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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 MARCH 31, 2003
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number: 0-20999
CHADMOORE WIRELESS GROUP, INC.
-------------------------------
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1058165
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2458 E. RUSSELL ROAD, SUITE B, LAS VEGAS, NV 89120
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (702) 740-5633
-------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required by Section
12, 13 or 15(d) of the Exchange Act after the distribution of securities under a
plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
1
AS OF MAY 12, 2003 ISSUER HAD 47,736,006 SHARES OF COMMON STOCK, $.001 PAR
VALUE, OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes [ ] No [X]
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2
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INDEX
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statement of Net Assets in Liquidation
as of March 31, 2003 and December 31, 2002 4
Consolidated Statement of Changes in Net Assets in
Liquidation for the Three Months Ended March 31,
2003 and the period January 29, 2002 through March
31, 2002 5
Consolidated Statements of Operations (Going Concern
Basis) for the 28 Days Ended January 28, 2002 6
Consolidated Statements of Cash Flows for the 28
Days Ended January 28, 2002 7
Condensed Notes to Unaudited Interim Consolidated
Financial Statements 8-14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PLAN OF LIQUIDATION 14-16
ITEM 3. CONTROLS AND PROCEDURES 16
PART II - OTHER INFORMATION 17
ITEM 1. LEGAL PROCEEDINGS 17-19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 20
ITEM 6. -EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 21
CERTIFICATIONS 22
3
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Net Assets in Liquidation
as of March 31, 2003 and December 31, 2002
(amounts in thousands)
March 31, Dec. 31,
2003 2002
(unaudited)
---------- ----------
ESTIMATED VALUES OF ASSETS OF THE COMPANY
Assets held for sale $ 276 $ 298
Cash and cash equivalents 27,106 32,695
Accounts receivable, net 293 280
Other receivables, net 943 943
Other assets, net 538 633
Estimated value of partnership interests 250 250
Estimated future interest income 967 1,063
---------- ----------
Total estimated assets 30,373 36,162
---------- ----------
ESTIMATED LIABILITIES OF THE COMPANY
Notes payable 5,578 5,702
Accounts payable and accrued liabilities 844 1,100
Federal income taxes payable 1,826 1,826
---------- ----------
Total estimated liabilities 8,248 8,628
---------- ----------
ESTIMATED FUTURE OPERATING COSTS and
SETTLEMENT RESERVES DURING LIQUIDATION
PERIOD 12,218 13,305
---------- ----------
Net assets in liquidation $ 9,907 $ 14,229
========== ==========
See accompanying condensed notes to unaudited interim consolidated financial
statements.
4
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statement of Changes in Net Assets in Liquidation
For the Three Months Ended March 31, 2003 and the
Period January 29, 2002 through March 31, 2002
(amounts in thousands)
The Period
Three Months January 29, 2002
Ended through
March 31, 2003 March 31, 2002
-------------- --------------
Accumulated deficit, January 28, 2002 (20,034)
Adjust assets and liabilities to estimated fair value 56,995
--------------
Estimated net assets in liquidation as of
December 31, 2002 and January 28, 2002, respectively $ 14,229 36,961
Net (loss) from operations during liquidation (46) (800)
Adjustment for minority interests 7 (455)
Adjustment for net exercise of REI warrants -- 58
Change in estimate of:
Future operating costs during liquidation period (51) --
Value of assets held for sale (13)
Cash distrbution to shareholders (4,219) --
-------------- --------------
Net Assets in Liquidation 9,907 35,764
============== ==============
See accompanying condensed notes to unaudited interim consolidated financial
statements.
5
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations (Going Concern Basis)
For the 28 Days Ended January 28, 2002
(amounts in thousands, except share and per share data)
For the
28 Days
Ended
Jan. 28, 2002
-------------
Revenues:
Service revenue $ 324
Equipment sales and maintenance 8
-------------
Total revenues
332
-------------
Cost of sales:
Cost of service revenue
182
Cost of equipment sales and maintenance
8
-------------
Total cost of sales 190
-------------
Gross margin 142
-------------
Operating expenses:
Selling, general and administrative 608
Depreciation and amortization
214
-------------
Total operating expenses 822
-------------
Loss from operations (680)
-------------
Other income (expense):
Minority interest in earnings (14)
Interest income (expense), net (444)
Gain on sale of licenses and equipment
and other (97)
-------------
(555)
-------------
Net (loss) (1,235)
Redeemable preferred stock dividend and accretion (76)
-------------
Loss applicable to common shareholders $ (1,311)
=============
Basic and Diluted
Loss per share of Common Stock $ (.02)
=============
Basic and diluted weighted average shares outstanding 54,663,127
=============
See accompanying condensed notes to unaudited interim consolidated financial
statements.
6
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the 28 Days Ended January 28, 2002 (Going Concern Basis)
(amounts in thousands)
28 Days Ended
January 28,
2002
--------------
Cash flows from operating activities:
Net (loss) $ (1,235)
Adjustments to reconcile (net loss) to net cash (used in)
operating activities:
Minority interest 14
Depreciation and amortization 102
Amortization of debt discount and issuance cost 97
Change in operating assets and liabilities:
Decrease in accounts receivable
and other receivables 36
Decrease in inventory 8
Decrease in deposits and prepaids 6
(Decrease) in unearned revenues (27)
Increase (decrease) in accounts payable and
accrued liabilities (113)
--------------
Net cash (used in) operating activities (1,112)
--------------
Cash flows from investing activities:
Purchase of license options (31)
Proceeds from sale of licenses and equipment 363
--------------
Net cash provided by (used in) investing activities 332
--------------
Cash flows from financing activities:
Payments of long-term debt (191)
Proceeds from issuance of long-term debt 972
--------------
Net cash provided by financing activities 781
--------------
Net increase in cash 1
Cash at beginning of period 118
--------------
Cash at end of period $ 119
==============
See accompanying condensed notes to unaudited interim consolidated financial
statements.
7
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
NOTE 1 - BASIS OF PRESENTATION
Chadmoore Wireless Group, Inc. ("Chadmoore") was a holder of frequencies in the
United States in the 800 megahertz band for commercial specialized mobile radio
service.
On January 28, 2002, holders of Chadmoore common stock approved the asset sale
to Nextel, the dissolution of Chadmoore and a Plan of Liquidation (the "Plan").
On February 22, 2002, Chadmoore filed its Articles of Dissolution, closed its
stock transfer record book, de-listed its shares from the over-the-counter
bulletin board and began an orderly wind-up of its business operations. The key
features of the Plan are (1) the conclusion of all business activities, other
than those related to the execution of the Plan; (2) the sale or disposal of all
of Chadmoore's non-cash assets; (3) the establishment of reasonable reserves to
be sufficient to satisfy the liabilities, expenses and obligations of Chadmoore
not otherwise paid, provided for or discharged; (4) the periodic payment of per
share liquidating distributions to shareholders; and (5) the authorization of
the filing of a Certificate of Dissolution with the State of Colorado.
Chadmoore adopted the liquidation basis of accounting effective January 29,
2002, whereby assets are recorded at their estimated net realizable values,
liabilities are recorded at their estimated settlement amounts and a reserve has
been provided for potential claims. The valuation of assets and liabilities
requires many estimates and assumptions by management and actual values may vary
greatly from estimates. The amount and timing of future liquidating
distributions will depend upon a variety of factors including, but not limited
to, the ultimate settlement amounts of Chadmoore's liabilities and obligations,
actual costs incurred in connection with carrying out the Plan including
administrative costs during the liquidation period, and the time frame it takes
to complete the liquidation.
The accompanying financial statements, notes and discussions should be read in
conjunction with the consolidated financial statements, related notes and
discussions contained in Chadmoore's annual report on Form 10-KSB for the year
ended December 31, 2002.
The interim financial information contained herein is unaudited; however, in the
opinion of management, all adjustments necessary for the fair presentation of
such financial information on a liquidation basis have been included.
NOTE 2 - LIQUIDATION PLAN CHARGES, NET
Immediately following the sale of substantially all of its assets on February 8,
2002, Chadmoore began an orderly wind-down of its operations. The conversion
from the going concern to liquidation basis of accounting has required
management to make significant estimates and judgments. In order to record
assets at estimated net realizable value and liabilities at estimated
8
settlement amounts under liquidation basis accounting, Chadmoore recorded the
following adjustments to record its assets and liabilities to fair value as of
January 29, 2002, the date of adoption of liquidation basis accounting (all
values in thousands).
Assets held for sale adjusted to estimated fair value $ 76,912
Estimated future interest income
1,719
Expected proceeds from sale of partnerships
net of minority interests
2,315
Adjust notes payable to expected payment amount
500
Accrual of cumulative preferred dividends
(574)
Estimated future operating costs and settlement
reserves during liquidation (23,877)
--------------
$ 56,995
==============
No adjustments have been recorded for future estimated operating results of the
remaining partner markets due to the inherent uncertainties. Actual operating
results are recorded as a change in net assets in liquidation when earned or
incurred. Based on these adjustments, net assets increased by $56,995.
The preparation of financial statements requires management to make certain
estimates and assumptions that affect the net realizability of assets and
estimated costs to be incurred during the liquidation period and disclosure of
contingent assets and liabilities at the date of the financial statements. These
estimates are imprecise and subject to change, among other things, the estimates
may be based on assumption about future conditions, transactions, or events
whose outcome is uncertain. It is likely, therefore, that the actual outcome and
settlement of assets and liabilities through completion of the Plan will differ
from management's estimates, and those differences may be significant.
NOTE 3 - ESTIMATED VALUES OF ASSETS OF THE COMPANY
The estimated assets of Chadmoore that are set forth in the March 31, 2003
"Consolidated Statement of Net Assets in Liquidation" have been presented on the
following basis:
(a) Assets held for sale represent estimated net sales proceeds less
the costs of disposal.
(b) Cash and cash equivalents are stated at fair value. Generally,
cash balances held in financial institutions may be in excess of
federally insured amounts.
(c) Estimated future interest income was estimated by management based
upon future expected cash flows.
(d) The estimated value of partnership interests represent the amount
of proceeds expected from the sale of the partnership interests.
(e) Other assets, net, represent primarily prepayments on future
operating costs and cash held in escrow. (f) Accounts and other
receivables, net, are carried at their expected collectible
amounts.
9
NOTE 4 - ESTIMATED LIABILITIES OF THE COMPANY
The estimated liabilities of Chadmoore that are set forth in the March 31, 2003
"Consolidated Statement of Net Assets in Liquidation" have been presented on the
following basis:
(a) Notes payable represent non-interest bearing amounts owed in
connection with license commissions, the purchase of assets and
the purchase of licenses from licensees.
(b) Accounts payable and accrued expenses include all amounts that
remain unpaid for liquidation activities and remaining partnership
operations.
(c) Accrued income taxes payable at March 31, 2003 were $1.8 million,
which relates to the expected tax obligation for calendar year
2002.
The amount and timing of future liquidating distributions will depend upon a
variety of factors including, but not limited to, the actual proceeds from the
realization of Chadmoore's assets, the ultimate settlement amounts of
Chadmoore's liabilities and obligations, actual costs incurred in connection
with carrying out the Plan, including salaries, administrative and operating
costs during the liquidation period, resolution of uncertainties and litigation,
and the timing of the liquidation and dissolution. A summary of significant
estimates and judgments utilized in preparation of the March 31, 2003
consolidated financial statements on a liquidation basis follows:
Estimated value of partnership interests and future interest income
At March 31, 2003, the estimated value of partnership interests and
future interest income represented about 12.3% of Chadmoore's estimated
net assets in liquidation. The estimated value of partnership interest,
$250,000, represents management's estimate of expected proceeds from
the sale of remaining partnership interests. The estimated future
interest income of $967,000 represents management's estimate of future
interest earnings based on current (1.27% annual rate at March 31,
2003) market rates of interest over the remaining liquidation period.
Estimated future operating costs and settlement reserves during the
liquidation period.
Chadmoore recorded amounts for estimated future operating costs during
liquidation and for settlement reserves on January 29, 2002, when the
Company adopted the liquidation basis of accounting. The table
presented in Note 5 summarizes the estimated amounts as of the date of
adoption of the liquidation basis of accounting and the actual costs
that have been incurred and paid during the period from January 29,
2002 through March 31, 2003.
Estimated note payable settlement amounts.
10
Long-term debt as of March 31, 2003 is recorded at their anticipated
settlement amounts. Certain disputes have arisen in connection with
some of the underlying notes and management is in the process of
negotiating settlement with the respective note holders.
NOTE 5 - ESTIMATED FUTURE OPERATING COSTS AND SETTLEMENT RESERVES
The Company recorded amounts for estimated future operating costs and settlement
reserves on January 29, 2002 when the Company adopted the liquidation basis. The
table presented below summarized the estimated future operating costs and
settlement reserves as of December 31, 2002, changes from initial estimates, and
the actual costs that have been incurred and paid during the period from
December 31, 2002 through March 31, 2003.
As of Change in Incurred As of
Dec. 31, 2002 Estimate and paid Mar. 31, 2003
-------------- --------- -------- --------------
Compensation for
liquidation personnel $ 1,800 $ -- $ (911) $ 889
Insurance, utilities and
facility expenses 429 -- (63) 366
Legal, audit and other
professional fees 798 51 (164) 685
General contingency
reserve 10,278 -- -- 10,278
------------- --------- -------- ------------
Total estimated future
operating costs and
settlement reserves $ 13,305 $ 51 $(1,138) $ 12,218
============= ========= ======== ============
In view of the expected duration of the liquidation period until February 22,
2007, and the requirement of Colorado law that Chadmoore maintain reserves
sufficient to allow for the payment of all its liabilities and obligations,
including all known and unknown contingent claims, Chadmoore established a
general contingency reserve upon the adoption of liquidation basis accounting on
January 29, 2002. The amount of the reserve initially established was $9.7
million and is $10.3 million at March 31, 2003.
The majority of this general reserve at March 31, 2003, $8.9 million, relates to
contingencies involving the resolution of various federal, state and local
taxation issues. Other matters covered by this reserve include existing
litigation and claims, settlement of existing liabilities, and a general reserve
for currently unidentified contingencies and unasserted claims. This reserve has
been established for matters for which there is insufficient information upon
which management can reasonably estimate a settlement amount, or where the
ultimate settlement amount will be based on future events which management
cannot reasonably predict at this time. The outcome of these contingencies may
involve litigation, the ultimate outcome of which cannot be determined at this
time. Accordingly, management has provided the reserve at the estimated maximum
possible settlement amount, however, the actual amount could be higher based on
the ultimate outcome of litigation matters which are subject to inherently
unpredictable risks and uncertainties.
11
As a result of the uncertainty regarding the estimates associated underlying the
general contingency reserve, it is likely that the actual outcome of the
resolutions of these contingencies will differ from management's estimates at
this time, and those differences may be significant. In addition, since the
resolution of these matters will inevitably involve procedural, and probably
judicial proceedings, it is likely that the resolution of the majority of these
contingencies will not occur in the near term. As more information becomes
available to management, and as future resolution events regarding these
contingencies occur, management will adjust the general contingency reserve
appropriately, if needed. See Note 6 - Commitments and Contingencies for further
discussion.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Pursuant to the FCC's jurisdiction over telecommunications activities, Chadmoore
remains involved in limited pending matters before the FCC, which may ultimately
affect Chadmoore's operations. More specifically, Chadmoore continues to hold a
minimal number of licenses for operation in the 800Mhz band; and, the Company is
continuing to take all actions before the FCC deemed necessary to ensure the
continuing validity of these licenses.
A complaint was filed by Third Mobile Limited, a Texas limited liability company
("Third Mobile") and shareholder of Chadmoore, naming Chadmoore as defendant, on
December 13, 2001 in the United States District Court for the District of
Nevada. The complaint was served on Chadmoore on January 31, 2002. The complaint
seeks monetary damages relating to certain oral misrepresentations Robert Moore
or other Chadmoore representatives allegedly made to Third Mobile around January
1995, that induced Third Mobile to invest $700,000 in Chadmoore Communications,
Inc. Based on written demands made by Third Mobile, Chadmoore believes that the
maximum amount claimed by Third Mobile is approximately $3.75 million. Chadmoore
believes the complaint is without substantive merit, and is also likely barred
by the applicable statute of limitations since it relates to events that
allegedly took place seven years ago in January and February of 1995. Chadmoore
has filed its first response in this matter with the District Court. Moreover,
initial discovery has commenced in this matter and on May 14, 2002, Chadmoore
caused outside counsel to file a Motion to Dismiss Third Mobile's complaint. In
the interim, and based on Third Mobile's attempts to initiate extended discovery
proceedings, Chadmoore has indicated its unwillingness to consent to a further
extension of the court ordered discovery period. Moreover, Chadmoore on March
14, 2003, filed a Motion for Summary Judgment as a supplement to its previously
filed Motion to Dismiss, the motion asserted that initial discovery further
revealed the frivolous nature of the suit, and subsequent dismissal of the
matter with an award of costs to Chadmoore. Subsequently, Third Mobile filed an
opposition to Chadmoore's motion and requested that the court impose an
extension of the discovery schedule to allow for additional depositions to be
taken. On April 4, 2003, the court dismissed Chadmoore's motion. Simultaneously,
the court also dismissed Third Mobile's motion for an extension of the discovery
period. Subsequently, the plaintiffs have continued efforts to produce joint a
joint pre-trial order proposal, but to date have not been able to reach
agreement on a
12
finalized draft. This item is now due at the court on or about May 21, 2003.
Accordingly, it is expected that the court will establish a trial calendar for
this matter in the late May to mid-June, 2003 timeframe. Management cannot
forecast the actual outcome of this matter, nor can it currently provide a
timetable for when it believes the matter will be concluded. Nevertheless, based
on management's review of the complaint, and recent discovery proceedings, the
Company believes it is more likely than not that no substantial adverse impact
on the Company will result.
In late September, 2002, Chadmoore received a letter from Cindy Ashcroft,
principal of Ashcroft ITV ("Ashcroft") seeking payment for licenses which
Ashcroft purports were transferred to Chadmoore. Ashcroft requested, through its
letter, a payment in excess of $4 million from Chadmoore for the subject
licenses, or alternatively a further explanation from the Company as to why such
a payment would not be forthcoming. Chadmoore has reviewed its files and
Chadmoore management, along with outside counsel, has analyzed the matter at
considerable length. Upon review of the evidence in the light most favorable to
Ashcroft, Chadmoore believes that it could potentially be liable to Ashcroft for
approximately $23,750 in license payments. On the other hand, the Company
believes it has a valid counterclaim for approximately $89,000 against Ashcroft
for interim management fees earned while the Company managed and operated
Ashcroft's licensed facilities in order to keep them in compliance with FCC
requirements. Thus, the Company recently so informed Ms. Ashcroft and has
suggested that a direct meeting between Company management and Ms. Ashcroft
and/or her representatives take place as promptly as practicable to resolve the
parties' starkly differing views of the matter. At this time, management has
received no reply from Ms. Ashcroft with respect to the Company's suggestion.
While Chadmoore cannot forecast the ultimate outcome of this matter, based on
management's review of the files and Ashcroft's request, as well as internal
conferences and conferences with outside counsel regarding this matter, the
Company believes that it is not probable a substantial adverse impact on the
Company will result.
Electronic Maintenance Company, Inc. ("EMCO"), on December 4, 2002, filed a
complaint in the 19th Judicial District Court of Louisiana against Chadmoore
Wireless Group, Inc. and PTT Baton Rouge, LLC, seeking unspecified damages for
what EMCO alleges was a breach of certain agreements which governed operation of
a radio system jointly owned by EMCO and Chadmoore operating in Baton Rouge,
Louisiana. EMCO also requested that the Court enjoin Chadmoore from further
shareholder distributions, absent a set-aside for this matter. While no specific
set-aside amount was specified by EMCO, in subsequent discussions with EMCO's
counsel it was suggested that a hold-back should be made in the amount of $1.5
million. Chadmoore was served with EMCO's complaint on December 9, 2002. Initial
attempts to obtain a realistic appraisal of EMCO's damage allegations and the
underlying basis for the filing of the complaint proved unfruitful and an
amicable resolution of the matter was not forthcoming. Accordingly on January 7,
2003, Chadmoore filed a Notice of Removal indicating there was diversity
jurisdiction and asked that jurisdiction be taken by the United States District
Court for the Middle District of Louisiana. Additionally, Chadmoore sought
dismissal of the EMCO case on the grounds that the subject agreements that
formed the basis of EMCO's complaint provided that disputes between the parties
would be taken to an arbitrator or a mediator with arbitration and/or mediation
taking place in Las Vegas, Nevada. Subsequently, EMCO filed its opposition to
Chadmoore's Motion to Dismiss and Chadmoore subsequently filed its Reply. In
March, 2003, EMCO filed a Motion
13
seeking to remand asking that jurisdiction of the case be returned to the 19th
Judicial District Court of Louisiana. Chadmoore has since filed its opposition
to the Motion to Remand. At this time, settlement discussions continue on a
sporadic basis with counsel for EMCO, but to date, no resolution of this matter
has been obtained. Management believes that a decision on the jurisdictional
issue may be forthcoming as early as the second quarter of 2003. However, at
this time Chadmoore is unable to predict, with any reasonable degree of
certainty, a timetable for the resolution of this matter; and because of the
apparent unwillingness of EMCO to stipulate with adequate specificity the basis
for its claims, or its view of the harm it believes it has incurred, management
is also unable to predict with any degree of accuracy the ultimate outcome of
this matter.
On March 13, 2003, American Tower Corporation submitted to Chadmoore a notice of
default under several license agreements which existed earlier between American
Tower and Chadmoore. American Tower sought immediate payment of an outstanding
balance of about $234,000. On March 19, 2003, Chadmoore formally responded to
American Tower's notice and indicated that Chadmoore believes it has no legal
duty to continue any payments to American on the basis of the agreements. Thus,
Chadmoore rejected American Tower's position and its demand. On March 20, 2003,
Chadmoore received confirmation from American Tower's legal department that
Chadmoore's response had been received. To date, nothing further has been
forthcoming from American Tower with respect to this matter.
Chadmoore may also be subject to various legal proceedings and claims that may
arise during liquidation. Chadmoore currently believes that any such proceedings
and potential claims will not have a material adverse impact on Chadmoore's
estimate of net assets in liquidation.
NOTE 7- RELATED PARTY TRANSACTIONS
On January 15, 2003, Chadmoore entered into a two-year sublease with a limited
liability company owned by Robert W. Moore, president and chief executive
officer. Under the term of the sublease, Chadmoore will co-use with two other
tenants approximately 2,290 total square feet of rentable floor area at a base
rent of $1,035 per month plus one third of utilities and other normal and
ordinary expenses. The two-year sublease expires January 14, 2005.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND STATUS
OF LIQUIDATION
Statements contained herein that are not historical facts are forward-looking
statements as that term is defined by the Private Securities Litigation Reform
Act of 1995. These statements contain words such as "intends", "plan", "future",
"will", "anticipates", and "believes" and include statements regarding
Chadmoore's dissolution and liquidation. Although Chadmoore believes that the
expectations reflected in such forward-looking statements are reasonable, the
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ from those projected. Chadmoore cautions
investors that any forward-looking statements made by Chadmoore are not
guarantees of future performance and that actual results may differ
14
materially from those in the forward-looking statements. See Chadmoore's annual
report on Form 10-KSB for the year ended December 31, 2002.
PLAN OF OPERATIONS FOR DISSOLUTION
Chadmoore is continuing to wind up its affairs as quickly and as efficiently as
possible in order to maximize the liquidating distributions to all shareholders.
The Company will try to minimize the length of time necessary to resolve or
satisfy its known liabilities while also minimizing the risks to shareholders by
conserving corporate assets.
Chadmoore is continuing in its efforts to liquidate its interest in the three
remaining partner markets in which it has an interest, and to settle all
remaining claims of Goodman/Chan licensees (about 500 license claims).
In order to reduce liquidation costs, Chadmoore's full-time staff has been
reduced to four remaining officers who will handle all remaining liquidation
issues. Under Colorado law, Chadmoore will remain in existence as a
non-operating entity for five years from February 22, 2002 and will maintain
liquid assets to cover any remaining liabilities and pay operating costs during
the dissolution period. During the dissolution period, Chadmoore will attempt to
convert its remaining assets to cash and settle its liabilities as expeditiously
as possible.
STATUS OF LIQUIDATION
On February 8, 2002, Chadmoore sold substantially all of its assets to Nextel
Communications, Inc. ("Nextel") for $130 million in cash resulting in a gain of
about $88 million, terminated its operations and began an orderly liquidation of
the Company, including laying off most of its employees. Chadmoore is in the
process of restating its first and second quarter 2002 financials to record the
adjustments required under generally accepted accounting principles to present
the financial statements on a liquidation basis, which reflects the carrying
amounts of assets and liabilities estimated to be incurred during Chadmoore's
liquidation period. As a result, the operations of Chadmoore are not comparable
to previously reported prior period activity.
LIQUIDITY AND CAPITAL RESOURCES
Chadmoore's primary objectives are to liquidate its assets in the shortest time
period possible while realizing the maximum values for such assets and to settle
all claims on terms most favorable to Chadmoore. The liquidation is expected to
be concluded prior to the fifth anniversary of the filing of the Certificate of
Dissolution in Colorado by a final liquidating distribution directly to
shareholders of record. The initial cash distribution under the Plan was made on
July 12, 2002 in the aggregate amount of $22.7 million, or about $.3323 per
equivalent share. On February 28, 2003, a second distribution of cash in the
aggregate amount of $4.2 million, or $.061967 per equivalent share, was
initiated. As of March 12, 2003, Chadmoore has distributed an aggregate of about
$27 million, or $.3943 per equivalent share. Remaining net assets available for
distribution to shareholders as of March 31, 2003 are currently estimated to be
about $9.9 million.
15
ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2003, none of Chadmoore's long-term debt bears interest. Cash is
maintained primarily in an uninsured money market account, which earns interest
at the current market rate.
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Chadmoore, under the supervision and with the participation of its management,
including its Chief Executive Officer and Chief Financial Officer, carried out
an evaluation of the effectiveness of the design and operation of Chadmoore's
disclosure controls and procedures as of March 31, 2003 (the "Evaluation Date").
Based upon this evaluation, the Chief Executive Officer and Chief Financial
Officer concluded as of the Evaluation Date that Chadmoore's disclosure controls
and procedures were effective for purposes of recording, processing, summarizing
and timely reporting material information required to be disclosed in reports
that it files under the Exchange Act.
CHANGES IN INTERNAL CONTROLS.
There were no significant changes in our internal controls and no other factors
that could significantly affect these controls subsequent to the evaluation
date. Chadmoore did not need to implement any corrective actions with regard to
any significant deficiency or material weakness in its internal controls.
16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Pursuant to the FCC's jurisdiction over telecommunications activities, Chadmoore
remains involved in limited pending matters before the FCC, which may ultimately
affect Chadmoore's operations. More specifically, Chadmoore continues to hold a
minimal number of licenses for operation in the 800Mhz band; and, the Company is
continuing to take all actions before the FCC deemed necessary to ensure the
continuing validity of these licenses.
A complaint was filed by Third Mobile Limited, a Texas limited liability company
("Third Mobile") and shareholder of Chadmoore, naming Chadmoore as defendant, on
December 13, 2001 in the United States District Court for the District of
Nevada. The complaint was served on Chadmoore on January 31, 2002. The complaint
seeks monetary damages relating to certain oral misrepresentations Robert Moore
or other Chadmoore representatives allegedly made to Third Mobile around January
1995, that induced Third Mobile to invest $700,000 in Chadmoore Communications,
Inc. Based on written demands made by Third Mobile, Chadmoore believes that the
maximum amount claimed by Third Mobile is approximately $3.75 million. Chadmoore
believes the complaint is without substantive merit, and is also likely barred
by the applicable statute of limitations since it relates to events that
allegedly took place seven years ago in January and February of 1995. Chadmoore
has filed its first response in this matter with the District Court. Moreover,
initial discovery has commenced in this matter and on May 14, 2002, Chadmoore
caused outside counsel to file a Motion to Dismiss Third Mobile's complaint. In
the interim, and based on Third Mobile's attempts to initiate extended discovery
proceedings, Chadmoore has indicated its unwillingness to consent to a further
extension of the court ordered discovery period. Moreover, Chadmoore on March
14, 2003, filed a Motion for Summary Judgment as a supplement to its previously
filed Motion to Dismiss, the motion asserted that initial discovery further
revealed the frivolous nature of the suit, and subsequent dismissal of the
matter with an award of costs to Chadmoore. Subsequently, Third Mobile filed an
opposition to Chadmoore's motion and requested that the court impose an
extension of the discovery schedule to allow for additional depositions to be
taken. On April 4, 2003, the court dismissed Chadmoore's motion. Simultaneously,
the court also dismissed Third Mobile's motion for an extension of the discovery
period. Subsequently, the plaintiffs have continued efforts to produce joint a
joint pre-trial order proposal, but to date have not been able to reach
agreement on a finalized draft. This item is now due at the court on or about
May 21, 2003. Accordingly, it is expected that the court will establish a trial
calendar for this matter in the late May to mid-June, 2003 timeframe. Management
cannot forecast the actual outcome of this matter, nor can it currently provide
a timetable for when it believes the matter will be concluded. Nevertheless,
based on management's review of the complaint, and recent discovery proceedings,
the Company believes it is more likely than not that no substantial adverse
impact on the Company will result.
In late September, 2002, Chadmoore received a letter from Cindy Ashcroft,
principal of Ashcroft ITV ("Ashcroft") seeking payment for licenses which
Ashcroft purports were transferred to Chadmoore. Ashcroft requested, through its
letter, a payment in excess of $4 million from Chadmoore for the subject
licenses, or alternatively a further explanation from the Company as
17
to why such a payment would not be forthcoming. Chadmoore has reviewed its files
and Chadmoore management, along with outside counsel, has analyzed the matter at
considerable length. Upon review of the evidence in the light most favorable to
Ashcroft, Chadmoore believes that it could potentially be liable to Ashcroft for
approximately $23,750 in license payments. On the other hand, the Company
believes it has a valid counterclaim for approximately $89,000 against Ashcroft
for interim management fees earned while the Company managed and operated
Ashcroft's licensed facilities in order to keep them in compliance with FCC
requirements. Thus, the Company recently so informed Ms. Ashcroft and has
suggested that a direct meeting between Company management and Ms. Ashcroft
and/or her representatives take place as promptly as practicable to resolve the
parties' starkly differing views of the matter. At this time, management has
received no reply from Ms. Ashcroft with respect to the Company's suggestion.
While Chadmoore cannot forecast the ultimate outcome of this matter, based on
management's review of the files and Ashcroft's request, as well as internal
conferences and conferences with outside counsel regarding this matter, the
Company believes that it is not probable a substantial adverse impact on the
Company will result.
Electronic Maintenance Company, Inc. ("EMCO"), on December 4, 2002, filed a
complaint in the 19th Judicial District Court of Louisiana against Chadmoore
Wireless Group, Inc. and PTT Baton Rouge, LLC, seeking unspecified damages for
what EMCO alleges was a breach of certain agreements which governed operation of
a radio system jointly owned by EMCO and Chadmoore operating in Baton Rouge,
Louisiana. EMCO also requested that the Court enjoin Chadmoore from further
shareholder distributions, absent a set-aside for this matter. While no specific
set-aside amount was specified by EMCO, in subsequent discussions with EMCO's
counsel it was suggested that a hold-back should be made in the amount of $1.5
million. Chadmoore was served with EMCO's complaint on December 9, 2002. Initial
attempts to obtain a realistic appraisal of EMCO's damage allegations and the
underlying basis for the filing of the complaint proved unfruitful and an
amicable resolution of the matter was not forthcoming. Accordingly on January 7,
2003, Chadmoore filed a Notice of Removal indicating there was diversity
jurisdiction and asked that jurisdiction be taken by the United States District
Court for the Middle District of Louisiana. Additionally, Chadmoore sought
dismissal of the EMCO case on the grounds that the subject agreements that
formed the basis of EMCO's complaint provided that disputes between the parties
would be taken to an arbitrator or a mediator with arbitration and/or mediation
taking place in Las Vegas, Nevada. Subsequently, EMCO filed its opposition to
Chadmoore's Motion to Dismiss and Chadmoore subsequently filed its Reply. In
March, 2003, EMCO filed a Motion seeking to remand asking that jurisdiction of
the case be returned to the 19th Judicial District Court of Louisiana. Chadmoore
has since filed its opposition to the Motion to Remand. At this time, settlement
discussions continue on a sporadic basis with counsel for EMCO, but to date, no
resolution of this matter has been obtained. Management believes that a decision
on the jurisdictional issue may be forthcoming as early as the second quarter of
2003. However, at this time Chadmoore is unable to predict, with any reasonable
degree of certainty, a timetable for the resolution of this matter; and because
of the apparent unwillingness of EMCO to stipulate with adequate specificity the
basis for its claims, or its view of the harm it believes it has incurred,
management is also unable to predict with any degree of accuracy the ultimate
outcome of this matter.
18
On March 13, 2003, American Tower Corporation submitted to Chadmoore a notice of
default under several license agreements which existed earlier between American
Tower and Chadmoore. American Tower sought immediate payment of an outstanding
balance of about $234,000. On March 19, 2003, Chadmoore formally responded to
American Tower's notice and indicated that Chadmoore believes it has no legal
duty to continue any payments to American Tower on the basis of the agreements.
Thus, Chadmoore rejected American Tower's position and its demand. On March 20,
2003, Chadmoore received confirmation from American Tower's legal department
that Chadmoore's response had been received. To date, nothing further has been
forthcoming from American Tower with respect to this matter.
Chadmoore may also be subject to various legal proceedings and claims that may
arise during liquidation. Chadmoore currently believes that any such proceedings
and potential claims will not have a material adverse impact on Chadmoore's
estimate of net assets in liquidation.
19
ITEM 2. CHANGES IN SECURITES AND USE OF PROCEEDS
In connection with the filing of its Articles of Dissolution on February 22,
2002, Chadmoore instructed its transfer agent to close Chadmoore's share
transfer records and to no longer recognize or record any transfers of shares of
Chadmoore's common stock. In addition, Chadmoore delisted its shares from the
NASDAQ Bulletin Board.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Additional Exhibit - Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
Current report on Form 8-K filed March 17, 2003, reporting Chadmoore's
second distribution of cash to shareholders of record in the aggregate
amount of $4,275,000.
20
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Chadmoore Wireless Group, Inc.
By: /s/ STEPHEN K. RADUSCH
-------------------------------------
Stephen K. Radusch
Chief Financial and Accounting Officer
Date: May 14, 2003
21
CERTIFICATIONS
Chief Executive Officer
Pursuant to the requirements of Rule 13a-14 of the Securities Exchange Act of
1934, as amended, Robert Moore provides the following certification. I, Robert
Moore, President and Chief Executive Officer certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Chadmoore
Wireless Group, Inc;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the issuer as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to them by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in the report their conclusions about the effectiveness of
the disclosure controls and procedures based on their evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the board or directors (or persons fulfilling the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record,
process, summarize and report financial data and have identified for
the issuer's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in the
report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of their most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
May 14, 2003
/s/ ROBERT W. MOORE
Robert W. Moore, Chief Executive Officer
22
CERTIFICATIONS
Chief Financial Officer
Pursuant to the requirements of Rule 13a-14 of the Securities Exchange Act of
1934, as amended, Stephen K. Radusch provides the following certification.
I, Stephen K. Radusch, Chief Financial Officer certify that:
7. I have reviewed this quarterly report on Form 10-QSB of Chadmoore
Wireless Group, Inc;
8. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
9. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the issuer as of, and for, the periods presented in this
quarterly report;
10. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to them by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in the report their conclusions about the effectiveness of
the disclosure controls and procedures based on their evaluation as of
the Evaluation Date;
11. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the board or directors (or persons fulfilling the
equivalent function):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record,
process, summarize and report financial data and have identified for
the issuer's auditors any material weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
12. The registrant's other certifying officers and I have indicated in the
report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of their most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
May 14, 2003
/s/ Stephen K. Radusch
Stephen K. Radusch, Chief Financial Officer
23