================================================================================
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, 2006
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 of other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
7390 W. SAHARA AVENUE, SUITE 290, LAS VEGAS, NEVADA 89117
(Address of principal executive offices)
(702) 740-5633
(Issuer's telephone number)
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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
AS OF APRIL 30, 2006 ISSUER HAD 47,736,006 SHARES OF COMMON STOCK, $.001 PAR
VALUE, OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes [ ] No [X]
================================================================================
INDEX
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
Statements of Net Assets in Liquidation as of March
31, 2006 and December 31, 2005 3
Statements of Changes in Net Assets in Liquidation
for the Three Months Ended March 31, 2006 and 2005 4
Condensed Notes to Unaudited Interim Financial
Statements 5-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PLAN OF LIQUIDATION 11-12
ITEM 3. CONTROLS AND PROCEDURES 12
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
2
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Statements of Net Assets in Liquidation
as of March 31, 2006 and December 31, 2005
(amounts in thousands)
Mar. 31,
2006 Dec. 31,
(unaudited) 2005
----------------- -----------------
ESTIMATED VALUES OF ASSETS OF THE COMPANY
Cash and cash equivalents $ 1,699 $ 1,823
Investment in debt securities 11,537 11,537
Other receivables, net 822 819
Federal income tax receivable
1,290 1,290
Other assets 61 98
Estimated future interest income 509 501
----------------- -----------------
Total estimated assets 15,918 16,068
----------------- -----------------
ESTIMATED LIABILITIES OF THE COMPANY
Notes payable 200 313
Accounts payable and accrued liabilities 299 254
Estimated future operating costs and settlement reserves
during the liquidation period 8,928 9,167
----------------- -----------------
Total estimated liabilities 9,427 9,734
----------------- -----------------
NET ASSETS IN LIQUIDATION $ 6,491 $ 6,334
================= =================
See accompanying condensed notes to unaudited
interim financial statements.
3
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Statements of Changes in Net Assets in Liquidation
For the Three Months Ended March 31, 2006 and 2005
(amounts in thousands)
For the three months
ended
March 31, March 31,
2006 2005
(restated)
-------------- --------------
Net assets in liquidation as previously reported $ 6,334 $ 5,474
Change in income taxes 1,290
-------------- --------------
Net assets in liquidation as restated 6,334 6,764
Net gain (loss) from operations during
liquidation (32) (12)
Change in estimate of:
Future interest income 189 264
Future operating costs during
liquidation period -- (37)
-------------- --------------
Net Assets in Liquidation $ 6,491 $ 6,979
============== ==============
See accompanying condensed notes to unaudited
interim financial statements.
4
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Condensed Notes to Unaudited Interim Financial Statements
March 31, 2006
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, 2005.
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 in conformity with Generally Accepted
Accounting Principles 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 initial 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 March 31, 2006
"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 include both held-to-maturity securities
and available-for-sale securities. Securities with maturities prior to
February 22, 2007 are considered held-to-maturity securities and total
$10,935,857 at March 31, 2006. They are carried at par value 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. These securities mature as follows:
March 31, 2006
Par Value Market Value
---------------------------- --------------------------------------
Within one year $10,935,857 $10,894,555
---------------------------- --------------------------------------
Those debt securities with maturities after February 22, 2007 are
classified as available-for-sale securities and total $601,142 at March
31, 2006. Available-for-
6
sale securities 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 and an accrual for estimated
income for expected earnings through February 22, 2007. These
securities mature as follows:
-------------------------------------- ----------------------------
Within one year $0
-------------------------------------- ----------------------------
One year to three years $0
-------------------------------------- ----------------------------
Over three years $601,142
-------------------------------------- ----------------------------
(c) Estimated future interest income is reviewed quarterly by management
based upon future expected cash flows. As a result of the review at
March 31, 2006, estimated future interest income was increased by
$189,000 to reflect recent increases in the average market interest
rates and an anticipated increase in available cash as a result of the
federal income tax receivable. At March 31, 2006, the estimated future
interest income represented about 7.9% of Chadmoore's estimated net
assets in liquidation. The estimated future interest income of $509,000
on Chadmoore's cash holdings and investment in debt securities
represents management's estimate of future interest earnings based on
an average market rates of interest over the remaining liquidation
period. 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 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 March 31, 2006
"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 the purchase of licenses from licensees and are recorded at their
estimated settlement amounts. The amounts owed, $200,000, pertain 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
7
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.
The liquidation trust was dissolved during the quarter ended March 31,
2006, and the remaining balance in the trust account of $932,659 was
returned to Chadmoore.
(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,
2005, changes in estimates, and the actual costs that have been
incurred and paid during the period from January 1, 2006 through March
31, 2006.
Change in
As of estimates during Incurred As of
Dec. 31, 2005 period and paid Mar. 31, 2006
---------------- ---------------- ------------- --------------
Compensation for
liquidation personnel $ 407 $ -- $ (90) $ 317
Insurance, utilities and
facility expenses 140 -- (33) 107
Legal, audit and other
professional fees 317 -- (116) 201
Settlement reserve 8,303 -- -- 8,303
---------------- ---------------- ------------- --------------
Total estimated future
operating costs and
settlement reserves $ 9,167 $ -- $ (239) $ 8,928
================ ================ ============= ==============
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 $8.3 million at March 31, 2006.
The majority of this settlement reserve at March 31, 2006, $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, 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
8
which cannot be determined at this time. Accordingly, management
believes the range of possible estimated settlements is from $0 to $8.3
million.
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 4 - 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.
NOTE 3 - RESTATEMENT
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. Chadmoore has restated its financial statements as
of March 31, 2005 and for the period ended March 31, 2005 for the items
discussed above. The correction of the error resulted in an adjustment that
increased Net Assets in Liquidation by $1,290,000.
NOTE 4 - 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 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
9
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 material adverse outcome beyond what is provided in the settlement
reserve 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 is currently ongoing. A bench
trial is set for the August 2006. Currently, management cannot forecast the
actual outcome of this litigation, 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 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 estimated loss,
for these matters.
NOTE 5 - RELATED PARTY TRANSACTIONS
On March 1, 2006, Chadmoore entered into a one-year sublease with a limited
liability company in which Robert W. Moore and Stephen K. Radusch are members.
Under the terms of the sublease, Chadmoore will co-use with one other tenant
approximately 2,300 total square feet of rentable floor area at a base rent of
$2,152 per month plus one half of utilities and other normal and ordinary
expenses. The one-year sublease expires February 28, 2007.
10
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.
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.
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.
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. During the first quarter of 2006,
Chadmoore recorded a increase in the estimated value of future interest income
of $189,000 to reflect rising interest rates and an anticipated increase in
available cash as a result of the federal income tax receivable.
11
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 of remaining
assets 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 share. On February 28, 2003, a second distribution
of cash in the aggregate amount of $4.3 million, or $.061967 per share, was
initiated. On December 5, 2003, a third distribution of cash in the aggregate
amount of $7.0 million, or $.101464 per share was made to shareholders of
record. As of March 31, 2006, Chadmoore had distributed an aggregate of about
$34 million, or $.4957 per share. Remaining net assets available for
distribution to shareholders as of March 31, 2006, assuming assets are realized
and liabilities are settled at their estimated amounts, are currently estimated
to be about $6.3 million, or $.09 per equivalent share. Should Chadmoore not
have to payout any of the settlement reserves, shareholders could expect to
receive up to an additional $8.3 million, or $.12 per equivalent share. The
actual nature, amount and timing of future distributions will be determined by
the board of directors in its sole discretion, and will depend primarily 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.
Chadmoore's liquidation should be concluded on or before February 22, 2007, with
a final liquidating distribution directly to the shareholders. Complete details
regarding the Plan to liquidate and dissolve Chadmoore can be found in the
Company's December 14, 2001 Proxy Statement filed with the Securities and
Exchange Commission, and mailed to shareholders on December 15, 2001.
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
The Liquidation Plan approved by the shareholders contemplated very limited
staff to oversee the accounting function of the Company in order to minimize the
costs of liquidation where Chadmoore had only limited ongoing business
operations. The primary purpose of the Liquidation Plan was resolution of final
liabilities, asset preservation and maximization of the final distribution to
shareholders. During the year ended December 31, 2005, management became aware
of a material weakness in the Company's disclosure controls over financial
reporting that was primarily a result of having only one member on Chadmoore's
accounting staff. As a result of limited internal accounting staff, there are
limited opportunities to review related controls over financial reporting.
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, 2006 (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 going forward for purposes of recording,
12
processing, summarizing and timely reporting material information required to be
disclosed in reports that it files under the Exchange Act.
It should be noted that in designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. The Company has designed its disclosure
controls and procedures to reach a level of reasonable assurance of achieving
desired control objectives and, based on the evaluation described above, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective at reaching that
level of reasonable assurance, except as discussed in the next paragraph below.
The Company has identified material weaknesses within its internal control
framework mostly involving a lack of segregation of duties which is due to the
limited number of personnel who were retained by the Company in accordance with
the Plan of Liquidation, to complete the orderly liquidation of the Company's
operations.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING.
There was no change in the Company's internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange
Act of 1934, as amended) during the Company's most recently completed fiscal
quarter that has materially affected, or is reasonable likely to materially
affect, the Company's internal control over financial reporting.
13
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 material adverse outcome beyond what is provided in the settlement
reserve 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 is currently ongoing. A bench
trial is set for the August 2006. Currently, management cannot forecast the
actual outcome of this litigation, 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.
14
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. Chadmoore has, however, included in its
settlement reserve an accrual, at the higher end of the range of estimated loss,
for these matters.
ITEM 2C. DISCLOSURE OF ANY REPURCHASE OF COMPANY STOCK
There were no repurchases of Chadmoore common stock during the three months
ended March 31, 2006.
ITEM 6. EXHIBITS
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
15
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: May 12, 2006
16