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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 SEPTEMBER 30, 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.
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(Exact name of small business issuer as specified in its charter)
COLORADO 84-1058165
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(State of other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
2458 EAST RUSSELL ROAD, SUITE B, LAS VEGAS, NEVADA 89120
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(Address of principal executive offices)
(702) 740-5633
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(Issuer's telephone number)
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(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 NOVEMBER 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 September 30, 2003 and December 31, 2002 4
Consolidated Statement of Changes in Net Assets in Liquidation for the Three and Nine months Ended 5
September 30, 2003 the three months ended September 30, 2002, and the period January 29, 2002 through
September 30, 2002
Consolidated Statements of Operations (Going Concern Basis) for the 28 Days Ended 6
January 28, 2002
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 September 30, 2003 and December 31, 2002
(amounts in thousands)
Sept. 30, Dec. 31,
2003 2002
(unaudited)
------------ -----------
ESTIMATED VALUES OF ASSETS OF THE COMPANY
Assets held for sale $ 250 $ 298
Cash and cash equivalents 25,460 32,695
Accounts receivable, net 335 280
Other receivables, net 935 943
Other assets, net 262 633
Estimated value of partnership interests 100 250
Estimated future interest income 749 1,063
------------ -----------
Total estimated assets 28,091 36,162
------------ -----------
ESTIMATED LIABILITIES OF THE COMPANY
Notes payable 3,565 5,702
Accounts payable and accrued liabilities 231 1,100
Federal and state income taxes payable 400 1,826
------------ -----------
Total estimated liabilities 4,196 8,628
------------ -----------
ESTIMATED FUTURE OPERATING COSTS and
SETTLEMENT RESERVES DURING LIQUIDATION
PERIOD 10,219 13,305
------------ -----------
Net assets in liquidation $ 13,676 $ 14,229
============ ===========
See accompanying condensed notes to unaudited interim consolidated financial
statements.
4
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Net Assets in Liquidation
(amounts in thousands)
For the nine months ended
and for the period
For the three months January 29, 2002 through
ended September 30, 2002
------------------------------- --------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2003 2002 2003 2002
--------------- --------------- ---------------- ---------------
Estimated net assets in liquidation
as of June 30, 2003 and 2002,
December 31, 2002 and January
28, 2002, respectively $ 10,002 $ 36,462 $ 14,229 $ 36,961
Net gain from operations during
Liquidation (112) 136 101 135
Settlement of litigation -- -- -- (264)
Adjustment for minority interests (13) (221) -- (428)
Adjustment for net exercise of
Warrants -- 2,942 -- 58
Change in Estimate of:
General contingency reserve (500) (1,000) 1,750 --
Future interest income 132 -- 70 --
Future operating costs during
liquidation period 7 -- (407) --
Proceeds from sale of
partnerships -- -- (150) --
Notes payable 1,187 -- 1,544 --
Federal and state taxes 2,973 -- 771 --
Value of assets held for sale -- -- (13) --
Cash distribution to shareholders -- (22,694) (4,219) --
--------------- --------------- ---------------- ---------------
Net Assets in Liquidation $ 13,676 $ 15,625 $ 13,676 $ 36,462
--------------- --------------- ---------------- ---------------
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)
28 Days
Ended
January 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)
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(555)
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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
Unaudited 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
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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
SEPTEMBER 30, 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 at 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 September 30, 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 September 30,
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 liabilities include all amounts that
remain unpaid for liquidation activities and remaining partnership
operations.
(c) Federal and state income taxes payable represent that portion of the
total estimated amount of federal income taxes that management believes
will be due when Chadmoore's amended federal income tax return for the
year ended December 31, 2002 is filed. Chadmoore, in conjunction with
its outside tax professionals, continually reviews its estimates of the
total federal and state income taxes, as well as those amounts that
will be due when such returns are filed. Due to the complexity of the
asset sale to Nextel in 2002, significant assumptions and analysis are
required to estimate the amounts ultimately due. During the quarter
ended September 30, 2003, Chadmoore completed and filed all state and
federal returns for the year ended December 31, 2002. Prior to filing
these returns, Chadmoore decreased the amount of estimated federal and
state income taxes reported in its general contingency reserve by $1.9
million. It has been determined, subsequently, that Chadmoore will file
an amended federal income tax return for December 31, 2002 and has
recorded a tax liability of $400,000. Because of the continuing
operating expenses involved in managing the plan of liquidation, and
expectations of limited gains from operations and interest income,
Chadmoore does not believe that there will be future federal income
taxes due beyond the year ended December 31, 2002, and believes that
the amount of future minimum state taxes due will not be significant.
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 September 30, 2003
consolidated financial statements on a liquidation basis follows:
10
Estimated value of partnership interests and future interest income
At September 30, 2003, the estimated value of partnership interests and
future interest income represented about 6.2% of Chadmoore's estimated
net assets in liquidation. The estimated value of partnership
interests, $100,000, represents management's estimate of expected
proceeds from the sale of remaining partnership interests. The
estimated future interest income of $749,000 on Chadmoore's cash
holdings represents management's estimate of future interest earnings
based on current (1.1% annual rate at October 1, 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 September 30, 2003.
Estimated notes payable settlement amounts.
Notes payable as of September 30, 2003 are 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.
During the three months ended September 30, 2003, the majority of these
disputes were resolved with the note holders, resulting in a decrease
in the estimate of the amounts needed to settle the notes of $4.2
million.
Periodic changes in estimated values of the assets of the Company are
reflected in the "Consolidated Statement of Changes in Net Assets in
Liquidation".
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 September 30, 2003 and the remaining reserve as of
September 30, 2003.
As of Change in Incurred As of
Dec. 31, 2002 Initial Estimate and paid Sept. 30, 2003
----------------- ----------------- ------------- --------------
Compensation for
liquidation personnel $ 1,800 $ 266 $ (1,236) $ 830
Insurance, utilities and
facility expenses 429 26 298
Legal, audit and other
professional fees 798 115 563
11
General contingency
reserve 10,278 (1,750) -- 8,528
----------------- ----------------- ------------- --------------
Total estimated future
operating costs and
settlement reserves $ 13,305 $ (1,343) $ (1,743) $ 10,219
================= ================= ============= ==============
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 $8.5 million at September 30, 2003.
The majority of this general reserve at September 30, 2003, $7.0 million,
relates to contingencies involving the resolution of various federal 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.
As a result of the uncertainty regarding the estimates associated with the
general contingency reserve, it is likely that the actual outcome of the
resolution 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.
12
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. In late 2001, the Company suggested to Ms. Ashcroft that a direct
meeting between the parties take place as promptly as practicable to resolve
this matter. At this time, management has received no reply from Ms. Ashcroft.
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 this matter will not have a substantial adverse impact on
the Company.
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 to Remand asking that jurisdiction of the case
be returned to the 19th Judicial District Court of Louisiana. Chadmoore timely
filed its Opposition to the Motion to Remand. In early July, 2003, the court
granted EMCO's motion and remanded the case back to the 19th Judicial Court of
Louisiana. Chadmoore timely filed a motion seeking reconsideration of the
remand; however, that motion was rejected in late July, 2003. In the interim, as
a result of a settlement conference held on August 13, 2003 and subsequent
negotiations, a tentative settlement has been reached. Though some of the
details are still being worked out, the basic agreement calls for EMCO to obtain
100% ownership of the jointly owned radio system and a payment of $175,000.
Consummation of the settlement should take place by year's end. Because
significant discovery
13
has not taken place, if this case does not settle, management is not yet able to
predict with any reasonable degree of accuracy the when or how this matter will
ultimately be resolved.
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 approximately $234,000.00. On March 19, 2003, Chadmoore formally
responded to American Tower's notice, rejecteded its demand, and indicated that
Chadmoore believes it has no legal duty to continue to make any payments to
American Tower on the basis of the agreements. Subsequently, on May 23, 2003,
American Tower filed suit in the Clark County Nevada District Court seeking
redress for its claims of breach of contract, without specifying the damages
sought. Chadmoore timely filed its answer on June 16, 2003 denying American
Tower's claims. The parties have exchanged pre-trial documentation and witness
lists for discovery purposes. Discovery is currently ongoing. A jury trial is
set for the week of April 5, 2004. Currently, management cannot forecast the
actual outcome of this item, nor can it provide a timetable for when this matter
will be concluded.
A complaint was filed by Third Mobile Limited, a Texas limited liability company
("Third Mobile") a shareholder of Chadmoore, naming Chadmoore as a defendant, on
December 13, 2001, in the United States District Court for the District of
Nevada. A status and settlement conference took place on July 28, 2003, and
during that conference the parties settled all claims related to this matter for
a one-time payment from Chadmoore of $25,000 and an exchange of full mutual
releases by the parties. The executed mutual releases were exchanged and the
settlement payment transferred on August 6, 2003.
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
14
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 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 to maximize the liquidating distributions to all shareholders.
Chadmoore's goal is 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
Chadmoore, 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 set these 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 to
shareholders 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,
Chadmoore made a second distribution of cash to shareholders in the aggregate
amount of $4.2 million, or $.0620 per equivalent share, was
15
initiated. As of November 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 September 30, 2003 are
currently estimated to be about $13.7 million.
ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 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 September 30, 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 changes in our internal control over financial reporting that
occurred during our quarter ended September 30, 2003 that has materially
affected or is reasonably likely to materially affect, our internal control over
financial reporting.
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.
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. In late 2001, the Company suggested to Ms. Ashcroft that a direct
meeting between the parties take place as promptly as practicable to resolve
this matter. At this time, management has received no reply from Ms. Ashcroft.
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 this matter will not have a substantial adverse impact on
the Company.
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
17
to Dismiss and Chadmoore subsequently filed its reply. In March, 2003, EMCO
filed a Motion to Remand asking that jurisdiction of the case be returned to the
19th Judicial District Court of Louisiana. Chadmoore timely filed its Opposition
to the Motion to Remand. In early July, 2003, the court granted EMCO's motion
and remanded the case back to the 19th Judicial Court of Louisiana. Chadmoore
timely filed a motion seeking reconsideration of the remand; however, that
motion was rejected in late July, 2003. In the interim, as a result of
settlement conference held on August 13, 2003 and subsequent negotiations, a
tentative settlement has been reached. Though some of the details are still
being worked out, the basic agreement calls for EMCO to obtain 100% ownership of
the jointly owned radio system and a payment of $175,000. Consummation of the
settlement should take place by year's end. Because significant discovery has
not taken place, if this case does not settle, management is not yet able to
predict with any reasonable degree of accuracy the when or how this matter will
ultimately be resolved.
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 approximately $234,000.00. On March 19, 2003, Chadmoore formally
responded to American Tower's notice, repeated its demand, and indicated that
Chadmoore believes it has no legal duty to continue to make any payments to
American Tower on the basis of the agreements. Subsequently, on May 23, 2003,
American Tower filed suit in the Clark County Nevada District Court seeking
redress for its claims of breach of contract, without specifying the damages
sought. Chadmoore timely filed its answer on June 16, 2003 denying American
Tower's claims. The parties have exchanged pre-trial documentation and witness
lists for discovery purposes. Discovery is currently ongoing. A jury trial is
set for the week of April 5, 2004. Currently, management cannot forecast the
actual outcome of this item, nor can it provide a timetable for when this matter
will be concluded.
A complaint was filed by Third Mobile Limited, a Texas limited liability company
("Third Mobile") a shareholder of Chadmoore, naming Chadmoore as a defendant, on
December 13, 2001, in the United States District Court for the District of
Nevada. A status and settlement conference took place on July 28, 2003, and
during that conference the parties settled all claims related to this matter for
a one-time payment from Chadmoore of $25,000 and an exchange of full mutual
releases by the parties. The executed mutual releases were exchanged and the
settlement payment transferred on August 6, 2003.
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.
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14a and 15d-14a.
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14a and 15d-14a.
32.0 Certification pursuant to Section 1350
(b) None
19
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 Officer
(Principal Financial and Accounting
Officer)
Date: November 12, 2003
20
CERTIFICATION Exhibit 31.1
I, Robert Moore, Chief Executive Officer certify that:
1. I have reviewed this quarterly report on Form 10-QSB for the quarter ended
September 30, 2003 of Chadmoore Wireless Group, Inc;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being prepared;
b. Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures, and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as
of the end of the period covered by this report based on such
evaluation; and
c. Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect,
the small business issuer's internal control over financial reporting;
and
5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control, over financial
reporting, to the small business issuer's auditors and the audit committee
of the small business issuer's board or directors (or persons fulfilling
the equivalent function):
a. All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
November 12, 2003
/s/ ROBERT W. MOORE
- -------------------
Robert W. Moore, Chief Executive Officer
CERTIFICATION Exhibit 31.2
Chief Financial Officer
I, Stephen K. Radusch, Chief Financial Officer certify that:
6. I have reviewed this quarterly report on Form 10-QSB for the quarter ended
September 30, 2003 of Chadmoore Wireless Group, Inc;
7. Based on my knowledge, this 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
report;
8. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report;
9. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being prepared;
b. Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures, and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as
of the end of the period covered by this report based on such
evaluation; and
c. Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect,
the small business issuer's internal control over financial reporting;
and
10. 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 and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
November 12, 2003
/s/ STEPHEN K. RADUSCH
- -----------------------
Stephen K. Radusch, Chief Financial Officer
EXHIBIT 32
CERTIFICATION OF 10-QSB REPORT
OF
CHADMOORE WIRELESS GROUP, INC.
FOR THE QUARTER ENDED September 30, 2003
1. The undersigned are the Chief Executive Officer and the Chief Financial
Officer of Chadmoore Wireless Group, Inc. This Certification is made
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This
Certification accompanies the 10-QSB Report of Chadmoore Wireless Group,
Inc. for the quarter ended June 20, 2003.
2. We certify that such 10-QSB Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the
information contained in such 10-QSB Report fairly presents, in all
material respects, the financial condition and results of operations of
Chadmoore Wireless Group, Inc.
This Certification is executed as of November 12, 2003.
/s/ ROBERT W. MOORE
------------------------------------------
Robert W. Moore, Chief Executive Officer
/s/ STEPHEN K. RADUSCH
------------------------------------------
Stephen K. Radusch, Chief Financial Officer
A signed original of this written statement required by Section 906 has been
provided to Chadmoore Wireless Group, Inc. and will be retained by Chadmoore
Wireless Group, Inc. and furnished to the Securities Exchange Commission or its
staff upon request.