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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, 2005
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
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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
--------------------------------------------------------
(Address of principal executive offices)
(702) 740-5633
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2of the Exchange Act).
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 [ ]
1
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:
AS OF JANUARY 31, 2006 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 Statements of Net Assets in Liquidation
as of September 30, 2005 and December 31, 2004 4
Consolidated Statements of Changes in Net Assets in
Liquidation for the Three Months and Nine Months
Ended September 30, 2005 and 2004 5
Condensed Notes to Unaudited Interim Consolidated
Financial Statements 6-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PLAN OF LIQUIDATION 12-13
ITEM 3. CONTROLS AND PROCEDURES 13
PART II - OTHER INFORMATION 14
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2C. DISCLOSURE OF ANY REPURCHASE OF COMPANY STOCK 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
CERTIFICATIONS 17-19
3
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Net Assets in Liquidation
as of September 30, 2005 and December 31, 2004
(amounts in thousands)
Sept. 30, Dec. 31,
2005 2004
(unaudited) (restated)
--------------- ---------------
ESTIMATED VALUES OF ASSETS OF THE COMPANY
Cash and cash equivalents $ 1,578 $ 13,900
Investment in debt securities 11,937 --
Other receivables, net 797 801
Federal income tax receivable 1,290 1,290
Other assets 111 146
Estimated future interest income 522 542
--------------- ---------------
Total estimated assets 16,235 16,679
--------------- ---------------
ESTIMATED LIABILITIES OF THE COMPANY
Notes payable 313 433
Accounts payable and accrued liabilities 198 197
Estimated future operating costs and settlement reserves
during the liquidation period 9,417 9,575
--------------- ---------------
Total estimated liabilities 9,928 10,205
--------------- ---------------
NET ASSETS IN LIQUIDATION $ 6,307 $ 6,474
=============== ===============
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
For the Three Months and Nine Months Ended September 30, 2005 and 2004
(amounts in thousands)
For the three months ended For the nine months ended
------------------------------- -------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2005 2004 2005 2004
(restated) (restated)
--------------- --------------- ---------------- ---------------
Net Assets in Liquidation, Beginning, as
previously reported $ 5,605 $ 5,401 $ 5,474 $ 6,092
Income tax refund 1,000 979 1,000 742
Net Assets in Liquidation, Beginning, as
restated 6,605 6,380 6,474 6,834
Net gain (loss) from operations during
liquidation 2 (4) (35) 5
Settlement of litigation -- -- -- 29
Change in estimate of:
Future interest income -- 136 264 136
Income taxes -- (48) -- 189
Settlement reserve (300) -- (300) --
Other assets, net -- -- -- (53)
Future operating costs during
liquidation period -- -- (96) (676)
--------------- --------------- ---------------- ---------------
Net Assets in Liquidation, Ending $ 6,307 $ 6,464 $ 6,307 $ 6,464
--------------- --------------- ---------------- ---------------
See accompanying condensed notes to unaudited interim
consolidated financial statements.
5
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Condensed Notes to Unaudited Interim Consolidated Financial Statements
September 30, 2005
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 Communications, Inc. ("Nextel"), the dissolution of Chadmoore and a
Plan of Liquidation (the "Plan"). On February 8, 2002, Chadmoore closed the sale
of substantially all of its assets to Nextel for $130 million in cash. Net
proceeds to Chadmoore were approximately $108 million after the payoff of
Barclays Bank debt. 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. Under Colorado law, Chadmoore is required to manage its liquidation
process through February 22, 2007, at which time the orderly liquidation is
expected to be completed. The key features of the Plan are:
o the conclusion of all business activities, other than those related to
the execution of the Plan
o the sale or disposal of all of Chadmoore's non-cash assets
o the establishment of reasonable reserves to be sufficient to satisfy
the liabilities, expenses and obligations of Chadmoore not otherwise
paid, provided for or discharged
o the periodic payment of per share liquidating distributions to
shareholders; and
o the authorization of the filing of a Certificate of Dissolution with
the State of Colorado.
As a result of the adoption of the Plan, Chadmoore adopted the liquidation basis
of accounting effective January 29, 2002. This basis of accounting is considered
appropriate when, among other things, liquidation of a company is probable and
the net realizable value of assets are reasonably determinable. Under this basis
of accounting, assets are valued at their estimated net realizable value, and
liabilities are stated at their estimated settlement amounts. The ongoing
application of the liquidation basis of accounting requires management to make
significant estimates and judgments. 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, 2004. The accompanying financial statements as of December
31, 2004 and for the three months and nine
6
months ended September 30, 2004 have been restated for the correction of an
error related to expected income tax refunds (see Note 5).
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 BASIS OF ACCOUNTING
Immediately following the sale of substantially all of its assets on February 8,
2002, Chadmoore began an orderly wind-down of its operations. Accordingly,
management has presented its financial statements on the liquidation basis of
accounting.
The preparation of financial statements on the liquidation basis of accounting
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.
ESTIMATED VALUES OF ASSETS OF THE COMPANY
The estimated assets of Chadmoore that are set forth in the September 30, 2005
"Consolidated Statements of Net Assets in Liquidation" have been presented on
the following basis:
(a) Chadmoore classifies as cash and cash equivalents amounts on deposit in
banks and cash invested temporarily in various instruments, with
maturities of three months or less at time of purchase. Cash and cash
equivalents are stated at fair value. Generally, cash balances held in
financial institutions may be in excess of federally insured amounts.
(b) Investment in debt securities with maturities prior to February 22,
2007 are carried at cost with an accrual in future estimated income for
expected earnings to the total settlement amount. Management intends to
hold these securities until their maturity due dates. Those debt
securities with maturities after February 22, 2007 are carried at
market value with any periodic unrealized gain or loss recorded as an
adjustment in the Statement of Changes in Net Assets in Liquidation.
(c) Estimated future interest income was estimated by management based upon
future expected cash flows. Actual interest income will likely differ
from management's current estimate.
(d) Other assets represent primarily prepayments of future operating costs.
(e) Other receivables, net, are carried at their expected collectible
amounts and pertain, primarily, to funds held by Nextel to offset any
potential liabilities that might occur from any unknown or
unanticipated unpaid state taxes. Management is working
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with counsel to obtain tax certificates of good standing in about 12
remaining states in which Chadmoore operated. Though a somewhat lengthy
and detailed process, management believes it will collect substantially
all of the funds held by Nextel.
(f) Federal income tax receivable is carried at the expected refund amount
based on losses incurred for years 2003 and 2004 carried back and
applied against the gain recorded in 2002 as a result of the sale of
assets to Nextel.
ESTIMATED LIABILITIES OF THE COMPANY
The estimated liabilities of Chadmoore that are set forth in the September 30,
2005 "Consolidated Statements 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 and are recorded at their estimated settlement
amounts. Of the amounts owed, $200,000 pertains to contingent claims by
persons whose licenses were cancelled pursuant to the Federal
Communication Commission's final ruling in the Goodman/Chan
proceedings. (See Form 10-QSB for the Company, dated June 30, 2002, for
detail disclosure of the Goodman/Chan proceedings.) Chadmoore
originally recorded notes payable of about $6.7 million for purchase of
the Goodman/Chan licenses. That amount was reduced to $4.7 million
through payments and settlement of outstanding balances prior to the
initial liquidation accounting. A liquidation trust was established for
the purpose of settling the remaining outstanding Goodman/Chan claims.
The liquidation trust resolved the bulk of these contingent claims by
distributing $1,039,000 to 546 license holders. Approximately 60
potential claimants, with estimated potential claims of $200,000, could
not be found or did not respond to settlement letters mailed to them.
Chadmoore has made every effort to locate these remaining potential
claimants, including the hiring of a skip/trace firm. Management
believes that Chadmoore's exposure will not exceed the $200,000
currently recorded as part of its liquidation plan.
(b) Accounts payable and accrued liabilities include all amounts that
remain unpaid for liquidation activities.
(c) 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 below summarizes the estimated amounts as of December 31,
2004, changes in estimates, and the actual costs that have been
incurred and paid during the period from January 1, 2005 through
September 30, 2005.
During the quarter ended June 30, 2005, Chadmoore recorded a change in
estimate of $52,000 to its estimated expenses for insurance, utilities
and facility expenses to reflect anticipated expenses associated with
the administration of funds held in escrow for settlement of the
Goodman/Chan liabilities, as well as an overall
8
increase in general operating expenses. In addition, Chadmoore recorded
a change in estimate of $44,000 for compensation for liquidation
personnel during the prior quarter. The change in estimate reflects
anticipated expense for part-time administrative help through the
completion of the liquidation process and an increase in the cost of
medical insurance for the period January 1, 2005 through February 22,
2007 for Messrs. Moore and Radusch.
During the quarter ended September 30, 2005, Chadmoore recorded an
increase in the settlement reserve of $300,000 to reflect potential
costs associated with payment demands made by SBA Leasing under several
license agreements that were in effect at the time of sale of assets to
Nextel.
Change in
As of estimates Incurred As of
Dec. 31, 2004 during period and paid Sept. 30, 2005
---------------- ---------------- ------------- --------------
Compensation for
liquidation personnel $ 687 $ 44 $ (280) $ 451
Insurance, utilities and
facility expenses 163 52 (117) 98
Legal, audit and other
professional fees 432 -- (157) 275
Settlement reserve 8,293 300 -- 8,593
---------------- ---------------- ------------- --------------
Total estimated future
operating costs and
settlement reserves $ 9,575 $ 396 $ (554) $ 9,417
================ ================ ============= ==============
In view of the expected duration of the liquidation period until
February 22, 2007, and the provision in 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 settlement reserve upon the adoption of
liquidation basis accounting on January 29, 2002. The amount of the
settlement reserve is $8.6 million at September 30, 2005.
The majority of this settlement reserve at September 30, 2005, $7.3
million, relates to contingencies involving the resolution of various
federal taxation issues. Other matters covered by this reserve include
existing litigation and claims, and settlement of existing liabilities.
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 believes the range of possible estimated
settlements is from $0 to $7.3 million.
9
As a result of the uncertainty regarding the estimates associated with
the settlement 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 of events regarding these contingencies occur,
management will adjust the settlement reserve appropriately, if needed.
See Note 3 - Commitments and Contingencies for further discussion.
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, 2005
consolidated financial statements on a liquidation basis follows:
Estimated future interest income
At September 30, 2005, the estimated value of future interest income
represented about 8.5% of Chadmoore's estimated net assets in liquidation.
During 2005, management invested excess cash amounts in debt securities
with varying maturities. The estimated future interest income of $522,000
on Chadmoore's cash holdings and investment in debt securities represents
management's estimate of future interest earnings based on an average
annual market rate of 3.5% over the remaining liquidation period.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
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 Chadmoore 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, Chadmoore 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, Chadmoore 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
10
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 the possibility that
this matter will have a substantial adverse impact on the Company is remote.
On March 13, 2003, American Tower Corporation ("American Tower") 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. On March 19, 2003,
Chadmoore formally responded to American Tower's notice, rejected 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 has now been completed. A judge
trial is set for August 2006. Currently, management cannot forecast the actual
outcome of this item, nor can it provide a timetable for when this matter will
be concluded.
On October 11, 2005, Chadmoore received a demand letter from SBA Leasing, Inc.
("SBA Leasing") claiming that Chadmoore was in default on various leases and
that Chadmoore owed SBA Leasing $274,592 in overdue lease payments. Chadmoore
has formally responded to SBA Leasing denying that any sum of money is currently
owed by Chadmoore. Currently, management cannot forecast the actual outcome of
this item, nor can it provide a timetable for when this matter will be
concluded.
Chadmoore is not aware of any other actual or threatened claims; however, it 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. Chadmoore has, however, included in its settlement
reserve an accrual, at the higher end of the range of possible loss, for the
matters discussed above.
NOTE 4- RELATED PARTY TRANSACTIONS
On January 15, 2003, Chadmoore entered into a two-year sublease with a limited
liability company owned by Robert W. Moore. The two-year sublease expired on
January 14, 2005, and was renewed for a six-month period, with an option for an
additional two six-month extensions. The lease was extended for an additional
six-month term on July 14, 2005.
Under the terms of the sub-lease, Chadmoore will continue to co-use with one
other tenant approximately 2,290 total square feet of rentable floor area at a
base rent of $1,545 per month, plus one half of utilities and other normal and
ordinary expenses.
11
During February 2004, the employment agreements for Robert W. Moore, and Stephen
K. Radusch were amended as the resolution of Chadmoore's outstanding liabilities
and the sale of partnership assets has taken longer than anticipated.
Additionally, Chadmoore remains subject to the reporting requirements of the
Securities Exchange Act of 1934. Accordingly, the board of directors determined
that the above employees' services would be needed for longer than the initial
employment agreements contemplated.
The employment agreements for Messrs. Moore and Radusch were amended so that
each will continue as an executive officer of Chadmoore and continue to receive
75% of his annual salary until the final distribution of Chadmoore's funds on or
about February 22, 2007.
NOTE 5- RESTATEMENT AND INCOME TAX REFUND
During the quarter ended September 30, 2005, Chadmoore discovered that operating
and capital losses incurred during fiscal 2004 could be carried back to offset
taxes paid on the gain on sale from 2002. Chadmoore further discovered that
capital losses from fiscal 2003 could be carried back to recover taxes paid on
the gain on sale from 2002. On January 27, 2006, Chadmoore filed a Form 8-K,
stating that previously issued financial information for the years 2003 and 2004
and each of the four quarters of 2004 and the first two quarters of 2005 should
be restated to reflect the income tax refund due Chadmoore of $866,000 related
to fiscal 2004 and $424,000 related to fiscal 2003. The amounts included on the
statements of net assets and statements of changes in net assets have been
restated to correct for this error.
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 materially
from those in the forward-looking statements. See Chadmoore's annual report on
Form 10-KSB for the year ended December 31, 2004.
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.
12
In order to reduce liquidation costs, Chadmoore's full-time staff has been
reduced to two 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 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. During the nine months ended September 30, 2005, Chadmoore recorded a
change in estimate of $52,000 to its estimated expenses for insurance,
utilities, and facility expenses to reflect anticipated expenses associated with
the administration of funds held in escrow for settlement of the Goodman/Chan
liabilities, as well as an overall increase in general operating expenses.
Chadmoore also recorded a change in estimate of $44,000 to its estimated
expenses for compensation for liquidation personnel to reflect anticipated
expenses for part-time administrative help through completion of the liquidation
process and an increase in health care insurance cost for Messrs. Moore and
Radusch for the period January 1, 2005 through February 22, 2007. In addition,
Chadmoore recorded a change during the first quarter of 2005 in the estimated
value of future interest income of $264,000 to reflect rising interest rates and
its investment in debt securities.
During the quarter ended September 30, 2005, Chadmoore recorded an increase in
the settlement reserve of $300,000 to reflect potential costs associated with
payment demands made by SBA Leasing under several license agreements that were
in effect at the time of the sale of assets to Nextel.
The valuation of assets and liabilities requires many estimates and assumptions
by management and actual values may vary greatly from estimates. The majority of
Chadmoore's assets have been liquidated and the amounts 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 cost 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.
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 these assets and to
settle all claims on terms most favorable to Chadmoore. The liquidation is
expected to be concluded upon the fifth anniversary
13
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. On
December 5, 2003, a third distribution of cash in the aggregate amount of $7
million, or $.1014 per share, was made to shareholders of record as of the sale
of Chadmoore's assets to Nextel. As of December 31, 2005, Chadmoore has
distributed an aggregate of about $34 million, or $.4957 per equivalent share.
Remaining net assets available for distribution to shareholders as of September
30, 2005, assuming assets are realized and liabilities are settled at their
estimated amounts, are currently estimated to be about $6.6 million, or $.09 per
equivalent share. Should Chadmoore not have to pay-out any of the settlement
reserves, shareholders could expect to receive up to an additional $8.3 million,
or $.12 per equivalent share. The ultimate settlement amount and timing depends
upon a variety of factors, including, but not limited to, the resolution of
those items included in the settlement reserve and actual costs incurred in
carrying out 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. Subsequent to February 22, 2002, Chadmoore was made aware of an
ongoing market in the trading of "due bills", whereby an individual/institution
would purchase from a shareholder the right to future cash distributions.
Chadmoore has no involvement in this trading activity nor does Chadmoore
maintain a list or have access to a list of the identities or locations of
holders of the "due bills". All distributions by Chadmoore will be made to
shareholders of record at the time of the asset sale to Nextel.
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
During the quarter ended September 30, 2005, management became aware of a
weakness in the Company's disclosure controls over the reporting of federal and
state income taxes to management for financial reporting purposes. Historically,
management has engaged outside experts specializing in the determination of and
accounting for federal and state income taxes and management has relied on these
specialists to report the resulting taxes to be paid, refunded or accrued to
management for financial reporting purposes. However, management did not
independently verify the information reported by these outside experts.
Corrective action regarding this weakness will not be required as for periods
subsequent to December 31, 2004, the Company no longer has the ability to carry
back taxable operating losses to obtain refunds for previously paid federal and
state income taxes.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING.
There were no changes in our internal control over financial reporting that
occurred during our quarter ended September 30, 2005 that has materially
affected or is reasonably likely to materially affect, our internal control over
financial reporting.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. Chadmoore has not recorded, however, an asset on its books for the
potential counterclaim against Ashcroft. 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 the possibility that this matter will
have a substantial adverse impact on the Company is remote.
On March 13, 2003, American Tower Corporation ("American Tower") 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. On March 19, 2003,
Chadmoore formally responded to American Tower's notice, rejected 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 has now been completed. A judge
trial is set for August 2006. Currently, management cannot forecast the actual
outcome of this item, nor can it provide a timetable for when this matter will
be concluded.
On October 11, 2005, Chadmoore received a demand letter from SBA Leasing, Inc.
("SBA Leasing") claiming that Chadmoore was in default on various leases and
that Chadmoore owed SBA Leasing $274,592 in overdue lease payments. Chadmoore
has formally responded to SBA Leasing denying that any sum of money is currently
owed by Chadmoore. Currently, management cannot forecast the actual outcome of
this item, nor can it provide a timetable for when this matter will be
concluded.
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Chadmoore is not aware of any other actual or threatened claims; however, it 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. Chadmoore has, however, included in its settlement
reserve an accrual, at the lower end of the range, for the matters discussed
above.
ITEM 2C. DISCLOSURE OF ANY REPURCHASE OF COMPANY STOCK
There were no repurchases of Chadmoore common stock during the three months
ended September 30, 2005.
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) Reports on Form 8-K
None
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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: February 3, 2006
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