-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U/bml6Fe0eg/Wz3UJtPtA6lwmtOg0FPWX+dh1RBNthleQdYMoalzofV6Z+6eSExk cuL6PZWTT+5+AwpX2yKr0w== 0000899078-04-000198.txt : 20040223 0000899078-04-000198.hdr.sgml : 20040223 20040223154424 ACCESSION NUMBER: 0000899078-04-000198 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CADENCE RESOURCES CORP CENTRAL INDEX KEY: 0000933157 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 870306609 STATE OF INCORPORATION: UT FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-25170 FILM NUMBER: 04622033 BUSINESS ADDRESS: STREET 1: 6 EAST ROSE ST CITY: WALLA WALLA STATE: WA ZIP: 99362 BUSINESS PHONE: 509-526-3491 MAIL ADDRESS: STREET 1: 6 EAST ROSE STREET STREET 2: NO SUITE CITY: WALLA WALLA STATE: WA ZIP: 99362 FORMER COMPANY: FORMER CONFORMED NAME: ROYAL SILVER MINES INC DATE OF NAME CHANGE: 19960223 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED ROYAL MINES INC DATE OF NAME CHANGE: 19950908 10QSB 1 cadence10qfeb2004.txt FORM 10-QSB - PERIOD ENDED DECEMBER 31, 2003 ================================================================================ U. S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 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 December 31, 2003 Commission file number 0-25170 Cadence Resources Corporation - -------------------------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Utah 87-0306609 - -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 6 East Rose Street, P.O. BOX 2056, Walla Walla, WA 99362 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (509) 526-3491 - -------------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes X No The number of shares of common stock outstanding as of February 20, 2004 was 12,593,827. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] CADENCE RESOURCES CORPORATION Form 10-QSB
Index PART I.FINANCIAL INFORMATION......................................................................................1 Item 1. Financial Statements.............................................................................1 Item 2. Management's Discussion and Analysis or Plan of Operations......................................35 Item 3. Controls and Procedures.........................................................................38 PART II.OTHER INFORMATION........................................................................................40 Item 1. Legal Proceedings...............................................................................40 Item 2. Changes in Securities...........................................................................40 Item 3. Defaults Upon Senior Securities.................................................................40 Item 4. Submission of Matters to a Vote of Security Holders.............................................40 Item 5. Other Information...............................................................................40 Item 6. Exhibits and Reports on Form 8-K................................................................41
PART I. FINANCIAL INFORMATION Item 1. Financial Statements Accountant's Review Report................................................................................1 Balance Sheets - December 31, 2003 (unaudited) and September 30, 2003 and 2002............................2 Statements of Operations - three months ended December 31, 2003, 2002 and 2001 (unaudited)...................................................................................4 Statement of Stockholders' Equity (Deficiency) - years ended September 30, 2002 and 2003 and three months ended December 31, 2003 (unaudited)..........................................5a Statements of Cash Flows - three months ended December 31, 2003, 2002 and 2001 (unaudited).......................................................................................6 Notes to the Financial Statements.........................................................................8
i Board of Directors Cadence Resources Corporation Walla Walla, Washington ACCOUNTANT'S REVIEW REPORT We have reviewed the accompanying balance sheet of Cadence Resources Corporation, as of December 31, 2003, and the related statements of operations, stockholders' equity, and cash flows for the three months then ended. All information included in these financial statements is the representation of the management of Cadence Resources Corporation. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. The financial statements for the year ended September 30, 2003 were audited by us and we expressed an unqualified opinion on it in our report dated December 10, 2003. We have not performed any auditing procedures since that date. /s/ Williams & Webster, P.S. Williams & Webster, P.S. Certified Public Accountants Spokane, Washington February 20, 2004 1
CADENCE RESOURCES CORPORATION BALANCE SHEETS December 31 September 30, 2003 -------------------------------------- (Unaudited) 2003 2002 ------------------- ------------------- ----------------- ASSETS CURRENT ASSETS Cash $ 754,133 $ 3,619,345 $ 40,011 Oil & gas revenue receivable 377,834 84,575 26,123 Receivable from working interest owners 12,873 12,873 16,037 Notes receivable 3,720 3,720 13,078 Prepaid expenses 20,925 5,925 27,500 Other current assets 15,425 425 431 ------------------- ------------------- ----------------- TOTAL CURRENT ASSETS 1,184,910 3,726,863 123,180 ------------------- ------------------- ----------------- OIL AND GAS PROPERTIES, USING SUCCESSFUL EFFORTS ACCOUNTING Proved properties 637,717 590,747 48,694 Unproved properties 2,430,612 833,836 78,997 Wells and related equipment and facilities 326,569 202,886 67,374 Support equipment and facilities 254,284 151,963 105,108 Prepaid mineral leases 368,876 395,973 177,177 Less accumulated depreciation, depletion, amortization and impairment (295,875) (61,611) (4,312) ------------------- ------------------- ----------------- TOTAL OIL AND GAS PROPERTIES 3,722,183 2,113,794 473,038 ------------------- ------------------- ----------------- PROPERTY AND EQUIPMENT Furniture and equipment 4,226 1,660 1,440 Less accumulated depreciation (1,462) (1,451) (1,440) ------------------- ------------------- ----------------- TOTAL PROPERTY AND EQUIPMENT 2,764 209 - ------------------- ------------------- ----------------- OTHER ASSETS Investments 293,411 394,454 448,793 Mineral properties available for sale 246,757 246,757 246,757 ------------------- ------------------- ----------------- TOTAL OTHER ASSETS 540,168 641,211 695,550 ------------------- ------------------- ----------------- TOTAL ASSETS $ 5,450,025 $ 6,482,077 $ 1,291,768 =================== =================== ================= See accountant's review report and accompanying notes to interim financial statements. 2
CADENCE RESOURCES CORPORATION BALANCE SHEETS December 31, September 30, 2003 ----------------------------------------- (Unaudited) 2003 2002 ------------------- -------------------- ------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 721,895 $ 584,866 $ 119,923 Revenue distribution payable 88,606 68,929 14,835 Payable to related party - 550,000 2,500 Deferred working interest - - 22,184 Accrued compensation 3,165 94,920 66,261 Interest payable 11,522 15,752 - Notes payable 100,000 460,000 - ------------------- -------------------- ------------------ TOTAL CURRENT LIABILITIES 925,188 1,774,467 225,703 ------------------- -------------------- ------------------ COMMITMENTS AND CONTINGENCIES - - - ------------------- -------------------- ------------------ REDEEMABLE PREFERRED STOCK 59,925 59,925 - ------------------- -------------------- ------------------ STOCKHOLDERS' EQUITY Common stock, $.01 par value; 100,000,000 shares authorized, 12,632,827, 12,512,827, and 6,866,210 shares issued and outstanding, respectively 126,328 125,128 68,662 Additional paid-in capital 18,642,222 18,343,422 13,291,965 Stock options 1,210,704 1,210,704 626,790 Stock warrants 51,375 51,375 233,334 Accumulated deficit (15,239,167) (14,863,687) (12,906,132) Accumulated other comprehensive income (loss) (326,550) (219,257) (248,554) ------------------- -------------------- ------------------ TOTAL STOCKHOLDERS' EQUITY 4,454,912 4,647,685 1,066,065 ------------------- -------------------- ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,450,025 $ 6,482,077 $ 1,291,768 =================== ==================== ================== See accountant's review report and accompanying notes to interim financial statements. 3
CADENCE RESOURCES CORPORATION STATEMENTS OF OPERATIONS Three Months Ended December 31, ------------------------------------------------------ 2003 2002 2001 (Unaudited) (Unaudited) (Unaudited) ---------------- ----------------- ----------------- REVENUES Oil and gas sales $ 559,384 $ 33,376 $ - ---------------- ----------------- ----------------- GENERAL AND ADMINISTRATIVE EXPENSES Depreciation, depletion and amortization 233,111 8,635 - Officers' and directors' compensation 55,000 45,000 12,510 Consulting 58,413 78,230 95,614 Professional fees 290,047 8,035 27,856 Oil and gas lease expenses 109,386 20,352 14,772 Oil and gas consulting 15,000 - - Oil and gas production costs 39,479 Lease operating expenses 1,248 36,516 - Other general and administrative 134,980 36,203 12,921 ---------------- ----------------- ----------------- TOTAL EXPENSES 936,664 232,971 163,673 ---------------- ----------------- ----------------- OPERATING LOSS (377,280) (199,595) (163,673) ---------------- ----------------- ----------------- OTHER INCOME (EXPENSES) Interest income 3,980 80 13 Interest expense (2,181) (1,239) (1,060) Partnership loss - (8,309) - Gain on debt forgiveness - - 6,109 Loss on disposition and impairment of assets - (34,623) (32,733) ---------------- ----------------- ----------------- TOTAL OTHER INCOME (EXPENSE) 1,799 (44,091) (27,671) ---------------- ----------------- ----------------- LOSS BEFORE TAXES (375,481) (243,686) (191,344) INCOME TAX BENEFIT - - 66,040 ---------------- ----------------- ----------------- LOSS FROM CONTINUING OPERATIONS (375,481) (243,686) (125,304) GAIN FROM DISCONTINUED OPERATIONS Gain from mining operations (net of income tax benefit of $66,040) - - 264,158 ---------------- ----------------- ----------------- NET INCOME (LOSS) (375,481) (243,686) 138,854 OTHER COMPREHENSIVE INCOME (LOSS) Unrealized gain (loss) on market value of investments (107,293) 8,677 10,460 ---------------- ----------------- ----------------- COMPREHENSIVE INCOME (LOSS) $ (482,774) $ (235,009) $ 149,314 ================ ================= ================= NET INCOME (LOSS) PER COMMON SHARE BASIC AND DILUTED Net loss from continuing operations $ (0.03) $ (0.03) $ (0.04) Net gain (loss) from discontinued operations nil nil 0.08 --------------- ----------------- ----------------- NET INCOME (LOSS) PER COMMON SHARE $ (0.03) $ (0.03) $ 0.04 ================ ================= ================= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED 12,602,175 8,411,936 3,258,749 ================ ================= ================= See accountant's review report and accompanying notes to interim financial statements. 4
CADENCE RESOURCES CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY Common Stock --------------------------- Additional Number Paid-in Stock of Shares Amount Capital Options --------- -------- ------------ --------- Balance, September 30, 2001 2,453,890 $ 24,539 $ 12,198,855 $ - Shares issued for cash at $0.24 to $0.50 per share 783,000 7,830 234,070 - Shares issued to officer for debt at $0.30 per share 300,000 3,000 87,000 - Shares issued to officers, consultants and others for services, accrued compensation and prepaid expenses at $0.30 to $0.38 per share 589,184 5,892 205,775 - Shares issued for cash with warrants attached at $0.30 per share 2,333,336 23,333 443,333 - Shares issued to officer for reimbursement of expenses paid for Company at $1.03 per share 6,800 68 6,932 - Shares issued for investment at $0.30 per share 400,000 4,000 116,000 - Options issued to directors and consultants for services - - - 626,790 Net loss for the year ended September 30, 2002 - - - - Unrealized loss on market value of investments - - - - --------- -------- ------------ --------- Balance, September 30, 2002 6,866,210 $ 68,662 $ 13,291,965 $ 626,790 --------- -------- ------------ --------- See accountant's review report and accompanying notes to interim financial statements. 5a
CADENCE RESOURCES CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY Accumulated Other Total Stock Accumulated Comprehensive Stockholders' Warrants Deficit Income/(Loss) Equity ---------------- ----------------- ----------------- ---------------- Balance, September 30, 2001 $ - $(11,760,681) $ (150,162) $ 312,551 Shares issued for cash at $0.24 to $0.50 per share - - - 241,900 Shares issued to officer for debt at $0.30 per share - - - 90,000 Shares issued to officers, consultants and others for services, accrued compensation and prepaid expenses at $0.30 to $0.38 per share - - - 211,667 Shares issued for cash with warrants attached at $0.30 per share 233,334 - - 700,000 Shares issued to officer for reimbursement of expenses paid for Company at $1.03 per share - - - 7,000 Shares issued for investment at $0.30 per share - - - 120,000 Options issued to directors and consultants for services - - - 626,790 Net loss for the year ended September 30, 2002 - (1,145,451) - (1,145,451) Unrealized loss on market value of investments - - (98,392) (98,392) ---------------- ----------------- ---------------- ---------------- Balance, September 30, 2002 $ 233,334 $(12,906,132) $ (248,554) $ 1,066,065 ---------------- ---------------- --------------- ---------------- See accountant's review report and accompanying notes to interim financial statements. 5b
CADENCE RESOURCES CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY Common Stock -------------------------- Additional Number Paid-in Stock of Shares Amount Capital Options ---------- -------- ------------ ---------- Balance, September 30, 2002 6,866,210 $ 68,662 $ 13,291,965 $ 626,790 Shares issued for cash with warrants attached at an average of $0.52 per unit 212,500 2,125 56,500 - Shares issued to officers, directors and others for services at $0.78 to $1.80 496,500 4,965 535,710 - Shares issued for loan consideration at $1.08 per share 220,000 2,200 204,800 - Shares issued for exercise of options at $0.75 per share 100,000 1,000 142,100 (68,100) Shares issued from cashless exercise of warrants 1,956,984 19,569 213,765 - Shares issued for cash at $0.80 to $2.50 per share, net of financing fee of $347,850 2,525,183 25,252 4,216,347 - Options issued for financing - - (429,671) 429,671 Shares issued for related party loan fee at $1.00 per share 120,000 1,200 118,800 - Conversion of shares of Celebration for shares of Cadence common stock 14,250 143 (143) - Options issued to consultants for services - - - 222,343 Miscellaneous adjustment 1,200 12 (12) - Dividends paid on preferred stock - - (6,739) - Net loss for the year ended September 30, 2003 - - - - Unrealized gain on market value of investments - - - - ---------- -------- ------------ ---------- Balance, September 30, 2003 12,512,827 $125,128 $ 18,343,422 $1,210,704 ---------- -------- ------------ ---------- See accountant's review report and accompanying notes to interim financial statements. 5c
CADENCE RESOURCES CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY Accumulated Other Total Stock Accumulated Comprehensive Stockholders' Warrants Deficit Income/Loss Equity --------------- ----------------- ---------------- --------------- Balance, September 30, 2002 $ 233,334 $ (12,906,132) $ (248,554) $ 1,066,065 Shares issued for cash with warrants attached at an average of $0.52 per unit 51,375 - - 110,000 Shares issued to officers, directors and others for services at $0.78 to $1.80 - - - 540,675 Shares issued for loan consideration at $1.08 per share - - - 207,000 Shares issued for exercise of options at $0.75 per share - - - 75,000 Shares issued from cashless exercise of warrants (233,334) - - - Shares issued for cash at $0.80 to $2.50 per share, net of financing fee of $347,850 - - - 4,241,599 Options issued for financing - - - - Shares issued for related party loan fee at $1.00 per share - - - 120,000 Conversion of shares of Celebration for shares of Cadence common stock - - - - Options issued to consultants for services - - - 222,343 Miscellaneous adjustment - - - - Dividends paid on preferred stock - - - (6,739) Net loss for the year ended September 30, 2003 - (1,957,555) - (1,957,555) Unrealized gain on market value of investments - - 29,297 29,297 --------------- ----------------- ---------------- ------------- Balance, September 30, 2003 $ 51,375 $ (14,863,687) $ (219,257) $ 4,647,685 --------------- ----------------- ---------------- ------------- See accountant's review report and accompanying notes to interim financial statements. 5d
CADENCE RESOURCES CORPORATION STATEMETN OF STOCKHOLDERS' EQUITY Common Stock ----------------------------- Additional Number Paid-in Stock of Shares Amount Capital Options ------------- --------------- -------------- --------------- Balance, September 30, 2003 12,512,827 $ 125,128 $ 18,343,422 $ 1,210,704 Shares issued for cash at $2.50 110,000 1,100 273,900 - Shares issued for services at $2.50 10,000 100 24,900 - Net loss for the three months ended December 31, 2003 (unaudited) - - - - Unrealized loss on market value of investments (unaudited) - - - - ------------- --------------- -------------- --------------- Balance, December 31, 2003 (unaudited) 12,632,827 $ 126,328 $ 18,642,222 $ 1,210,704 ============= =============== ============== =============== See accountant's review report and accompanying notes to interim financial statements. 5e
CADENCE RESOURCES CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY Accumulated Other Total Stock Accumulated Comprehensive Stockholders' Warrants Deficit Income/Loss Equity --------- ---------------- ------------ ------------- Balance, September 30, 2003 $ 51,375 $ (14,863,687) $ (219,257) $ 4,647,685 Shares issued for cash at $2.50 - - - 275,000 Shares issued for services at $2.50 - - - 25,000 Net loss for the three months ended December 31, 2003 (unaudited) - (375,480) - (375,480) Unrealized loss on market value of investments (unaudited) - - (107,293) (107,293) --------- ---------------- ----------- ------------- Balance, December 31, 2003 (unaudited) $ 51,375 $ (15,239,167) $ (326,550) $ 4,464,912 ========= ================ =========== ============= See accountant's review report and accompanying notes to interim financial statements. 5f
CADENCE RESOURCES CORPORATION STATEMENTS OF CASH FLOWS Three Months Ended December 31, -------------------------------------------------------------- 2003 2002 2001 (Unaudited) (Unaudited) (Unaudited) ------------------- --------------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (375,481) $ (243,686) $ 138,854 Adjustments to reconcile net loss to net cash used by operating activities: Loss on sale of investments - 34,623 32,733 Gain from mining operations - - (330,198) Loss on debt forgiveness - - 6,109 Depreciation, depletion and amortization 233,111 8,635 - Issuance of common stock for services 25,000 10,800 55,500 Investment given for services - 7,200 - Changes in assets and liabilities: Oil & gas revenue receivable (293,259) 3,275 - Receivable from working interest owners - 2,601 - Note receivable (18,994) - Other current assets (15,000) 1 - Prepaid expenses (9,518) 7,500 (103,423) Deferred working interest - 12,826 (30,889) Accounts payable 137,029 31,494 (25,784) Revenue distribution payable 19,677 (4,140) - Accrued expenses (99,150) 30,000 12,510 ------------------- --------------------- ----------------- Net cash provided (used) by operating activities (377,591) (117,865) (244,588) ------------------- --------------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments (6,250) (5,860) (13,224) Sale of investments - 4,389 29,050 Purchase and development of proved and unproved properties (1,598,752) (18,005) - Purchase of mineral leases (21,615) (47,500) - Purchase of fixed assets (226,004) (4,466) - ------------------- --------------------- ----------------- Net cash provided (used) by investing activities (1,852,621) (71,442) 15,826 ------------------- --------------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of notes payable (360,000) - (35,000) Proceeds on payables to related parties - 50,000 - Payments on payables to related parties (550,000) - - Issuance of preferred stock for cash - 30,000 - Issuance of common stock and warrants for cash 275,000 110,000 213,900 ------------------- --------------------- ----------------- Net cash provided (used) by financing activities (635,000) 190,000 178,900 ------------------- --------------------- ----------------- Net increase (decrease) in cash $ (2,865,212) $ 693 $ (49,862) ------------------- --------------------- ----------------- See accountant's review report and accompanying notes to interim financial statements. 6
CADENCE RESOURCES CORPORATION STATEMENTS OF CASH FLOWS Three Months Ended December 31, ------------------------------------------------------------- 2003 2002 2001 (Unaudited) (Unaudited) (Unaudited) -------------------- ------------------ ------------------ Net increase (decrease) in cash (balance forward) $ (2,865,212) $ 693 $ (49,862) Cash, beginning of period 3,619,345 40,011 191,684 -------------------- ------------------ ------------------ Cash, end of period $ 754,133 $ 40,704 $ 141,822 ==================== ================== ================== Supplemental cash flow disclosure: Income taxes paid $ - $ - $ - Interest paid $ - $ - $ - Non-cash investing and financing activities: Common stock issued for services rendered $ 25,000 $ 10,800 $ 55,500 Common stock issued for debt $ - $ - $ 60,000 Investment received for mining claims $ - $ - $ 350,198 Investment given for related party payable $ - $ - $ 8,231 Investment received for note receivable $ - $ - $ 15,000 Investment given for consulting services $ - $ 7,200 $ - See accountant's review report and accompanying notes to interim financial statements. 7
CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS Cadence Resources Corporation (formerly Royal Silver Mines, Inc.) hereinafter ("Cadence" or "the Company") was incorporated in April of 1969 under the laws of the State of Utah primarily for the purpose of acquiring and developing mineral properties. The Company changed its name from Royal Silver Mines, Inc. to Cadence Resources Corporation on May 2, 2001 upon obtaining approval from its shareholders and filing an amendment to its articles of incorporation. The Company shall be referred to as "Cadence" or "Cadence Resources Corporation" even though the events described may have occurred while the Company's name was "Royal Silver Mines, Inc." The Company has elected a September 30 fiscal year-end. On July 1, 2001, Cadence developed a plan for acquisition, exploration and development of oil and gas properties and accordingly began a new exploration stage as an energy project development company. Prior to this, Cadence conducted its business as a "junior" mineral resource company, meaning that it intended to receive income from property sales or joint ventures of its mineral projects with larger companies. The Company continues to hold several mineral properties, which are described in Note 3. Celebration Mining Company ("Celebration"), a wholly owned subsidiary of Cadence, was incorporated for the purpose of identifying, acquiring, exploring and developing mining properties. Celebration was organized on February 17, 1994 as a Washington corporation. Celebration has not yet realized any revenues from its operations. On August 8, 1995, Cadence and Celebration completed an agreement and plan of reorganization whereby the Company issued 207,188 shares of its common stock and 72,750 warrants in exchange for all of the outstanding common stock of Celebration. Pursuant to the reorganization, the name of the Company was changed to Royal Silver Mines, Inc. Immediately prior to the agreement and plan of reorganization, the Company had 118,773 common shares issued and outstanding. The acquisition was accounted for as a purchase by Celebration of Cadence, because the shareholders of Celebration controlled the Company after the acquisition. Therefore, Celebration is treated as the acquiring entity. There was no adjustment to the carrying value of the assets or liabilities of Cadence in the exchange as the market value approximated the net carrying value. Cadence is the acquiring entity for legal purposes and Celebration is the surviving entity for accounting purposes. As a result of the Company's entering a new exploration stage on July 1, 2001, the Company elected to dispose of its mineral properties and has accordingly reclassified those remaining properties, which total $246,757 at December 31, 2003, as other assets. The Company has not determined whether these mineral exploration properties contain ore reserves that are economically recoverable, and is in the process of disposing of these properties. The ultimate realization of the Company's investment in these properties cannot be determined at this time and, accordingly, no provision has been made in the accompanying financial statements for any 8 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued) asset impairment that may result in the event the Company is not successful in selling these properties. See Note 3. The costs of prepaid oil and gas leases ($368,876 and $395,973, respectively) included in the accompanying balance sheets as of December 31, 2003 and September 30, 2003 are principally related to natural gas properties. The Company has not determined whether the properties contain economically recoverable gas reserves. The ultimate realization of the Company's investment in oil and gas properties is dependent upon finding and developing economically recoverable reserves, the ability of the Company to obtain financing or make other arrangements for development and upon future profitable production. The ultimate realization of the Company's investment in oil and gas properties cannot be determined at this time and, accordingly, no provision for any asset impairment that may result in the event the Company is not successful in developing these properties, has been made in the accompanying financial statements. The Company was in the exploration stage through most of the year ending September 30, 2002. During the fourth quarter of the year ended September 30, 2002, the Company entered a very brief development stage and has since been considered an operating company. For the years ending September 30, 2002 and 2001, the Company's auditors expressed a going concern qualification on the Company's audited financial statements. In September and October 2003, the Company obtained significant additional capital through a private placement of its stock and paid off all of its substantial debts. Management plans to use the majority of the proceeds from the financing for lease acquisition, and for drilling of wells on the Company's leased oil and gas property in Louisiana, Michigan, and Kansas. The Company has demonstrated that it now has sufficient funds from operations and investments to continue its committed development plans. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of Cadence Resources Corporation is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements. Accounting Method - ----------------- The Company's financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America. 9 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash Equivalents - ---------------- The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Exploration Stage - ----------------- The Company began a new exploration stage with the acquisition of oil and gas leases on July 1, 2001. This stage ended during July 2002 with the commenced sale of oil and gas products. Estimates - --------- The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. Income/Loss Per Share - --------------------- Income/loss per share was computed by dividing the net loss by the weighted average number of shares outstanding during the year. The weighted average number of shares was calculated by taking the number of shares outstanding and weighting them by the amount of time they were outstanding. Outstanding warrants were not included in the computation of diluted loss per share because their inclusion would be antidilutive. Mineral Properties - ------------------ Costs of acquiring, exploring and developing mineral properties are capitalized by project area. Costs to maintain the mineral rights and leases are expensed as incurred. When a property reaches the production stage, the related capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves. At December 31, 2003, September 30, 2003, and 2002, the cost of the Company's mineral properties are included in other assets in the accompanying financial statements, as the Company has changed its focus from minerals exploration to oil and gas. Mineral properties are periodically assessed for impairment of value and any losses are charged to operations at the time of impairment. Should a property be abandoned, its capitalized costs are charged to operations. The Company charges to operations the allocable portion of capitalized costs attributable to properties sold. Capitalized costs are allocated to properties sold based on the proportion of claims sold to the claims remaining within the project area. 10 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Oil and Gas Properties - ---------------------- The Company uses the successful efforts method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of carrying and retaining unproved properties are expensed. Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance. Other unproved properties are amortized based on the Company's experience of successful drilling and average holding period. Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated salvage values, are depreciated and depleted by the unit-of-production method. Support equipment and other property and equipment are depreciated over their estimated useful lives. Property leases are expensed ratably over the life of the lease. On the sale or retirement of a complete unit of a proven property, the cost and related accumulated depreciation, depletion, and amortization are eliminated from the property accounts, and the resultant gain or loss is recognized. On the retirement or sale of a partial unit of proven property, the cost is charged to accumulated depreciation, depletion, and amortization with a resulting gain or loss recognized in income. On the sale of an entire interest in an unproved property for cash or cash equivalent, gain or loss on the sale is recognized, taking into consideration the amount of any unrecorded impairment if the property had been assessed individually. If a partial interest in an unproved property is sold, the amount received is treated as a reduction of the cost of the interest retained. Environmental Remediation and Compliance - ---------------------------------------- Expenditures for ongoing compliance with environmental regulations that relate to current operations are expensed or capitalized as appropriate. Expenditures resulting from the remediation of existing conditions caused by past operations that do not contribute to future revenue generations are expensed. Liabilities are recognized when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. Estimates of such liabilities are based upon currently available facts, existing technology and presently enacted laws and regulations taking into consideration the likely effects of inflation and other societal and economic factors, and include estimates of associated legal costs. These amounts also reflect prior experience in remediation of contaminated sites, other companies' clean-up experience and data released by The Environmental Protection Agency or other organizations. Such estimates are by their nature imprecise and can be expected to be revised over time because of changes in government regulations, operations, technology and inflation. Recoveries are evaluated separately from the liability and, when recovery is assured, the Company records and report an asset separately from the associated liability. At December 31, 2003, the Company had no accrued liabilities for compliance with environmental regulations. 11 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fair Value of Financial Instruments - ----------------------------------- The carrying amounts for cash, receivables, prepaids, payables, and payables to related parties approximate their fair value. Fair Value Standards - -------------------- The Company has adopted the fair value accounting rules to record all transactions in equity instruments for goods or services. Investments - ----------- Investments, principally consisting of equity securities of private and small public companies, are stated at current market value. Impaired Asset Policy - --------------------- The Company adopted Statement of Financial Accounting Standards No. 144 titled "Accounting for Impairment of Disposal of Long-Lived Assets." In complying with this standard, the Company reviews its long-lived assets quarterly to determine if any events or changes in circumstances have transpired which indicate that the carrying value of its assets may not be recoverable. The Company determines impairment by comparing the undiscounted future cash flows estimated to be generated by its assets to their respective carrying amount whenever events or changes in circumstances indicate that an asset may not be recoverable. Because of write-downs and write-offs taken in prior years, the Company does not believe any further adjustments are needed to the carrying value of its assets at December 31, 2003. See Note 3. Principles of Consolidation - --------------------------- The financial statements include those of the Cadence Resources Corporation and Celebration Mining Company. All significant inter-company accounts and transactions have been eliminated. The financial statements are not considered consolidated statements since Cadence Resources Corporation was the successor by merger to Celebration Mining Company. Provision for Income Taxes - -------------------------- Income taxes are provided based upon the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes." Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the "more likely than not" standard imposed by SFAS No. 109 to allow recognition of such an asset. Reclassifications - ----------------- Certain amounts from prior periods have been reclassified to conform with the current period presentation. These reclassifications have resulted in no changes to the Company's accumulated deficit and net losses presented. 12 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Derivative Instruments - ---------------------- The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB No. 133", and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" and SFAS No. 149, "Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities." These standards establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. Historically, the Company has not entered into derivatives contracts to hedge existing risks or for speculative purposes. At December 31, 2003 and for the periods covered in these statements, the Company has not engaged in any transactions that would be considered derivative instruments or hedging activities. Revenue Recognition - ------------------- Cadence began producing revenues during July 2002. Oil and gas revenues are recorded using the sales method. Under this method, the Company recognizes revenues based on actual volumes of oil and gas sold to purchasers. Recent Accounting Pronouncements - -------------------------------- In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" (hereinafter "SFAS No. 150"). SFAS No. 150 establishes standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those instruments were classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has determined that there was no impact on the Company's financial statements from the adoption of this statement. 13 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recent Accounting Pronouncements (continued) - ------------------------------------------- In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" (hereinafter "SFAS No. 149"). SFAS No. 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the financial position or results of operations of the Company. In December 2002, the Financial Accounting Standards Board, issued Statement of Financial Accounting Standards, No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS No. 148"). SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, the statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The provisions of the statement are effective for financial statements for fiscal years ending after December 15, 2002. The Company currently reports stock issued to employees under the rules of SFAS No. 123. Accordingly there is no change in disclosure requirements due to SFAS No. 148. In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring activities. SFAS No. 146 also addresses recognition of certain costs related to terminating a contract that is not a capital lease, costs to consolidate facilities or relocate employees, and termination benefits provided to employees that are involuntarily terminated under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS No. 146 was issued in June 2002, effective December 31, 2002 with early adoption encouraged. There has been no impact on the Company's financial position or results of operations from adopting SFAS No. 146. In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 44, 4 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145"), which updates, clarifies and simplifies existing accounting pronouncements. FASB No. 4, which required all gains and losses from the extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related tax effect was rescinded. As a result, FASB No. 64, which amended FASB No. 4, was rescinded as it was no longer necessary. SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers", established the accounting requirements for the effects of transition to the provisions of the Motor Carrier Act of 1980. Since the transition has been 14 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recent Accounting Pronouncements (continued) - ------------------------------------------- completed, SFAS No. 44 is no longer necessary and has been rescinded. SFAS No. 145 amended SFAS No. 13 to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The Company adopted SFAS No. 145, which has not had a material effect on the Company's financial statements. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." This standard establishes a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations. SFAS No. 144 requires that these long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations. This statement is effective beginning for fiscal years after December 15, 2001, with earlier application encouraged. The Company adopted SFAS No. 144 and the adoption did not have a material impact on the financial statements of the Company at December 31, 2003. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 establishes guidelines related to the retirement of tangible long-lived assets of the Company and the associated retirement costs. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived assets. This statement is effective for financial statements issued for the fiscal years beginning after June 15, 2002 and with earlier application encouraged. The Company adopted SFAS No. 143 and the adoption did not have a material impact on the financial statements of the Company at December 31, 2003. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (hereinafter "SFAS No. 141" and "SFAS No. 142"). SFAS No. 141 provides for the elimination of the pooling-of-interests method of accounting for business combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142 prohibits the amortization of goodwill and other intangible assets with indefinite lives and requires periodic reassessment of the underlying value of such assets for impairment. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. An early adoption provision exists for companies with fiscal years beginning after March 15, 2001. The adoption of these standards did not have a material effect on the Company's financial statements. 15 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recent Accounting Pronouncements (continued) - ------------------------------------------- In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" (hereinafter "FIN 46"). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. The provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company does not have any entities that require disclosure or new consolidation as a result of adopting the provisions of FIN 46. In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others" (hereinafter "FIN 45"). FIN 45 requires a company, at the time it issues a guarantee, to recognize an initial liability for the fair value of obligations assumed under the guarantee and elaborates on existing disclosure requirements related to guarantees and warranties. The initial recognition requirements of FIN 45 are effective for guarantees issued or modified after December 31, 2002 and do not have an impact on the financial statements of the Company. The Company does not anticipate issuing any guarantees which would be required to be recognized as a liability under the provisions of FIN 45 and thus does not expect the adoption of this interpretation to have an impact on its results of operations or financial position. NOTE 3 - MINERAL PROPERTIES Over the last three years, the Company's mineral properties have for the most part been disposed of or written off as the Company's focus and direction have shifted to oil and gas production. Utah Property - ------------- The Company has elected to retain its 25% undivided interest in the Vipont Mine located in northwest Utah. This interest is carried on the Company's books at $246,757 and is included in other assets. (See Note 13) Mineral Properties in North Idaho - --------------------------------- At December 31, 2003, the Company, directly and through its subsidiary, Celebration Mining Company, held forty-three unpatented mining claims in the Coeur d'Alene Mining District in distinct groups called the South Galena Group, Moe Group, Rock Creek Group and Palisades Group. The Company has undertaken only minimal exploration and development work on these properties, such as general geological reconnaissance and claim-staking activities. All of these claims have been written off as permanently impaired. 16 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 3 - MINERAL PROPERTIES (Continued) In September 2000, the Company, through its wholly owned subsidiary Celebration Mining Company, entered into a five-year lease agreement with an affiliated company, Oxford Metallurgical, Inc. ("Oxford") on its eight-claim Palisades Group property. The lease called for a semi-annual payment of $3,000, or alternatively, the semi-annual payment of 10,000 shares of the common stock of Oxford. Oxford had the right to explore and potentially develop the property under certain conditions. This lease was rescinded during the year ended September 30, 2002. NOTE 4 - INVESTMENTS The Company's investment securities are classified as available for sale securities which are recorded at fair value on the balance sheet as investments. The change in fair value during the period is excluded from earnings and recorded net of tax as a component of other comprehensive income. The Company has no investments which are classified as trading securities. At December 31, 2003, September 30, 2003 and 2002, the market values of stock investments were as follows:
December 31, September 30, September 30, 2003 2003 2002 ----------- ------------ ------------ Elite Logistics, Inc. $ 611 $ 656 $ 2,950 Ashington Mining Company 5,709 5,709 5,709 Cadence Resources Corp. LP - - 15,200 Enerphaze Corporation 982 982 5,400 Exhaust Technology - - 2,244 Integrated Pharmaceuticals, Inc. 9,406 9,406 - Metalline Mining Company 875 925 - Nevada-Comstock (formerly Caledonia Silver-Lead Mines, Inc.) - - 350,198 Rigid Airship Tech 310 310 - Sterling Mining Co. - - 4,859 The Williams Companies, Inc. - - 6,800 Trend Mining Company 25,858 24,483 54,567 Western Goldfields, Inc. 249,660 351,373 866 Other investments - 610 - ---------- --------- --------- Total $ 293,411 $ 394,454 $ 448,793 ========== ========= =========
17 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 4 - INVESTMENTS (continued) The carrying value of these shares is reevaluated at each reporting period and adjustments, if appropriate, are made to the carrying value of these securities. Of all the aforementioned investments owned by the Company at December 31, 2003, only Trend Mining Company, Metalline Mining Company, and Western Goldfields, Inc. are public companies with a trading market. Other information regarding the Company's investments follows: Enerphaze Corporation - --------------------- In October 2001, the Company received 8,000 shares of Enerphaze Corporation common stock in payment of a $15,000 note receivable. In January and February 2002, the Company received 65,000 shares of Enerphaze Corporation common stock in exchange for 400,000 shares of the Company's common stock. No gain or loss was recognized on these transactions. Nevada-Comstock Mining Company (formerly Caledonia Silver-Lead Mines, Inc.) - --------------------------------------------------------------------------- The Company on October 31, 2001 received 3,501,980 shares of the $0.10 par value common stock of Caledonia Silver-Lead Mines, Inc. (an affiliated company) in exchange for its Kil Group and West Mullan Group claims. The stock received was recorded at its par value of $350,198 which, in the opinion of management, approximated its fair value. The net effect of the transaction resulted in a gain of $330,198. At September 30, 2003, this investment was written off as the investment company is dormant and there is no way to value the shares. Western Goldfields, Inc. - ------------------------ In 2002, the Company exchanged fully depreciated mining equipment for shares of a privately held business, Calumet Mining Company, which was eventually acquired by Western Goldfields, Inc. Upon completion of the acquisition the Company received 160,000 shares of Western's common stock. At the time, Western's stock had experienced minimal trading and had a limited market for its stock. During the year ended September 30, 2003, Western's trading volume substantially increased. The current value of this stock is included in the attached financial statements as investments. In addition during 2003, the Company acquired an additional 21,200 shares of Western stock for $24,730. Cadence Resources Corporation Limited Partnership - ------------------------------------------------- On August 8, 2002, the Company formed a limited partnership in the State of Washington whereby the Company became the managing general partner and an outside individual investor became the initial limited partner. In connection with the formation of the Partnership, the Company agreed to contribute $12,500 and its leasehold interest in an oil well ("2B", which ultimately was a dry hold) in Wilbarger County, Texas and the limited partner contributed $250,000 in cash. The entity, Cadence Resources Corporation Limited Partnership (hereinafter "CRCLP" or "the Partnership") was formed to invest in oil and gas properties in Texas and Louisiana. The limited partner's interest was purchased by the Company in a transaction with an effective date of September 30, 2003, at which time the Company held all of the general partner interests and limited partner interests in the Partnership. See Note 13. 18 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 4 - INVESTMENTS (Continued) Other Limited Partnerships - -------------------------- During the year ended September 30, 2003, the Company formed four other limited partnerships in the State of Washington whereby the Company became the managing general partner and an outside individual investor became the initial limited partner. The entities, Cadence West Electra Partners LP, Cadence Antrim Partners 1 LP, Cadence Antrim Partners 2 LP and Cadence Antrim Partners 3 LP were formed to invest in oil and gas properties. As of December 31, 2003, these entities have not begun activities. NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Major additions and improvements are capitalized. Minor replacements, maintenance and repairs that do not increase the useful life of the assets are expensed as incurred. Depreciation of property and equipment is determined using the straight-line method over the expected useful lives of the assets of five to ten years. Depreciation expense for the three months ended December 31, 2003, and the year ended September 30, 2002, and 2001 was $11,007, $21,222 and $4,303 respectively. NOTE 6 - COMMON STOCK During the year ended September 30, 2001, the Company issued 284,375 shares of common stock to officers, directors, consultants and others for services and 532,500 shares of common stock were issued to officers for loan consideration, investments and cash. The Company also issued 40,000 shares of its common stock pursuant to terms of a consulting agreement and sold 393,334 shares of its common stock for cash. The shares were valued at their fair market value at the date of issuance, which ranged from $0.25 to $1.40. On April 23, 2001, the Company's board of directors authorized a 1-for-20 reverse stock split of the Company's $0.01 par value common stock. All references in the accompanying financial statements and notes to the number of common shares and per-share amounts have been restated to reflect the reverse stock split. The Company also approved an increase in the number of its authorized common stock shares to 100,000,000. During the year ended September 30, 2002, the Company issued 589,184 shares of its common stock to officers, consultants and others for services and prepaid expenses valued at $211,667, 400,000 shares of its common stock for an investment, 6,800 shares of its common stock to an officer for reimbursement of expenses valued at $7,000 and 300,000 shares of its common stock to an officer in payment of a note payable. These transactions were valued in accordance with a plan for stock issuance previously approved by the board of directors. The Company also sold 783,000 shares of its common stock for $241,900. 19 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 6 - COMMON STOCK (continued) During the year ended September 30, 2002, the Company also sold 2,333,336 "units" to investors, two officers of the Company and another entity under common control at $0.30 per unit in a private placement. Each unit consists of one share of common stock and one warrant exercisable at $0.30 per common share for five years. Sales of these units generated cash proceeds of $700,000. Two officers of the Company and another entity under common control invested $50,000 in these common stock units. (See Note 9) During the year ended September 30, 2003, the Company sold 212,500 "units" to investors at prices ranging from $0.50 to $0.80 per unit in a private placement. Each unit consists of one share of common stock and one warrant exercisable at $1.35 per common share for three years. Sales of these units generated cash proceeds of $110,000. Warrants previously issued (2,320,175) were exercised for 1,956,984 shares of common stock in "cashless" redemptions. (See Note 9.) During this same period the Company sold 2,625,183 shares of its common stock for $4,316,599 net of expenses of $347,850. The Company also issued 496,500 shares of its common stock to officers, directors and consultants for services valued at $540,675 and 220,000 shares for loan consideration valued at $207,000. In addition, the Company issued to a related party an additional 120,000 shares valued at $120,000 as an inducement for a loan. The value of this inducement was used to reduce the payable to related party. During the quarter ended December 31, 2003, the Company issued 10,000 shares of its common stock to consultants and others for services valued at $25,000. NOTE 7 - REDEEMABLE PREFERRED STOCK On April 23, 2001, the Company's board of directors authorized 20,000,000 shares of preferred stock with a par value of $0.01 per share and rights and preferences to be determined. No shares were issued and outstanding as of September 30, 2002. During the year ended September 30, 2003, the Company issued 34,950 shares of its preferred stock to investors at prices ranging from $1.50 to $2.00 per share for aggregate proceeds of $59,925. The shares bear a preferred dividend of 15% per annum and are convertible to common stock at a price of $1.50 per share under certain terms and conditions. The Class A shares mature seven years from the date of issuance. At maturity, the Class A shares will be redeemed for cash or common stock at Cadence's option in an amount equal to the amount paid by the investors for the shares plus any accrued and unpaid dividends. If shares of common stock are to be issued at maturity, the conversion price shall be determined by the average closing bid price for the 20 trading days prior to the maturity date. At December 31, 2003, the Company had no accrued dividends payable to preferred shareholders. 20 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 8 - COMMON STOCK OPTION AND AWARD PLAN In January 1992, the shareholders of Cadence approved a 1992 Stock Option and Stock Award Plan under which up to ten percent of the issued and outstanding shares of the Company's common stock could be awarded based on merit or work performed. As of September 30, 2003, only 638 shares of common stock had been awarded under the Plan. The Company has a stock-based compensation plan whereby the Company's board of directors may grant common stock to its employees and directors. At September 30, 2001, a total of 72,750 options had been granted under the plan. These options were forfeited and none been exercised through the year ending September 30, 2002. The old existing options were attributed to the merger of Celebration Mining Company with Royal in August 1995. During the year ended September 30, 2002, the Company's board of directors chose to make option awards to select officers, directors, consultants and shareholder/investors. These options were not awarded pursuant to a qualified plan and carry various terms and conditions. The Company granted a total of 750,000 options at an average exercise price of $1.08 per share. These options were exercisable immediately. The Company's board of directors has reserved the right to cancel these awards for non-performance or other reasons. The fair value of each option granted during fiscal 2002 and 2003 was estimated on the grant date using the Black-Scholes Option Price Calculation. The following assumptions were made in estimating fair value during fiscal 2002: risk-free interest rate of 5%, volatility of 100%, expected life of 3 to 5 years, and no expected dividends. The value of these options in the amount of $626,790 was included in operating expense in the financial statements. The following assumptions were made in estimating fair value during the year ended September 30, 2003: risk-free interest rate of 3% to 4%, volatility of 106% to 337%, expected life of 4 to 5 years and no expected dividends. The value of these options in the amount of $222,343 was included in the Company's statement of operations for 2003. The value of options issued for financing fees in the amount of $429,671 is deducted against additional paid in capital, as a cost of selling common stock. In July 2003, 100,000 of the outstanding options were exercised for the purchase of 100,000 shares of the Company's common stock. Prior to April 2001, a total of 72,750 options were granted by the board to officers, directors and other consultants. As shown above, the 60,000 options remaining were forfeited during the fiscal year ending September 30, 2002. 21 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 8 - COMMON STOCK OPTION AND AWARD PLAN (Continued) Following is a summary of the stock options during the quarter ended December 31, 2003 and the years ended September 30, 2003 and 2002:
Weighted Number Average of Exercise Options Price -------------- ------------- Outstanding at 10/1/2001 60,000 $ 18.60 Granted 750,000 1.08 Exercised - - Expired or forfeited (60,000) (18.60) -------------- ------------- Outstanding at 9/30/2002 750,000 $ 1.08 ============== ============= Options exercisable at 9/30/2002 750,000 $ 1.08 ============== ============= Weighted average fair value of options granted during the year ended 9/30/2002 $ 0.84 ============== Outstanding at 10/1/2002 750,000 $ 1.08 Granted 287,140 2.23 Exercised (100,000) (0.68) Expired or forfeited - - -------------- ------------- Outstanding 9/30/03 937,140 $ 1.47 ============== ============= Options exercisable at 9/30/03 937,140 $ 1.47 ============== ============= Weighted average fair value of options granted during the year ended 9/30/2003 $ 2.27 ============== Outstanding at 10/1/2003 937,140 $ 1.47 Granted - - Exercised - - Expired or forfeited - - -------------- ------------- Outstanding 12/31/03 937,140 $ 1.47 ============== ============= Options exercisable at 12/31/03 937,140 $ 1.47 ============== ============= Weighted average fair value of options granted during the three months ended 12/31/03 $ - ==============
22 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 8 - COMMON STOCK OPTION AND AWARD PLAN (Continued)
Weighted Average Exercise Date Number of Shares Price per Share ------------------------------------------- ----------------------- ---------------------- On or before June 21, 2005 200,000 $ 1.50 On of before August 1, 2005 50,000 $ 1.50 On or before March 1, 2007 300,000 $ 0.75 On or before July 8, 2007 100,000 $ 1.35 On or before June 18, 2007 50,000 $ 1.70 On or before June 1, 2007 75,000 $ 2.00 On or before September 30, 2008 162,140 $ 2.50
Stock Award Plan - ---------------- During the year ended September 30, 2001, the Company's board of directors approved the issuance of 15,000 shares of the Company's common stock per quarter to each entitled director as compensation for service to the Company and 5,000 shares of the Company's common stock per quarter to officers in addition to their salaried compensation for services. NOTE 9 - WARRANTS During the year ended September 30, 2002, the Company issued 2,333,336 shares of stock with 2,333,336 warrants attached. These warrants were valued at $233,334 using the Black-Scholes Option Price Calculation. The following assumptions were made in estimating fair value: risk free interest rate is 5%, volatility is 100% and expected life is 5 years. These warrants may be used in a cashless exercise to purchase 2,333,336 shares of the Company's common stock at $0.30 per share. The warrants remain exercisable through April 15, 2007. During the year ended September 30, 2003, all of these warrants were exercised in cashless exercises in accordance with the terms of the warrants and 1,956,984 shares of the Company's common stock were then issued to the warrant holders. During the year ended September 30, 2003, the Company issued 212,500 shares of stock with 212,500 warrants attached, and 25,000 warrants related to a July 2002 purchase. The warrants were valued at $51,375 using the Black-Scholes Option Price Calculation. The following assumptions were made is estimating fair value: risk free interest rate is 5%, volatility is 100% and expected life is 3 years. These warrants may be used to purchase 237,500 shares of the Company's common stock at $1.35 per share. The warrants remain exercisable through October 15, 2005. As of the date of these financial statements, all of these warrants remain outstanding and exercisable. 23 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 10 - OIL AND GAS PROPERTIES The Company's oil and gas producing activities are subject to laws and regulations controlling not only their exploration and development, but also the effect of such activities on the environment. Compliance with such laws and regulations may necessitate additional capital outlays, affect the economics of a project, and cause changes or delays in the Company's activities. The Company's oil and gas properties are valued at the lower of cost or net realizable value. Louisiana - --------- During the fourth quarter of the year ended September 30, 2001, the Company began leasing acreage in a natural gas field in Desoto Parish, Louisiana. As of the date of these financial statements, the Company has leased over 4,250 acres. At December 31, 2003, September 30, 2003 and September 30, 2002, Louisiana leases of $201,684, $350,675 and $169,077, respectively, are included in the attached financial statements as prepaid mineral leases. In June 2003, under the terms of a joint operating agreement with Bridas Energy USA, Bridas commenced drilling. The first three wells are now in the process of being completed with small amounts of production being generated. The Company has a 25% working interest in and 20% net revenue interest in the first two wells drilled and a 45% working interest and 36% net revenue interest in the third, fourth and fifth wells. Bridas is the operator of all of Cadence's properties in Louisiana. Texas - ----- During the year ended September 30, 2002, the Company acquired an exploration permit and lease option agreement for an oil well project in Wilbarger County, Texas known as the Waggoner Ranch Project. During the quarter ended March 31, 2002 under the terms of a joint operating agreement with the W.T. Waggoner Estate, Waggoner drilled an initial test well. By September 30, 2003, Waggoner had drilled a total of seven wells in Wilbarger County, of which five were producing oil. The W.T. Waggoner Estate is the operator of all of Cadence's properties in Wilbarger County and the sole purchaser of all production from these properties. During the year ended September 30, 2002, the Company sold 40% of the working interest in its initial well in this area (known as the "1A" well) to private investors and two officers of the Company for $210,000. The Company's initial cost in the portion of the prospect sold totaled $3,200. At December 31, 2003 September 30, 2003 and September 30, 2002, the Company recorded a receivable from third party working interest owners in the amount of $12,873, $12,873 and $16,037, respectively, to reflect some sales of the prospect's partial interest. This well was placed in production during July 2002. Two additional exploratory wells (the "2A" and "1B") were drilled by Waggoner on the property with the Company retaining 100% of the working interest. The 1B was successfully placed in production and the 2A was converted to a salt-water disposal well. Subsequent efforts were made to drill the "2B" well (the Company's fourth well) which was funded through the Cadence Resources Corporation Limited Partnership. This well was unsuccessful. 24 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 10 - OIL AND GAS PROPERTIES (Continued) Texas (continued) - ----------------- During February 2003, the Company completed the West Electra Lake Well on the Waggoner Ranch Project. The Company entered into a 45% working interest joint operating agreement with the Waggoner Ranch for the operations conducted on this acreage. In the quarter ending September 30, 2003, the Company drilled and completed two additional wells on the West Electra Lake joint venture operating area on the Waggoner Ranch. The Company owns a 50% working interest in these last two wells. At December 31, 2003, September 30, 2003 and 2002, prepaid oil and gas leases relating to Texas property of, $4,500, $4,500 and $8,100, respectively, are included in the attached financial statements. Michigan - -------- In December 2002, the Company began participating in a natural gas drilling program in Alpena County, Michigan with Aurora Energy, Ltd. As of December 31, 2003, Cadence had a 22.5% working interest (before payout, 20% after payout), 18% net revenue interest (before payout, 16% after payout), in six producing wells in Alpena County. Production commenced from this field in June 2003. Aurora is the operator of all of Cadence's properties in Alpena County. At December 31, 2003, Michigan leases totaling $96,374 are included in the attached financial statements as prepaid mineral leases. Kansas - ------ During the year ended September 30, 2003, the Company leased 2,270 acres of land in the Anadarko Basin in west central Kansas. No drilling has commenced on any of this acreage. Cadence holds a 100% working interest and 82% net revenue interest in these leases. At December 31, 2003, $66,318 of leases in Kansas are included in the attached financial statements as prepaid mineral leases. NOTE 11 - OIL AND GAS PRODUCING ACTIVITIES The Securities and Exchange Commission defines proved oil and gas reserves as those estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recovered in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. The Company has retained the services of an independent petroleum consultant to estimate its oil reserves in Texas at September 30, 2003. Natural gas reserves have not been estimated because there has been no independent study performed of the Company's reserves of natural gas. The oil reserve estimates include reserves in Texas in which Cadence holds an economic interest under lease and operating agreements. 25 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 11 - OIL AND GAS PRODUCING ACTIVITIES (Continued) Proved reserves do not include amounts that may result from extensions of currently proved areas or from application of enhanced recovery processes not yet determined to be commercial in specific reservoirs. Cadence has no supply contracts to purchase petroleum or natural gas from foreign governments. The changes in proved reserves for the years ended September 30, 2003 and 2002 including the reserves at September 30, 2002 were as follows and as estimated by the management of Cadence:
Petroleum Liquids Natural Gas (Mbarrels) (MMCF) United States United States --------------------- ---------------- Reserves at October 1, 2001 - - Extensions and discoveries 101 - Production/sales (3) - --------------------- ---------------- Reserves at September 30, 2002 98 - ===================== ================ Reserves at October 1, 2002 98 - Revision of previous estimate (21) - Production/sales (11) - --------------------- ---------------- Reserves at September 30, 2003 66 - ===================== ================
All reserves shown at September 30, 2003 are proved developed reserves. The aggregate amounts of capitalized costs relating to oil and gas producing activities and the related accumulated depreciation, depletion and amortization as of September 30, 2003 and 2002 were as follows:
September 30, September 30, 2003 2002 -------------- ------------- Proved properties $ 290,747 $ 48,694 Unproved properties 1,133,836 78,997 Wells and related equipment and facilities 202,886 67,374 Support equipment and facilities 151,963 105,108 Prepaid oil and gas leases 395,971 177,177 Accumulated depreciation, depletion and amortization (61,611) (4,312) -------------- ------------- Total capitalized costs $ 2,113,792 $ 473,038 ============== =============
26 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 11 - OIL AND GAS PRODUCING ACTIVITIES (Continued) Costs both capitalized and expensed, which were incurred in oil and gas-producing activities during the years ended September 30, 2003, 2002 and 2001, are set forth below. Property acquisition costs represent costs incurred to purchase or lease oil and gas properties. Exploration costs include costs of geological and geophysical activity and drilling exploratory wells. Development costs include costs of drilling and equipping development wells and construction of production facilities to extract, treat and store oil and gas.
September 30, September 30, 2003 2002 -------------------- -------------------- Property acquisition costs: Proved properties $ - $ 8,000 Unproved properties 319,188 245,483 Exploration costs 139,010 456,086 Development costs 1,479,030 306,761 Operating expenses 281,143 12,279 -------------------- -------------------- Total expenditures $ 2,218,371 $ 1,028,609 ==================== ====================
Results of operations for oil and gas producing activities (including operating overhead) for the year ended September 30, 2003 were as follows:
Revenues $ 387,355 -------------- Depreciation, depletion and amortization (57,310) Oil & gas lease expenses (302,204) Exploration and drilling (109,968) Oil and gas production expenses (34,577) Other operating expenses (79,334) -------------- Total expenses 583,393 -------------- Results before income taxes (196,038) Income tax expense - -------------- Results of operations from oil and gas producing activities $ (196,038) -------------- Standardized Measure of Future Net Cash Flows --------------------------------------------- Future cash flows $ 1,930,539 Future development and production costs (469,039) Future income tax expense - -------------- Future net cash flows 1,461,500 10% annual discount 213,000 -------------- Standardized measure of discounted future net cash flows $ 1,248,500 ==============
27 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 11 - OIL AND GAS PRODUCING ACTIVITIES (Continued) Future net cash flows were computed using fiscal year-end prices of West Texas Intermediate crude. Future price changes are considered only to the extent provided by contractual arrangements. Estimated future development and production costs are determined by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the fiscal year, based on year-end costs and assuming continuation of existing economic conditions. Estimated future income tax expense is normally calculated by applying fiscal year-end statutory tax rates (adjusted for permanent differences and tax credits) to estimated future pretax net cash flows related to proved oil and gas reserves, less the tax basis of the properties involved. These estimates are furnished and calculated in accordance with requirements of the Financial Accounting Standards Board and the SEC. Estimates of future net cash flows presented do not represent management's assessment of future profitability or future cash flows to Cadence. Management's investments and operating decisions are based on reserves estimated that include proved reserves prescribed by the SEC as well as probable reserves, and on different price and cost assumptions from those used here. It should be recognized that applying current costs and prices and a 10% standard discount rate does not convey absolute value. The discounted amounts arrived at are only one measure of the value of proved reserves. NOTE 12 - NOTES PAYABLE - RELATED PARTIES All of the Company's notes payable are considered short-term. At December 31, 2003, notes payable consisted of the following:
Nathan Low Family Trust (a shareholder of the Company), secured by assignment of a prorata interest in gas producing properties located in Alpena County, Michigan, interest at 8%, dated February 24, 2003, originally due on April 4, 2003, Extended to December 31, 2003. $ 50,000 Kevin Stulp (a shareholder of the Company), interest at 8%, dated February 24, 2003, originally due on April 5, 2003, extended to December 31, 2003. 25,000 Howard Crosby (an officer and shareholder of the Company), interest at 8%, dated February 24, 2003, originally due on April 5, 2003, extended to December 31, 2003. 25,000 Total $ 100,000 ============
28 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 13 - COMMITMENTS AND CONTINGENCIES Prospective Penalty - ------------------- In September and October 2003, the Company sold 1,721,400 shares of its common stock for a total of $4,303,500. In the securities purchase agreement for the stock, Cadence committed to pay the purchasers in the offering a monthly penalty equal to 1% of the total proceeds raised in the offering if the Securities and Exchange Commission did not declare effective by December 14, 2003 a registration statement (Form SB-2) which Cadence filed on October 30, 2003. Because the registration statement was declared effective in January 2004, Cadence accrued a penalty of $43,035 at December 31, 2003. This amount is included in accounts payable. Litigation - ---------- he Company was a defendant in a lawsuit alleging that the Company failed to transfer common stock in exchange for a mining property interest. In June 1999, Box Elder County Superior Court rejected the plaintiff's lawsuit and let stand the Company's countersuit alleging fraudulent misrepresentation. Although the plaintiff filed an appeal (regarding the originally filed lawsuit), the Utah Supreme Court rejected the appeal in a judgment rendered on July 31, 2001. The Company's countersuit, which sought both full title to the aforementioned mineral property and compensatory damages as well as punitive damages, was rejected in a jury trial in October 2002. Although the Company filed an appeal, it expects the jury verdict will stand. As a result, the Company has and will continue to hold an undivided 25% interest in the Vipont Mine. See Note 3. Environmental Issues - -------------------- The Company is engaged in oil and gas exploration and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures as they relate to the drilling of oil and gas wells and the operation thereof. In the Company's acquisition of existing or previously drilled wells, the Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. The Company could incur significant costs, including cleanup costs resulting from a release of hazardous material, third-party claims for property damage and personal injuries fines and sanctions, as a result of any violations or liabilities under environmental or other laws. Changes in or more stringent enforcement of environmental laws could also result in additional operating costs and capital expenditures. In the course of routine oil and natural gas operations, surface spills and leaks, including casing leaks, of oil or other materials do occur, and the Company may incur costs for waste handling and environmental compliance. The Company was previously engaged in exploration of mineral properties. These properties are classified as assets from discontinued operations or were previously written off as permanently impaired. Although the Company has discontinued the exploration of mineral properties, the possibility exists that environmental cleanup or other environmental restoration procedures could remain to be completed or be mandated by law, causing unpredictable and unexpected liabilities to arise. At the date of this report, the Company is not aware of any environmental issues related to any of its assets from discontinued operations. 29 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 13 - COMMITMENTS AND CONTINGENCIES (continued) Capital Commitments - ------------------- At December 31, 2003 the Company's future capital commitments are dependent upon the Company's decision to proceed with additional well development. See Note 10. No accruals have been made in the accompanying financial statements for these amounts. Lease Commitments - ----------------- The Company began leasing office facilities in Walla Walla, Washington commencing in June 2001. The agreement is a three-year lease with monthly payments of $400. Total rent paid for this office space during the quarter ended December 31, 2003 was $1,200. The Company began leasing additional office space in Hilton Head Island, South Carolina in August 2003. The one-year lease calls for monthly rental payments of $550. For the quarter ended December 31, 2003, the Company expended $1,616 for this rental space. Cadence Resources Corporation Limited Partnership - ------------------------------------------------- On August 8, 2002, the Company formed a limited partnership in the State of Washington whereby the Company became the managing general partner and an outside individual investor became the initial limited partner. The entity, Cadence Resources Corporation Limited Partnership ("CRCLP" or the "Partnership") was formed to invest in oil and gas properties in Texas and Louisiana. See Notes 4 and 11. In connection with the formation of the Partnership, the Company agreed to contribute $12,500 in cash and its leasehold interest in an oil well ("2B", which ultimately was a dry hole) in Wilbarger County, Texas and the limited partner contributed $250,000 in cash. The terms of the Partnership agreement provide that 90% of initial income and expenses will be allocated to the limited partner and further provide that, after the limited partner's receipt of funds invested and an 11% return on his investment, subsequent Partnership profits and losses will be allocated 90% to the general partner and 10% to the limited partner. In order to ensure repayment of the limited partner's investment, Cadence agreed to grant to the limited partner a security interest in the equipment and fixtures affixed to wells 1A and 1B in Wilbarger County and agreed to contribute the Company's share of the cash flows it receives from these two wells to the Partnership. The Company holds a 60% working interest in well 1A and a 100% working interest in well 1B. See Notes 4 and 11. Effective September 30, 2003, Cadence purchased the limited partner's interest in the Partnership and thereby terminated the limited partner's aforementioned security interest. In this transaction, Cadence made a cash payment of $250,000 in October 2003 to the limited partner and received, from the limited partner his 5% working interest in the West Electra Lake #1 oil well in Wilbarger, Texas. During October 2003, Cadence also repaid to the limited partner the unsecured sum of $300,000 in connection with the aforementioned transaction. These funds were previously advanced to the Partnership in June 2003 for the exploration of natural gas interests in the Black Bean Unit in Michigan in return for the limited partner's receiving 120,000 shares of Cadence stock and a 30 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued) Cadence Resources Corporation Limited Partnership (continued) - ------------------------------------------------------------- working interest in each well drilled in the unit. Upon repayment of the $300,000 advance, the limited partner's working interest in each well drilled in the Black Bean Unit was fixed at 2%. Consulting Commitments - ---------------------- In June 2002, the Company entered into an agreement with Memphis Consulting Group ("Memphis") for financial consulting and public relations services beginning on August 1, 2002 through August 1, 2003. The agreement called for monthly payments of $3,000, and an initial 50,000 stock options exercisable through August 1, 2005 at $1.50 per share. See Note 8. This agreement was terminated during the quarter ended March 31, 2003. In September 2001, the Company entered into a consulting agreement with American Financial Group for promotion to investors. The agreement called for monthly payments of $2,000 to cover all expenses, 20,000 shares of the Company's common stock (which were issued in October 2001) and an override of 2.5% of monies raised in private placements from referrals or directed business. The agreement was terminated during the quarter ended March 31, 2003. In June 2003, the Company entered into a corporate advisory agreement with Proteus Capital Corp. calling for a monthly fee of $3,000 in cash and 2,000 restricted shares of the common stock of the Company. Additionally, Proteus received an option for 50,000 shares exercisable at $1.75 for a period of four years, such shares bearing certain registration rights should the Company file a registration statement on behalf of other shareholders. Lucius C. Geer, a consultant to the Company who manages its acquisition, exploration and production operations, has entered into several agreements with Cadence and has contractually received a 2% overriding royalty interest in oil, gas and mineral leases in Wilbarger County, Texas and a 1% overriding royalty interest in oil and gas leases in Desoto Parish, Louisiana. Effective August 1, 2003, an agreement provides that Geer will work for Cadence for $7,500 per month plus an overriding royalty interest of 2% of the sales price received for all oil, gas and minerals from leases which Geer acquires for Cadence. Other Limited Partnerships - -------------------------- During the quarter ended June 30, 2003, the Company formed four other limited partnerships in the state of Washington whereby the Company became the managing general partner and an outside individual investor became the initial limited partner. The entities, Cadence West Electra Partners LP, Cadence Antrim Partners 1 LP, Cadence Antrim Partners 2 LP and Cadence Antrim Partners 3 LP were formed to invest in oil and gas properties. As of December 31, 2003, these entities have not begun activities. See Note 4. Other Commitments - ----------------- The Company entered into an exploration agreement with the W.T. Waggoner Estate (Waggoner) and its trustees on August 1, 2002. This agreement calls for exploration of the West Electra Lake Project located in Wilbarger County, Texas. See Note 10. 31 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued) On August 13, 2002, the Company entered into a public relations retainer agreement for one year whereby the Company agreed to issue 60,000 shares of its common stock during this period for services received. The agreement also calls for reimbursement of expenses incurred pursuant to terms of this agreement. This agreement was terminated in the quarter ending September 30, 2003. NOTE 14 - RELATED PARTY TRANSACTIONS The Company previously sublet office space on a month-to-month basis from one of its officers in Walla Walla, Washington for $400 per month through May 2001. During the year ended September 30, 2002, the Company sold several mineral properties located in Shoshone County, Idaho to Caledonia Silver-Lead Mines, Inc., later renamed Nevada-Comstock Mining Company. Two officers of the Company collectively own 2.4% of this entitity and Cadence owns 35%. See Note 4. Two officers of the Company collectively own in excess of 40% of the stock of Dotson Exploration Company and they are the sole officers and directors of Dotson. Dotson owns 109,000 shares of the Company's common stock. During fiscal year 2002 and 2003, Cadence repaid Dotson a loan in the amount of $10,000 and made two new loans to Dotson, one for $35,000 and one for $20,000, each at an interest rate of 10% per annum. Dotson transferred to Cadence marketable securities in the form of common stock of two unaffiliated companies, Enerphaze Corporation and The Williams Companies, Inc., valued by Cadence's board of directors at $33,380, as partial payment of the amount loaned. During the nine months ended June 30, 2003, Dotson repaid the $20,000 loan in cash. At September 30, 2003, Dotson owed Cadence $3,720, which amount is payable on demand and bears interest at 10% per annum. Because Dotson Exploration Company, Oxford Metallurgical, Inc. and Nevada-Comstock Mining Company are controlled by two officers of Cadence, these transactions cannot be considered to be the product of an arms-length negotiation. In October 2001, Cadence issued 200,000 shares of its common stock to Mr. Crosby for cash in the amount of $60,000. On January 15, 2002, Cadence issued 100,000 shares of its common stock to Mr. Crosby in payment of a loan made to Cadence in the principal amount of $30,000 in November 2001. On January 22, 2002, Mr. Crosby made an additional loan of $30,000 bearing interest at 8% for which Cadence issued him 15,000 shares valued at $4,500 as an inducement to making the loan. In January 2002, Cadence transferred 41,667 shares of the common stock it owned in Trend Mining Company, of which Mr. Ryan is a director, to Mr. Ryan in payment of past due salary of $16,000. Further, in October 2001, Mr. Ryan transferred marketable securities of Enerphaze Corporation valued at $90,000 to Cadence in exchange for 300,000 shares of Cadence, which shares are held by J.P. Ryan Company, Inc. held 100% by John Ryan, Andover Capital Corporation held 100% by John Ryan, and Dotson Exploration Company. 32 NOTE 14 - RELATED PARTY TRANSACTIONS (Continued) In April 2002, Mr. Crosby purchased 83,334 Cadence investment units and Mr. Ryan purchased 43,334 Cadence investment units at $0.30 per unit consisting of one share of common stock and one warrant exercisable at $0.30. The warrants contained a provision which allowed cashless exercise when and if Cadence common stock traded at or above $1.50 per share. Also, in April 2002, Cadence issued to Mr. Ryan 6,800 shares of its common stock in repayment of 6,800 Cadence shares owned by Mr. Ryan that he had transferred to third parties to pay Cadence invoices. On August 8, 2002, the Company formed a limited partnership whereby the Company became the managing general partner and an outside individual investor became the initial limited partner. In connection with the formation of the Partnership, the Company contributed $12,500 and agreed to contribute its leasehold interest in an oil well ("2B", which ultimately was a dry hole) in Wilbarger County, Texas. See Notes 4, 11 and 13. During the year ended September 30, 2003, the limited partner advanced $300,000 to the limited partnership in exchange for a note payable. This note is unsecured and bears interest at 10%. The proceeds from this note were used to purchase an interest in the Company's Michigan properties. This amount reflected in the attached financial statements as a payable to related party was repaid in October 2003. During fiscal 2003, Mr. Crosby made two loans to Cadence. One loan in December 2002 was in the principal amount of $70,000, bearing interest at 5% and the other loan made in February 2003 was in the principal amount of $50,000 bearing interest at a rate of 8%. Cadence issued 14,000 shares of its common stock valued at $10,920, as an inducement to making the $70,000 loan and 20,000 shares valued at $15,600, as an inducement to making the $50,000 loan. Cadence repaid $60,000 and has agreed to issue 4,000 shares of its common stock in repayment of the remaining $10,000 principal amount outstanding on the $70,000 loan. Cadence repaid $25,000 of the $50,000 loan in cash and has offered to issue 25,000 shares of its common stock to repay the remaining $25,000 principal amount outstanding. In February 2003, Mr. Kevin Stulp, a director, made a bridge loan to Cadence in the principal amount of $50,000, bearing interest of 8% per annum. Cadence issued 20,000 shares of its stock valued at $15,600 to Mr. Stulp as an inducement to making the loan. Cadence later repaid $25,000 of the $50,000 loan. In July 2003, Mr. Stulp exercised a warrant to purchase 100,000 shares of common stock at $.75 per share. In October 2002, the Nathan A. Low Roth IRA and various entities controlled by Thomas Kaplan, shareholders of Cadence, exercised warrants in separate cashless transactions whereby each party surrendered a total of 175,676 shares of common stock valued at $325,000 to exercise warrants for the acquisition of 1,083,334 shares of Cadence common stock. Other related party transactions are disclosed in Notes 3, 4, 6, 10, 12, 13 and 17. 33 CADENCE RESOURCES CORPORATION NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 15 - GAIN ON DEBT FORGIVENESS During the year ended September 30, 2002, a vendor of the Company chose to forgive interest charges on its delinquent account. This transaction resulted in the recognition of other income of $6,109. NOTE 16 - INCOME TAXES At September 30, 2003, the Company had net deferred tax assets calculated at an expected rate of 34% of approximately $5,134,000 as indicated below. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset has been established at September 30, 2003. The significant components of the deferred tax asset at December 31, 2003 and September 30, 2003 and 2002 were as follows:
September 30, December 31, -------------------------------------------- 2003 2003 2002 ------------------- ------------------- ------------------ Net operating loss carryforwards $ 2,924,000 $ 2,829,000 $ 1,423,000 Stock options and warrants issued 622,000 622,000 172,000 Section 1231 loss carryforwards 151,000 151,000 89,000 Capital loss carryforwards 1,532,000 1,532,000 887,000 ------------------ ------------------ ----------------- Total deferred tax asset 5,229,000 5,134,000 2,571,000 Less valuation allowance 5,229,000 5,134,000 2,571,000 ------------------ ------------------ ----------------- Net deferred tax asset $ - $ - $ - ================== ================== =================
At December 31, 2003, the Company has net operating loss carryforwards of approximately $8,600,000, which expire in the years 2009 through 2023. In addition, the Company has net Section 1231 loss carryforwards of approximately $446,000, which expire in the years 2005 through 2006, and net capital loss carryforwards of approximately $4,506,000, which expire in the years 2004 through 2008. The change in the allowance account from September 30, 2003 to December 31, 2003 was $95,000, which was primarily attributable to increased operating losses. The Company may have had a control change as defined under the Internal Revenue Code, because of new stock issuances and changes in ownership. The effect of such control changes have not been calculated but may limit the future use of net operating losses. NOTE 17 - SUBSEQUENT EVENTS In February 2004, three of the Company's directors loaned a total of $345,000 to the Company. Under the related loan agreements, interest of 12% is to be paid monthly on the obligations, which matures on December 31, 2004 and are secured by receipts from the Company's oil and gas production in Louisiana and Texas. 34 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion in conjunction with "Management's Discussion and Analysis" included in our Form 10-KSB for the fiscal year ended September 30, 2003, including our audited financial statements, together with the notes to those statements. Risks Related to Our Business The following discussion contains forward-looking statements that involve risks, uncertainties, and assumptions such as statements of our plans, objectives, expectations, and intentions. Our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events, particularly those identified in "Risk Related to our Business" in our Form 10-KSB, summarized as follows: o If we continue to experience significant operating losses, we may not be able to continue as a going concern. o We have no full-time employees and are dependent on our directors, officers and third-party contractors. o We lack experience in the oil and gas industry and must rely on third parties to conduct our oil and gas exploration activities. o Our drilling activities may be unsuccessful. o We do not operate any of our oil and gas properties. o We may be unable to make acquisitions of producing properties or prospects or successfully integrate them into our operations. o The failure to develop reserves could adversely affect our production and cash flows. o We may have difficulty financing our planned growth. o Oil and gas prices are volatile. A substantial decrease in oil and natural gas prices could adversely affect our business. o We may not have good and marketable title to our properties. o Competition in our industry is intense, and we are smaller and have a more limited operating history than most of our competitors. o Oil and natural gas operations involve various risks. o We lack insurance that would lower risks to our investors. o We are subject to complex federal, state and local laws and regulations that could adversely affect our business. 35 Capital Resources and Liquidity As of December 31, 2003, we had cash and cash equivalents of $754,133, a decrease of approximately 84% from September 30, 2003 levels. Most of our $3.6 million cash balance at September 30, 2003 was from the sale of approximately 1,621,400 shares of our common stock in September 2003. In the past, we have derived our working capital from the sale of our stock and from loans from officers, directors, shareholders and related parties. We also raised $275,000 of equity capital during the quarter ended December 31, 2003, of which $200,000 came from an additional investor from the September/October offering of common stock and $75,000 came from the issuance of common stock upon the exercise of warrants by one of our directors. Although we have begun to receive significantly higher revenues due to our Louisiana gas production during the quarter ended December 31, 2003, given the level of our overhead and drilling activity, we are still dependent upon outside capital resources to provide liquidity, and we expect this to be the case for the remainder of fiscal 2004. Our cash balance at September 30, 2003 was used principally to fund our exploration and development drilling, particularly the costs of drilling and completing wells on our DeSoto Parish Louisiana acreage with Bridas Energy. During the three months ended December 31, 2003 we invested $1,598,752 in unproved properties and $226,004 in fixed assets, including well equipment, pipelines, tanks, casings and pumping units. We also used approximately $910,000 to repay indebtedness to shareholders and related parties who had funded our operations prior to our sale of common stock in September and October 2003. Since December 31, 2003, we have used substantially all of our $754,133 cash balance as of that date to fund our drilling and production operations, primarily in De Soto Parish, Louisiana. In addition, as of February 16, 2004, we have borrowed $345,000 from three of our directors to help meet our working capital needs. As of February 16, 2004, our cash and cash equivalents were approximately $355,000. We received our first substantial revenues from our gas production in De Soto Parish, Louisiana during the quarter ended December 31, 2003. On a month-to-month basis, our revenues from our Louisiana gas production have steadily increased as we complete additional wells in that area. Furthermore, during the second fiscal quarter of 2004 we plan to accelerate our drilling rate in Louisiana from its current level of one well per month, which will increase our need for capital. Although we expect revenue from our Louisiana gas production to be sufficient to cover our operating and administrative overhead, we anticipate that we will continue to need infusions of capital, principally from loans from officers, directors, shareholders or related parties, to fund our Louisiana drilling program for at least the remainder of 2004. All of our five producing wells in De Soto Parish as of December 31, 2003 were drilled to the Cotton Valley formation to depths of in excess of 10,000 feet. Although our current plans are to accelerate the rate of drilling wells for at least the remainder of 2004, we expect that our drilling costs per well will generally decrease because we are planning to complete these new wells only to the Hosston sand formation, which lies between 6,450 and 8,950 feet. If we are unable to raise the needed capital for this accelerated drilling program, or even to continue our current rate of drilling, we may not be able to participate in all new wells in Louisiana drilled by Bridas Energy, our joint venture partner, which would further contribute to our dependence on outside capital resources, or reduce or eliminate our interest in new wells they drill. 36 Results of Operations Three months ended December 31, 2003 and 2002 Revenues In addition to our Texas production, during the three months ended December 31, 2003, we received our first significant revenues from gas production from our DeSoto Parish, Louisiana properties. During the 2003 quarter, revenues from the sale of oil and gas totaled approximately $559,400. During the same period in 2002, revenues were $33,376, all of which was from the sale of oil production from our Texas wells. Of our revenue from the quarter ended December 31, 2003, approximately $243,000 came from the sale of oil produced from our Texas properties at an average price of $29.96 per barrel. Revenues of approximately $296,000 came from the sale of natural gas produced from our Louisiana properties at an average price of $5.07 per Mcf. During the 2003 quarter we also received our first revenues of approximately $20,000 from our gas production in Michigan. Our Louisiana gas revenues have been growing steadily as we drill, complete and place into production an increasing number of wells. Although we are planning to accelerate our rate of drilling in Louisiana, the decline curve of our current production from the Cotton Valley sands is rapid, dropping from peak initial production of approximately 1,500 Mcf/day to a level of approximately 600 Mcf/day after about 60 days. If this decline curve holds true of production from our planned new wells in the Hosston sand formation, revenues may not increase at the same pace as our older wells level off. Expenses Our expenses during the three months ended December 31, 2003 break into two general categories: corporate and administrative overhead and expenses from oil and gas operations. Our overall general and administrative expenses include officer compensation, rent, travel, audits and legal fees associated with SEC filings, directors fees, investor relations and related consulting fees, stock transfer fees and other items associated with the costs of being a public entity. Expenses from oil and gas operations include consulting fees for technical and professional services related to oil and gas activities, lease acquisition costs, exploitation costs, production expenses, depletion, depreciation and amortization of oil and gas properties and related equipment, and other expenses related to the procurement and development of oil and gas properties. The following table is a comparison of Cadence's two general categories of expenses for the three months ended December 31, 2003 and 2002, and the percentages each of these categories comprise of total expenses:
Three Months Ended December 31, -------------------------------------------------------------------- % of 2003 % of 2002 Total Total 2003 Expenses 2002 Expenses -------------- ---------------- -------------- ------------- Corporate and Administrative Overhead $538,440 57.5% $167,468 71.9% Expenses from Oil and Gas Operations 398,224 42.5% 65,503 28.1% -------------- ---------------- -------------- ------------- Total Expenses $936,664 100.0% $232,971 100.0% ============== ================ ============== =============
The Company's corporate and administrative expenses for the three month period ended December 31, 2003 increased $370,972 over the level of these expenses for the same period in 2002. This increase was principally due to fees paid to our attorneys and accountants in connection with the registration for resale of over 3.5 million shares of our common stock, including the 1,721,400 shares privately placed in September and October of 2003. The increase of 37 $282,012 in professional fees in the 2003 quarter over the 2002 quarter represented approximately 76% of the $370,972 increase in corporate and administrative expenses from period to period. The largest other component of the increase was a $98,779 increase in other general and administrative expenses. The comparable period-to-period increases in oil and gas related expenditures are summarized in the following table, which reflects the major expense categories for expenses from oil and gas operations for the respective three month periods ended December 31, 2003 and 2002. These expenses increased over six-fold from year-to-year, due to the increased level of oil and gas exploration and production activity.
Three months Ended December 31, ----------------------------------------------------------------- 2003 2002 -------------------------------- --------------------------- 2003 % of Total 2002 % of Total Expenses Expenses -------------- -------------- ----------- ------------ Depreciation, depletion and amortization $233,111 58.5% $ 8,635 13.2% Oil and gas lease expenses 109,386 27.5% 20,352 31.1% Oil and gas production costs 39,479 9.9% Lease operating expenses 1,248 0.3% 36,516 55.7% Oil and gas consulting 15,000 3.8% -0- -------------- Total Expenses from oil and gas operations $398,224 100.0% $65,503 100.0% ============== ============== =========== ============
Our depreciation, depletion and amortization expense increased to $233,111 during the quarter ended December 31, 2003, from $8,635 during the same period in 2002 as our production increased dramatically from period to period. We spent $150,113 in the three months ended December 31, 2003 for oil and gas lease, production and operating expenses, compared to $56,868 in the same period last year. While our oil and gas lease expenses increased from period to period due to increased activity associated with obtaining leases in the Anadarko Basin in Kansas, our lease operating expenses decreased over the same period. These expenses decreased because our producing wells in Texas had matured by the December 2003 quarter and had begun operating at consistent levels without the need for the additional operating expenses that were required to bring the wells onto production in the December 2002 quarter when the wells were newer. Recent Accounting Pronouncements There have been no recently issued accounting pronouncements which we expect to have a material effect on our consolidated financial position or results of operations. Item 3. Controls and Procedures Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this quarterly report (the "Evaluation Date"), the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act). Based upon that evaluation, the Company's Chief Executive Officer and its Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that material information required to be disclosed by it in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. It should be noted, however, that the design of any system of 38 controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. FORWARD-LOOKING STATEMENTS This Form 10-QSB contains forward-looking statements that involve substantial risks and uncertainties. Investors and prospective investors in our common stock can identify these statements by forward-looking words such as "may," "will," "expect," "intend," "anticipate," believe," "estimate," "continue" and other similar words. Statements that contain these words should be read carefully because they discuss our future expectations, make projections of our future results of operations or of our financial condition or state other "forward-looking" information. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to predict accurately or control. The factors referenced in the section captioned "Management's Discussion and Analysis and Results of Operations" as well as any cautionary language in this Form 10-QSB, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Investors and prospective investors in our common stock should be aware that the occurrence of the events described in the "Management's Discussion and Analysis and Results of Operations " section and elsewhere in this Form 10-QSB could have a material adverse effect on our business, operating results and financial condition. 39 PART II. OTHER INFORMATION Item 1. Legal Proceedings During the quarter ended December 31, 2003, there were no material changes in pending legal proceedings and no legal proceedings against the Company were initiated. Item 2. Changes in Securities and Use of Proceeds At the time of issuance, each investor or recipient of unregistered securities was either an accredited investor or a sophisticated investor. Each investor had access to Cadence's most recent Form 10-KSB, all quarterly and periodic reports filed subsequent to such Form 10-KSB and Cadence's most recent proxy materials. On October 22, 2003, an accredited investor paid the Company $200,000 in exchange for 100,000 shares of its common stock. The Company paid a finder 11,000 shares of common in connection with the sale of these securities. The shares were issued in reliance upon the exemption from registration provided by Section 4 (2) of the Securities Act of 1933, as amended (the "Securities Act"). On November 21, 2003, the Company issued 100,000 shares of its common stock to Kevin Stulp, a director of the Company, upon the exercise of warrants. The Company received $75,000 upon the exercise of such warrants. No sales commissions were paid in connection with this transaction. The shares were issued in reliance upon the exemption from registration provided by Section 4 (2) of the Securities Act of 1933, as amended (the "Securities Act"). On November 21, 2003, the Company issued 10,000 shares of its common stock to Shai Stern, a sophisticated investor, in consideration of consulting services provided to the Company. No sales commissions were paid in connection with this transaction. The shares were issued in reliance upon the exemption from registration provided by Section 4 (2) of the Securities Act of 1933, as amended (the "Securities Act"). Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. 40 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits:
Exhibit Number Description ------ ----------- 31.1 Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended 31.2 Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended 32.1 Certificate of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certificate of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K The Company filed a report on Form 8-K under items 7 and 9 of Form 8-K, dated October 21, 2003, related to updated drilling results. 41 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Cadence Resources Corporation Date: February 20, 2004 By: /s/ Howard M. Crosby --------------------- Howard M. Crosby Chief Executive Officer Cadence Resources Corporation (Registrant) Date: February 20, 2004 By: /s/ John P. Ryan --------------------- John P. Ryan Chief Financial Officer 42 EX-31 3 cadence10qfeb2004ex311.txt EXHIBIT 31.1 Exhibit 31.1 Certification of Chief Executive Officer I, Howard M. Crosby, certify that: 1. I have reviewed this quarterly report of Cadence Resources Corporation; 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(s) 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(s) 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 of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control 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. /s/ Howard M. Crosby --------------------------------- Howard M. Crosby Chief Executive Officer Dated: February 20, 2004 EX-31 4 cadence10qfeb2004ex312.txt EXHIBIT 31.2 Exhibit 31.2 Certification of Chief Financial Officer I, John P. Ryan, certify that: 1. I have reviewed this quarterly report of Cadence Resources Corporation; 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(s) 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(s) 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 of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control 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. /s/ John P. Ryan ----------------------------------- John P. Ryan Chief Financial Officer Dated: February 20, 2004 EX-32 5 cadence10qfeb2004ex321.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Cadence Resources Corporation (the "Company") on Form 10-QSB for the period ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Howard M. Crosby, President & CEO of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, that, to the best of my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition, and results of operations of the Company. /s/ Howard M. Crosby ---------------------------------------- Howard M. Crosby Chief Executive Officer Dated: February 20, 2004 A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to Cadence Resources Corporation and will be retained by Cadence Resources Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 6 cadence10qfeb2004ex322.txt EXHIBIT 32.2 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Cadence Resources Corporation (the "Company") on Form 10-QSB for the period ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John P. Ryan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, that, to the best of my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition, and results of operations of the Company. /s/ John P. Ryan -------------------------------------- John P. Ryan Chief Financial Officer Dated: February 20, 2004 A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to Cadence Resources Corporation and will be retained by Cadence Resources Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----