companies and we are
currently in the process of obtaining approval to make a market in up to 100
small capitalization securities. Market-making activities typically require us
to maintain an inventory of the securities in which we make a market. Our
inventory is subject to the same risks as those faced by investors in such
securities and, since we make a market in securities of small capitalization
companies, our risk is typically greater than that customarily associated with
investments in securities of larger, more established companies. Small emerging
companies may be subject to greater earnings fluctuation, lack of established
markets for products or services, more limited financial resources and less
depth of experienced management. Securities of small emerging companies
generally have more limited marketability and may be subject to greater price
volatility than securities of larger companies. They may be dependent for
management on one or a few key persons, and can be more susceptible to losses
and risks of bankruptcy.

         The companies in which we make a market are traded on the Nasdaq
SmallCap Market, and, in the future, may be on the OTC Bulletin Board or the
Pink Sheets, where the trading market is thinner and the spread between bid and
offer prices is often larger than on the major exchanges or Nasdaq National
Market. The nature of these trading markets subjects us to the risk that should
the need arise to liquidate our inventories in such securities, our activities
could adversely affect the market price of such securities, resulting in a
requirement that we sell our inventory below the price that we deem to be
representative of their value. As of December 31, 1998, our inventory of
market-making securities was $2,080,355. In 1998, we experienced a loss on
trading of $637,957.

HIGHLY COMPETITIVE INDUSTRY

         The investment banking and brokerage industry is extremely 
competitive. We encounter intense competition in all aspects of the 
securities business and compete directly with other securities firms, a 
significant number of which have greater capital, experience and resources 
than us. Competition also exists for experienced personnel including 
technical personnel and account executives. In addition to competition from 
firms currently in the securities business, recently there has been 
increasing competition from other sources, such as commercial banks and 
insurance companies offering financial services. See "Description of 
Business--Competition" for more information about the nature and extent of 
the competition we face.

UNPROVEN NATURE OF DOMESTIC EMERGING MARKET STRATEGY

         Our business plan emphasizes the DEM strategy which targets U.S. 
companies controlled by African-Americans, Asian-Americans, 
Hispanic-Americans and women as candidates for investment banking services. 
See "Description of Business--Strategy" for a discussion of the DEM strategy.

                                       11


<PAGE>


We will seek to expand our investment banking business through the
implementation of its DEM strategy, by:

--       earning fees from the distribution of DEM products such as investment
         companies with DEM-driven portfolios

--       providing financial advisory and investment banking services to DEM 
         companies

--       making markets in the securities of DEM companies

         Although we have identified approximately 180 publicly-traded companies
with DEM characteristics, there can be no assurance that companies meeting the
DEM profile will select us for investment banking or other services.

         We have had limited corporate finance experience in a management role.
Therefore our ability to provide DEM companies with investment banking services,
such as management of underwriting syndicates, will require adding personnel
with investment banking expertise and development of a track record in the
management of underwriting syndicates. There can be no assurance that we will be
able to attract, hire and retain such personnel.

         Furthermore, because a substantial number of companies meeting the DEM
profile are expected to trade in the over-the-counter markets, the formation of
underwriting syndicates for and the distribution of securities of such companies
as well as making markets in the stocks of such companies may be more difficult
than for companies having larger capitalizations and greater market liquidity.

ONGOING EXPANSION OF OPERATIONS

         We have increased our net capital in order to participate in corporate
and government finance transactions. There can be no assurance that we will
continue to be invited to participate in such transactions or that the number of
such transactions in which we are invited to participate will grow.

         In an effort to obtain new government finance business, we have opened
offices in those states with the most tax-exempt bond offerings. The addition of
personnel to staff such offices together with corporate finance staff added to
implement the DEM strategy has significantly increased our operating expenses.
There can be no assurance that we will be able to increase our revenue in an
amount sufficient to offset such increased expenses.

DEPENDENCE ON KEY PERSONNEL

         For the foreseeable future, we will place substantial reliance upon the
personal efforts and abilities of Nathan A. Chapman, Jr., our President, who
will not devote his full time to our activities. The loss of the services of Mr.
Chapman may have a material adverse effect on our business, operations, revenue
and/or business prospects. We maintain key man life insurance on Mr. Chapman in
the amount of $11 million.


                                       12


<PAGE>


CERTAIN TRANSACTIONS; RELATIONSHIPS WITH OTHER CHAPMAN ENTITIES;
CONFLICTS OF INTEREST

         Mr. Chapman, our majority stockholder, is also the majority stockholder
of the parent companies of Chapman Capital Management, Inc. ("CCM") and The
Chapman Insurance Agency, Inc. Several of our executive officers, including Mr.
Chapman are also executive officers of such companies and The Chapman Funds,
Inc., a CCM-sponsored and - managed registered investment company that includes
multiple investment portfolios including The Chapman US Treasury Money Fund, DEM
Equity Fund and DEM Index Fund. The common management and/or ownership among the
Company and these other companies may involve potential conflicts of interest
with respect to the terms of business transactions, the allocation of shared
expenses and the allocation of business opportunities between the Company and
such other companies. See "Certain Transactions."

         Further, because our key executives are also senior executives of other
companies, our management will not be able to devote all of its time to our
business affairs. Although there is no written agreement, we expect that Mr.
Chapman will devote no less than 33% of his time to our operations and entities
that he serves at the our request. All business transactions and allocations of
overhead between us and such other companies is approved by at least a majority
of the independent, outside members of the Board of Directors. Furthermore, the
compensation of our President will be approved by the Compensation Committee of
the Board of Directors, a majority of the members of which are independent,
outside directors.

EFFECT ON MARKET PRICE OF SHARES ELIGIBLE FOR FUTURE SALE/CONTROL BY PRINCIPAL
STOCKHOLDER

         Nathan A. Chapman, Jr. holds 61.9% of the shares of our outstanding
Common Stock. All of the shares held by Mr. Chapman are currently available for
resale in the public market under Rule 144, promulgated pursuant to the
Securities Act. As of February 28, 1998, an additional 118,047 shares, or
approximately 4% of the outstanding Common Stock, where held in inventory by our
subsidiary, The Chapman Co., in its capacity as market-maker for the Common
Stock. All of the shares held by The Chapman Co. are available for immediate
resale. Sales of a significant number of shares of Common Stock in the public
market could have a material adverse effect on the market price of the Common
Stock. Because Mr. Chapman controls a majority of the outstanding shares of
Common Stock, he controls the outcome of all matters submitted to the
stockholders for approval, including the election of all members of the Board of
Directors. See "Principal Stockholders" for a table showing the amount of shares
owned by Mr. Chapman and other stockholders.

SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

         Our revenue and operating results may fluctuate from quarter to quarter
and from year to year due to a combination of factors, including:

--       the number of underwriting transactions in which we participate

--       access to public markets for companies in which we have invested as a
         principal


                                       13


<PAGE>


--       the valuations of our principal investments

--       the level of institutional and retail brokerage transactions,

--       variations in expenditures for personnel, litigation expenses and
         expenses of establishing new business units

Our revenue from an underwriting transaction is recorded only when the
underwritten security commences trading. Therefore, the timing of our
recognition of revenue from a significant transaction can materially affect our
quarterly operating results. In addition, we could experience losses if demand
for these transactions declines more quickly than our ability to change our cost
structure.

REGULATORY RISKS

         Our business, and the securities industry generally, are subject to
extensive regulation at both the federal and state levels. In addition,
self-regulatory organizations, such as the NASD, require strict compliance with
their rules and regulations. Among other things, these regulatory authorities
impose restrictions on sales methods, trading practices, use and safekeeping of
customer funds and securities, record keeping and the conduct of principals and
employees.

         The purpose of the extensive regulation of broker-dealers is to protect
customers and the integrity of the securities markets. However, this regulation
imposes significant compliance requirements on us. Failure to comply with any of
the laws, rules or regulations of any independent, state or federal regulatory
authority could result in a fine, injunction, suspension or expulsion from the
industry, which could have a material adverse effect on our business. Although
we have implemented procedures designed to achieve compliance with such laws,
rules and regulations, there can be no assurance that such compliance procedures
will prevent violations. Furthermore, amendments to existing statutes and
regulations or the adoption of new statutes and regulations could require us to
alter our methods of operation at costs which could be substantial.

NET CAPITAL REQUIREMENTS

         The Commission and the NASD have stringent provisions with respect to
net capital requirements of securities firms. A significant operating loss or
any charge against the net capital of our brokerage subsidiary, The Chapman Co.,
could adversely affect its ability to operate, expand or, depending upon the
magnitude of the loss or charge, maintain its present level of business. These
rules could also restrict our ability to withdraw capital from The Chapman Co.,
even in circumstances where The Chapman Co. has more than the minimum amount of
required capital, which could limit our ability to implement our strategies.


                                       14


<PAGE>


EFFECT ON COMMON STOCK TRADING OF LIMITATIONS ON MARKET-MAKING ACTIVITIES

         Because our brokerage subsidiary, The Chapman Co., makes a market in
the Common Stock, we are subject to Commission and NASD regulations that require
The Chapman Co. to deliver a current market-making prospectus to purchasers when
engaging in market-making transactions in the Common Stock. A "market-making"
prospectus is a continuously updated prospectus that is part of an effective
registration statement filed with the Commission that must be delivered to
purchasers of securities from the issuer of such securities or a broker-dealer
affiliate of such issuer in market-making transactions. Therefore, in the
absence of a current market-making prospectus, The Chapman Co. will not be able
to engage in market-making activities relating to the Common Stock. The costs of
maintaining a current prospectus and the prospectus delivery requirements can
increase the cost of making a market in securities to both the issuer and the
broker-dealer.

         We believe that there will be sufficient market-makers for the 
Common Stock to maintain its Nasdaq SmallCap Market quotation. However, no 
firms are under any obligation to make a market in the Common Stock and any 
firm which commences market-making activities may cease such activities at 
any time. Further, other rules, including those relating to the use of 
"insider information," may prevent our registered representatives from 
recommending the Common Stock to their customers. To the extent that The 
Chapman Co. is unable to make a market in, or make recommendations regarding, 
the Common Stock, your ability to sell the Common Stock in the secondary 
market may be limited, our Nasdaq SmallCap Market quotation may be threatened 
and the price of the Common Stock may be adversely affected.

CREDIT RISKS

         We clear all transactions for our brokerage customers on a fully
disclosed basis with our clearing agent, which carries and clears all customer
securities accounts. The clearing agent also lends funds to our brokerage
customers through the use of margin credit. These loans are made to customers on
a secured basis, with the clearing agent maintaining collateral in the form of
salable securities, cash or cash equivalents. Pursuant to the terms of our
agreement with the clearing agent, in the event our customers fail to pay for
their purchases, to supply the securities that they have sold, or to repay funds
they have borrowed, and the clearing agent satisfies any customer obligations,
we would be obligated to indemnify the clearing agent for any resulting losses.

YEAR 2000 SOFTWARE ISSUE

         As the year 2000 approaches, an issue has emerged regarding how
existing application software programs and operating systems can accommodate
information that employs dates after December 31, 1999. We are working with our
software vendors to prepare our systems for the year 2000. Based on information
currently available, we do not anticipate that we will incur significant
operating expenses or be required to incur material costs to be year 2000
compliant. We are, however, still analyzing and modifying our systems and
requirements. In addition, we have relationships with third parties that have
computer systems that may not be year 2000 compliant. To the extent that their
systems are not fully year 2000 compliant, we can not be sure that potential
systems interruptions or the cost necessary to update software would not have a
material adverse effect on our business, financial condition, results of
operations, or business prospects. See


                                       15


<PAGE>


"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Software Issue."

LEGAL PROCEEDINGS AND ARBITRATION RISKS

         Many aspects of our business involve substantial risks of liability and
regulatory enforcement by state and federal regulators. Additionally, in recent
years, there has been increased litigation involving participants in the
securities industry. Underwriters and agents are subject to substantial
potential liability for material misstatements and omissions in prospectuses and
other communications with respect to underwritten offerings of securities.
Claims by dissatisfied customers for fraud, unauthorized trading, churning,
mismanagement and breach of fiduciary duty are regularly made against
broker-dealers. Customer claims may be made in arbitration proceedings, which
claims could result in awards of compensatory and/or punitive damages against
us.

CURRENT AND POTENTIAL REFORMS IN THE NASDAQ STOCK MARKET

         The Nasdaq Stock Market has come under intense scrutiny in the media
and Congress during the past few years and has been the subject of Commission
investigations into its operations. Concerns have been raised with respect to
the size of the spreads between the price paid by investors purchasing
Nasdaq-quoted securities and the dealers who process the transactions. Concerns
also have been raised with respect to whether Nasdaq's listing requirements are
sufficiently stringent and whether the NASD, the trade organization controlling
the Nasdaq market, carefully polices Nasdaq-quoted companies. In response, the
NASD has begun to boost its internal compliance and monitoring programs,
including establishing a separate regulatory unit, National Association of
Securities Dealers Regulation, Inc. ("NASDR"). NASDR has taken numerous steps to
better monitor trading activities among dealers and to scrutinize companies'
compliance with applicable standards for quotation, and has heightened its
overall monitoring of small capitalization companies.

         The effects of current and proposed Nasdaq reform on the operations of
brokerage firms, especially those specializing in the securities of small
capitalization companies, like us, cannot be fully anticipated. The cost of
compliance with any new rules, regulations and procedures instituted by the
NASDR could be significant. Additionally, the implementation of stricter
standards for initial and continued inclusion of companies on Nasdaq could
adversely affect the prospects of small capitalization companies, the stock
performance of such companies, and the liquidity of investors' investments in
such companies. Increased compliance costs or the inability to attain or
maintain the quotation of underwriting clients on the Nasdaq system could
adversely affect our financial performance.

NO DIVIDENDS

         We have not paid any cash dividends on the Common Stock and we do 
not expect to declare or pay any cash dividends in the foreseeable future. We 
intend to retain any earnings for the foreseeable future for our continued 
growth. Moreover, our ability to pay dividends in the future may be 
restricted by our obligation to comply with the net capital rules applicable 
to broker-dealers. See "Description of Business--Government Regulation--Net 
Capital Requirements" for a discussion of the net capital rules.

                                       16


<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

         Information required by Item 6 is incorporated by reference from the
information set forth under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the selected portions of the
1998 Annual Report filed as Exhibit 13.01 to this Form 10-KSB.

ITEM 7.  FINANCIAL STATEMENTS

         Information required by Item 7 is incorporated by reference from the
information set forth under the heading "Financial Statements" in the selected
portions of the 1998 Annual Report filed as Exhibit 13.01 to this Form 10-KSB.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

         None.


                                    PART III


ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         The information regarding directors and executive officers required by
Item 9 is incorporated by reference from the information set forth under the
heading "Proposal 1--Election of Directors--Directors and Executive Officers"
and "--Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive proxy statement for its annual meeting of stockholders to be held on
May 25, 1999.

ITEM 10. EXECUTIVE COMPENSATION

         The information required by Item 10 is incorporated by reference from
the information set forth under the heading "Executive Compensation" in the
Company's definitive proxy statement for its annual meeting of stockholders to
be held of May 25, 1999.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT


                                       17


<PAGE>


         The information required by Item 11 is incorporated by reference from
the information set forth under the heading "Principal Stockholders" in the
Company's definitive proxy statement for its annual meeting of stockholders to
be held on May 25, 1999.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by Item 12 is incorporated by reference from
the information set forth under the heading "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for its annual meeting
of stockholders to be held on May 25, 1999.

ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K

(a)      Exhibits

<TABLE>
<CAPTION>

EXHIBIT
 NO.                              DESCRIPTION
-------                           -----------

<S>      <C>
1.1      Underwriting Agreement between the Company and The Chapman Co.(2)

1.2      Qualified Independent Underwriter Agreement between the Company and
         Ferris Baker Watts, Incorporated.(2)

1.3      Escrow Agreement between the Company and UMB Bank, N.A.(2)

3.1      Articles of Incorporation of the Company.(1)

3.2      By-laws of the Company.(4)

4        Form of Common Stock Certificate.(1)

10.1     $106,922.68 Promissory Note to The Chapman Co. from Nathan A. Chapman,
         Jr. dated December 31, 1996.(1)

10.2     Chapman Holdings, Inc. 1998 Omnibus Stock Plan.(1)

10.3     Fully Disclosed Clearing Agreement between RPR Clearing Services and
         The Chapman Co. dated April 1, 1993, as amended June 16, 1993 and
         February 4, 1997.(1)

10.4     [Reserved]

10.5     Placement Agency Agreement between DEM, Inc. and The Chapman Co. dated
         May 30, 1997(1)

10.6     Distribution Agreement between The Chapman Co. and The Chapman Funds,
         Inc. on behalf of The Chapman U.S. Treasury Money Fund and The Chapman
         Institutional Cash Management Fund dated April 30, 1997.(1)
</TABLE>


                                       18


<PAGE>

<TABLE>

<S>      <C>
10.7     Distribution Agreement between The Chapman Co. and The Chapman Funds,
         Inc. on behalf of the DEM Equity Fund dated October 28, 1997.(1)

10.8     Equipment Lease Agreement between The Chapman Co. and Chapman Limited
         Partnership I dated October 1, 1993.(1)

10.9     Trademark Assignment from The Chapman Co. to Nathan A. Chapman, Jr.
         dated December 24, 1997.(1)

10.10    Trademark Assignment from The Chapman Co. to Nathan A. Chapman, Jr.
         dated December 24, 1997.(1)

10.11    License Agreement between The Chapman Co. and Nathan A. Chapman, Jr.
         dated December 26, 1997.(1)

10.12    $763,367 Promissory Note to The Chapman Co. from Chapman Capital
         Management, Inc. dated December 28, 1997.(2)

10.13    Lock-up Agreement between the Company and Nathan A. Chapman, Jr. dated
         December 28, 1997.(2)

10.14    $176,250 Promissory Note to The Chapman Co. from Nathan A. Chapman, Jr.
         dated February 11, 1998.(2)

10.15    $285,587 Promissory Note to the Company from Nathan A. Chapman, Jr.
         dated March 11, 1998.(3)

10.16    $100,000 Promissory Note to The Chapman Co. from Nathan A. Chapman, Jr.
         dated May 1, 1998.(3)

10.17    $51,690 Promissory Note to the Company from Nathan A. Chapman, Jr.
         dated December 31, 1998.(4)

23.1     Consent of Arthur Andersen LLP(5)

21       Subsidiaries of the Company.(4)

24       Power of Attorney.(5)

27       Financial Data Schedule(5)
</TABLE>

(1) Incorporated by reference to the Company's Registration Statement on Form 
SB-2 (File No. 333-43487) as filed with the Securities and Exchange 
Commission on December 30, 1997.

(2) Incorporated by reference to Pre-Effective Amendment 1 to the Company's 
Registration Statement on Form SB-2 (File No. 333-43487) as filed with the 
Securities and Exchange Commission on February 17, 1998.

                                       19


<PAGE>


(3) Incorporated by reference to the Company's Quarterly Report on Form 
10-QSB (File No. 0-23587) as filed with the Securities and Exchange 
Commission on November 16, 1998.

(4) Incorporated by reference to Post-Effective Amendment 2 to the Company's 
Registration Statement on Form SB-2 (File No. 333-48419) as filed with the 
Securities and Exchange Commission on March 19, 1999.

(5) Filed herewith.

(b)      Reports on Form 8-K:

         The Company has filed no reports on Form 8-K during the Fourth Quarter
of 1998.


                                       20


<PAGE>


                                   SIGNATURES

In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                      CHAPMAN HOLDINGS, INC.



Dated:   March 30,1999                /S/ NATHAN A. CHAPMAN, JR.
                                          -------------------------------
                                          Nathan A. Chapman
                                          Chairman of the Board of Directors,
                                          President and Chief Executive Officer

In accordance with the requirements of the Exchange Act, this report is signed
below by the following persons on behalf of the Registrant in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>

SIGNATURES                               TITLE AND CAPACITY                 DATE
----------                               ------------------                 ----
<S>                                     <C>                                <C> 
/S/ NATHAN A. CHAPMAN, JR.               President and Director            March 30, 1999
-------------------------------          (Principal Executive Officer)     
Nathan A. Chapman, Jr.                  

                                         Treasurer and Controller          March 30, 1999
/S/ M. LYNN BALLARD                      (Principal Financial
------------------------------           Officer andP rincipal
M. Lynn Ballard                          Accounting Officer)

The Entire Board of Directors

  Nathan A. Chapman, Jr.
  Donald V. Watkins
  Earl U. Bravo, Sr.
  Lottie Shackelford

By: /S/ NATHAN A. CHAPMAN, JR.                                              March 30,1999
    ---------------------------
     Nathan A. Chapman, Jr.
     Attorney-in-Fact
</TABLE>



<PAGE>



                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

    EXHIBIT NO.                                       DESCRIPTION                                  PAGE NO.
    ----------                                        -----------                                  --------
       <S>                               <C>                                                        <C>
       13.1                              Certain information from Registrant's
                                         Annual Report to Stockholders for the
                                         year ended December 31, 1998 which is
                                           incorporated by reference in this
                                                       Form 10-KSB.

       23.1                                  Consent of Arthur Andersen LLP

        24                                         Power of Attorney

        27                                      Financial Data Schedule
</TABLE>