10QSB 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM: COMMISSION FILE NUMBER: 0-25170 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (Exact name of registrant as specified in its charter) UTAH 87-0306609 (State or other jurisdiction of (I.R.S. Employer ID number) Incorporation or organization) 6 EAST ROSE STREET, P.O. BOX 2056 WALLA WALLA, WASHINGTON 99362 (Address of Principal Executive Offices, including Zip Code.) 509-526-3491 (Registrant's telephone number, including area code.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 outstanding at June 30, 2002: 6,735,860 shares CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) FINANCIAL STATEMENTS JUNE 30, 2002 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) C O N T E N T S Accountant's Review Report. . . . . . . . . . . . . . . . . . . . . . . 1 Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Statements of Operations and Comprehensive Loss . . . . . . . . . . . . 4 Statement of Stockholders' Equity . . . . . . . . . . . . . . . . . . . 5 Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . 6 Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . 8 The Board of Directors Cadence Resources Corp. (Formerly Royal Silver Mines, Inc.) Walla Walla, Washington ACCOUNTANT'S REVIEW REPORT We have reviewed the accompanying balance sheet of Cadence Resources Corporation (formerly Royal Silver Mines, Inc.) (an exploration stage company) as of June 30, 2002, and the related statements of operations and comprehensive loss, stockholders' equity, and cash flows for the nine months ended June 30, 2002, 2001 and 2000, and for the period from July 1, 2001 (inception of exploration stage) through June 30, 2002. 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 years ended September 30, 2001 and 2000 were audited by us and we expressed an unqualified opinion on them in our report dated January 8, 2002. We have not performed any auditing procedures since that date. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. Management's plans are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Williams & Webster, P.S. Certified Public Accountants Spokane, Washington August 12, 2002 1
CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) BALANCE SHEETS June 30, September 30, 2002 --------------------- (Unaudited) 2001 2000 ---------- ---------- --------- ASSETS CURRENT ASSETS Cash $ 271,443 $191,684 $ 15,915 Receivable from working interest owners 18,830 - - Notes receivable 43,000 18,000 14,628 Prepaid rent - 1,275 - Deposit 425 425 150 ---------- ---------- --------- TOTAL CURRENT ASSETS 333,698 211,384 30,693 ---------- ---------- --------- OIL AND GAS PROPERTIES, USING SUCCESSFUL EFFORTS ACCOUNTING Proved properties 45,427 - - Unproved properties 78,997 - - Wells and related equipment and facilities 89,914 - - Support equipment and facilities 11,687 - - Prepaid mineral leases 154,758 82,155 - ---------- ---------- --------- TOTAL OIL AND GAS PROPERTIES 380,783 82,155 - ---------- ---------- --------- PROPERTY AND EQUIPMENT Furniture and equipment 1,440 1,440 1,440 Less accumulated depreciation (1,440) (1,440) (1,404) ---------- ---------- --------- TOTAL PROPERTY AND EQUIPMENT - - 36 ---------- ---------- --------- OTHER ASSETS Investments 496,540 104,343 236,428 ---------- ---------- --------- NONCURRENT ASSETS Net assets of discontinued operations 246,757 266,757 702,097 ---------- ---------- --------- TOTAL ASSETS $1,457,778 $664,639 $969,254 ========== ========== ========= See accountant's review report and accompanying notes.
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CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) BALANCE SHEETS June 30, September 30, 2002 ---------------------------- (Unaudited) 2001 2000 ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 115,017 $ 158,857 $ 109,115 Payable to related party - 8,231 - Deferred working interest 44,396 - - Accrued compensation 46,261 50,000 - ------------- ------------- ------------- TOTAL CURRENT LIABILITIES 205,674 217,088 109,115 ------------- ------------- ------------- LONG-TERM DEBT Notes payable - related parties 10,000 135,000 - ------------- ------------- ------------- COMMITMENTS AND CONTINGENCIES - - - ------------- ------------- ------------- STOCKHOLDERS' EQUITY Preferred stock, $.01 par value; 20,000,000 shares authorized, -0- shares issued and outstanding - - - Common stock, $.01 par value; 100,000,000 shares authorized, 6,735,860, 2,453,890, and 1,199,607 shares issued and outstanding respectively 67,359 24,539 11,996 Additional paid-in capital 13,221,269 12,198,855 11,767,998 Stock options 324,000 - - Stock warrants 233,334 - - Accumulated deficit before exploration stage (11,102,595) (11,102,595) (10,885,466) Deficit accumulated during exploration stage (1,342,192) (658,086) - Accumulated other comprehensive income (loss) (159,071) (150,162) (34,389) ------------- ------------- ------------- TOTAL STOCKHOLDERS' EQUITY 1,242,104 312,551 860,139 ------------- ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,457,778 $ 664,639 $ 969,254 ============= ============= ============= See accountant's review report and accompanying notes.
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CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Three Months Ended Nine Months Ended June 30, June 30, ---------------------------------------- ------------------------- 2002 2001 2000 2002 2001 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) ------------ ------------ ------------ ------------ ----------- REVENUES $ - $ - $ - $ - $ - ------------ ------------ ------------ ------------ ----------- GENERAL AND ADMINISTRATIVE EXPENSES Depreciation and amortization - - 1,646 - 402 Officers' and directors' compensation 45,000 13,750 2,000 97,510 13,750 Consulting 68,082 3,500 5,000 538,600 87,500 Professional fees 21,092 11,995 66,235 54,314 45,217 Oil and gas lease expenses 36,047 - - 85,689 - Exploration and drilling 1,731 - - 178,769 - General and administrative 20,231 18,370 3,971 40,548 12,138 ------------ ------------ ------------ ------------ ----------- Total expenses 192,183 47,615 78,852 995,430 159,007 ------------ ------------ ------------ ------------ ----------- OPERATING LOSS (192,183) (47,615) (78,852) (995,430) (159,007) ------------ ------------ ------------ ------------ ----------- OTHER INCOME (EXPENSES) Interest income 3 28 122 27 77 Interest expense (2,333) (1,476) - (4,722) (5,486) Gain on debt forgiveness - - - 6,109 - Gain (loss) on disposition and impairment of assets 1,180 (23,487) 26,089 (20,288) (51,284) ------------ ------------ ------------ ------------ ----------- Total other income (expense) (1,150) (24,935) 26,211 (18,874) (56,693) ------------ ------------ ------------ ------------ ----------- LOSS BEFORE TAXES (193,333) (72,550) (52,641) (1,014,304) (215,700) INCOME TAX BENEFIT - - - 66,040 - ------------ ------------ ------------ ------------ ----------- LOSS FROM CONTINUING OPERATIONS (193,333) (72,550) (52,641) (948,264) (215,700) GAIN (LOSS) FROM DISCONTINUED OPERATIONS Gain (Loss) from mining operations (net of income taxes) - (1,195) (2,322) 264,158 (1,429) ------------ ------------ ------------ ------------ ----------- NET INCOME (LOSS) (193,333) (73,745) (54,963) (684,106) (217,129) OTHER COMPREHENSIVE INCOME (LOSS) Unrealized gain (loss) on market value of investments (22,584) (26,065) (146,426) (8,909) (136,926) ------------ ------------ ------------ ------------ ----------- COMPREHENSIVE LOSS $ (215,917) $ (99,810) $ (201,389) $ (693,015) $ (354,055) ============ ============ ============ ============ =========== NET LOSS PER COMMON SHARE BASIC AND DILUTED Net loss from continuing operations $ (0.03) $ (0.04) $ (0.05) $ (0.22) $ (0.15) Net income (loss) from discontinued operations - Nil Nil 0.06 Nil ------------ ------------ ------------ ------------ ----------- NET INCOME (LOSS) PER COMMON SHARE $ (0.03) $ (0.04) $ (0.05) $ (0.16) $ (0.15) ============ ============ ============ ============ =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED 5,903,443 1,672,079 1,020,521 4,348,048 1,422,614 ============ ============ ============ ============ =========== Period from July 1, 2001 (Inception of Exploration Stage) through 2000 June 30, 2002 (Unaudited) (Unaudited) ------------ ------------- REVENUES $ - $ - ------------ ------------- GENERAL AND ADMINISTRATIVE EXPENSES Depreciation and amortization 7,948 - Officers' and directors' compensation 17,000 164,010 Consulting 11,536 538,600 Professional fees 98,013 54,314 Oil and gas lease expenses - 85,689 Exploration and drilling - 178,769 General and administrative 15,364 133,266 ------------ ------------- Total expenses 149,861 1,154,648 ------------ ------------- OPERATING LOSS (149,861) (1,154,648) ------------ ------------- OTHER INCOME (EXPENSES) Interest income 304 50 Interest expense - (24,947) Gain on debt forgiveness - 6,109 Gain (loss) on disposition and impairment of assets (25,688) (59,345) ------------ ------------- Total other income (expense) (25,384) (78,133) ------------ ------------- LOSS BEFORE TAXES (175,245) (1,232,781) INCOME TAX BENEFIT - 66,040 ------------ ------------- LOSS FROM CONTINUING OPERATIONS (175,245) (1,166,741) GAIN (LOSS) FROM DISCONTINUED OPERATIONS Gain (Loss) from mining operations (net of income taxes) (7,417) (175,451) ------------ ------------- NET INCOME (LOSS) (182,662) (1,342,192) OTHER COMPREHENSIVE INCOME (LOSS) Unrealized gain (loss) on market value of investments 125,715 12,244 ------------ ------------- COMPREHENSIVE LOSS $ (56,947) $ (1,329,948) ============ ============= NET LOSS PER COMMON SHARE BASIC AND DILUTED Net loss from continuing operations $ (0.17) Net income (loss) from discontinued operations (0.01) ------------ NET INCOME (LOSS) PER COMMON SHARE $ (0.18) ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED 1,018,713 ============ See accountant's review report and accompanying notes.
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CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' EQUITY Deficit Common Stock Accumulated ------------------- Additional During Number Paid-in Stock Stock Accumulated Exploration of Shares Amount Capital Options Warrants Deficit Stage --------- -------- ------------ -------- ------------ ------------- -------------- Balance, September 30, 1999 1,014,982 $ 10,150 $11,621,519 $ - $ - $(10,457,146) $ - Shares issued to consultants for services at $1.00 per share 3,125 31 3,094 - - - - Shares issued to officers for debt at $0.80 per share 110,000 1,100 86,900 - - - - Shares issued to officers for investment at $0.80 per share 71,500 715 56,485 - - - - Net loss for the year ended September 30, 2000 - - - - - (428,320) - --------- -------- ------------ -------- ------------ ------------- -------------- Balance, September 30, 2000 1,199,607 11,996 11,767,998 - - (10,885,466) - Shares issued to consultants and others for services at prices varying from $0.30 to $1.40 per share 174,375 1,744 95,656 - - - - Shares issued to officers for investments at $0.40 per share 310,000 3,100 120,900 - - - - Shares issued to officers for investment and cash at $0.25 per share 160,000 1,600 38,400 - - - - Shares issued to officers and directors for services at $0.25 to $0.30 per share 110,000 1,100 29,150 - - - - Adjustment for fractional shares issued 4,074 41 (41) - - - - Shares issued for loan consideration at $0.30 per share 62,500 625 18,125 - - - - Shares issued for cash at $0.30 per share 393,334 3,933 114,067 - - - - Shares issued for marketing services at $0.30 per share 40,000 400 14,600 - - - - Net loss for year ended September 30, 2001 - - - - - (217,129) (658,086) Unrealized loss on market value of investments - - - - - - - --------- -------- ------------ -------- ------------ ------------- -------------- Balance, September 30, 2001 2,453,890 24,539 12,198,855 - - (11,102,595) (658,086) Shares issued for cash at $0.24 to $0.30 per share 723,000 7,230 204,670 - - - - 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 and accrued compensation at $0.30 to $0.38 per share 518,834 5,189 164,479 - - - - Shares issued for cash with warrants attached at $0.30 per share 2,333,336 23,333 443,333 - 233,334 - - 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 consultants for services - - - 324,000 - - - Net loss for the period ended June 30, 2002 (unaudited) - - - - - - (684,106) Unrealized loss on market value of investments - - - - - - - --------- -------- ------------ -------- ------------ ------------- -------------- Balance June 30, 2002 (unaudited) 6,735,860 $ 67,359 $13,221,269 $324,000 $ 233,334 $(11,102,595) $ (1,342,192) ========= ======== ============ ======== ============ ============= ============== Accumulated Other Total Comprehensive Stockholders' Income Equity --------------- ----------- Balance, September 30, 1999 $ - $1,174,523 Shares issued to consultants for services at $1.00 per share - 3,125 Shares issued to officers for debt at $0.80 per share - 88,000 Shares issued to officers for investment at $0.80 per share - 57,200 Net loss for the year ended September 30, 2000 (34,389) (462,709) --------------- ----------- Balance, September 30, 2000 (34,389) 860,139 Shares issued to consultants and others for services at prices varying from $0.30 to $1.40 per share - 97,400 Shares issued to officers for investments at $0.40 per share - 124,000 Shares issued to officers for investment and cash at $0.25 per share - 40,000 Shares issued to officers and directors for services at $0.25 to $0.30 per share - 30,250 Adjustment for fractional shares issued - - Shares issued for loan consideration at $0.30 per share - 18,750 Shares issued for cash at $0.30 per share - 118,000 Shares issued for marketing services at $0.30 per share - 15,000 Net loss for year ended September 30, 2001 - (875,215) Unrealized loss on market value of investments (115,773) (115,773) --------------- ----------- Balance, September 30, 2001 (150,162) 312,551 Shares issued for cash at $0.24 to $0.30 per share - 211,900 Shares issued to officer for debt at $0.30 per share - 90,000 Shares issued to officers, consultants and others for services and accrued compensation at $0.30 to $0.38 per share - 169,668 Shares issued for cash with warrants attached at $0.30 per share - 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 consultants for services - 324,000 Net loss for the period ended June 30, 2002 (unaudited) - (684,106) Unrealized loss on market value of investments (8,909) (8,909) --------------- ----------- Balance June 30, 2002 (unaudited) $ (159,071) $1,242,104 =============== =========== See accountant's review report and accompanying notes.
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CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) STATEMENTS OF CASH FLOWS Period from July 1, 2001 (Inception of For the Nine Months Ended (Exploration June 30, Stage) --------------------------------------- through 2002 2001 2000 June 30, 2002 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ------------ ------------ ----------- -------------- Cash flows from operating activities: Net loss $ (684,106) $ (217,129) $(182,662) $ (1,342,192) Discontinued operations - - - 439,609 Adjustments to reconcile net loss to net cash used by operating activities: Loss (gain) on sale of equipment - (115) 86,284 - Loss (gain) on sale of investments (20,288) 43,399 - 18,769 Gain from mining operations (330,198) - - (330,198) Gain on debt forgiveness 6,109 - - 6,109 Equipment traded for services - - 4,137 - Depreciation and amortization - 402 7,948 - Issuance of common stock for services 169,667 96,150 3,125 216,167 Issuance of common stock for reimbursement of expenses 7,000 - - 7,000 Issuance of common stock for loan consideration - 8,000 - 18,750 Issuance of stock options for consulting fees 324,000 - - 324,000 Changes in assets and liabilities: Receivable from working interest owners (18,830) - - (18,830) Note receivable (40,000) - (14,628) (55,000) Prepaid rent 1,275 - - 1,275 Deposit - (275) (150) - Prepaid mineral leases (72,603) (2,550) - (153,483) Accounts payable (43,940) 5,512 56,231 290 Deferred working interest 42,565 - - 42,565 Accrued compensation 30,261 - - 80,261 Payable to related parties - - (44,000) 8,231 ------------ ------------ ----------- -------------- Net cash provided (used) by operating activities (629,088) (66,606) (83,715) (736,677) ------------ ------------ ----------- -------------- Cash flows from investing activities: Purchase of investments (22,527) (4,400) (152,752) (26,035) Purchase and development of proved and unproved properties (124,424) - - (124,424) Purchase of fixed assets (101,601) - - (101,601) Sale of investments 80,499 54,330 144,622 123,041 Sale of fixed assets - 3,000 - - ------------ ------------ ----------- -------------- Net cash provided (used) by investing activities (168,053) 52,930 (8,130) (129,019) ------------ ------------ ----------- -------------- Cash flows from financing activities: Issuance of common stock for cash 678,566 5,000 - 796,566 Issuance of warrants for cash 233,334 - - 233,334 Proceeds from notes payable - - - 135,000 Payments of notes payable (35,000) - - (35,000) Issuance of common stock for payment to related party - - 88,000 - ------------ ------------ ----------- -------------- Net cash provided by financing activities 876,900 5,000 88,000 1,129,900 ------------ ------------ ----------- -------------- Net increase (decrease) in cash $ 79,759 $ (8,676) $ (3,845) $ 264,204 ------------ ------------ ----------- -------------- See accountant's review report and accompanying notes.
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CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) STATEMENTS OF CASH FLOWS Period from July 1, 2001 (Inception of For the Nine Months Ended Exploration June 30, Stage) ---------------------------------------- through 2002 2001 2000 June 30, 2002 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ------------ ------------ ------------ -------------- Net increase (decrease) in cash (balance forward) $ 79,759 $ (8,676) $ (3,845) $ 264,204 Cash, beginning of period 191,684 15,915 28,147 7,239 ------------ ------------ ------------ -------------- Cash, end of period $ 271,443 $ 7,239 $ 24,302 $ 271,443 ============ ============ ============ ============== Supplemental cash flow disclosure: Income taxes paid $ - $ - $ - $ 350 Interest paid $ - $ - $ - $ 25,655 Non-cash investing and financing activities: Common stock issued for services rendered and accrued compensation $ 169,667 $ 96,150 $ 3,125 $ 216,167 Common stock issued for mineral properties $ - $ - $ - $ Common stock issued for exchange of debt $ 90,000 $ - $ 88,000 $ - $ - $ - $ - $ 18,750 Common stock issued in exchange for - investments $ 120,000 $ 159,000 $ - $ 120,000 Common stock issued for reimbursement of expenses paid $ 7,000 $ - $ - $ 7,000 Investment received for mining claims $ 350,198 $ - $ - $ 350,198 Investment given for related party payable $ 8,231 $ - $ - $ 8,231 Investment received for note receivable $ 15,000 $ - $ - $ 15,000 Stock options issued for services $ 324,000 $ - $ - $ 324,000 See accountant's review report and accompanying notes.
7 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 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. The Company intends to either sell or lease these projects to third parties, but there is no guarantee that the Company will be successful in this endeavor. Celebration Mining Company ("Celebration"), currently 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 planned 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. 8 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED) As a result of the Company's entering a new exploration stage as an energy project development company on July 1, 2001, the Company has elected to dispose of its mineral properties and has accordingly reclassified these properties, which total $246,757 at June 30, 2002, as net assets of discontinued operations. 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 for any asset impairment that may result in the event the Company is not successful in selling these properties has been made in the accompanying financial statements. See Note 3. The $140,358 and $82,155, respectively, cost of prepaid mineral leases included in the accompanying balance sheet as of June 30, 2002 and September 30, 2001 are 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 is seeking additional capital through a private placement of its stock, or debt. Management plans to use the majority of such financing proceeds for landhold acquisition, and on drilling and possible completion of an oil well project in Texas. Management also plans to conduct a second financing, larger than the first, the proceeds of which will be used for drilling of wells on the Company's leased oil and gas property in Louisiana. Management believes that such financing proceeds will enable the Company to continue its operations. However, there are inherent uncertainties in fund raising and in the sales of excess assets and management cannot provide assurances that it will be successful in these endeavors. Furthermore, the Company is in the exploration stage, as it has not realized any significant revenues from its planned operations. 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. 9 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounting Method ------------------ The Company's financial statements are prepared using the accrual method of accounting. Exploration Stage ------------------ The Company began a new exploration stage concerning the exploration of oil and gas leases on July 1, 2001 and has not commenced the sale of any 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. Loss Per Share ---------------- 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 the exercise price of the outstanding warrants is higher than the market price of the stock, thereby causing the warrants to be antidilutive. Cash Equivalents ----------------- The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. 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 state, the related capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves. At June 30, 2002 and September 30, 2001, the cost of the Company's mineral properties is included in net assets of discontinued operations 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. 10 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Mineral Properties (Continued) -------------------------------- 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. 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. Provision For Taxes --------------------- Income taxes are provided based upon the liability method of accounting pursuant to SFAS No. 109 "Accounting for Income Taxes." Under this approach, deferred income taxes are recorded to reflect the tax consequences on 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. 11 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Provision For Taxes (Continued) ---------------------------------- At June 30, 2002, the Company had net deferred tax assets of approximately $1,420,000, principally arising from net operating loss carryforwards for income tax purposes. During the nine months ending June 30, 2002, the Company utilized $66,040 of the net deferred taxes from previous net operating losses in the offset of the gain associated with the sale of mining property. 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 June 30, 2002. At June 30, 2002, the Company has net operating loss carryforwards of approximately $7,100,000, which expire in the years 2002 through 2022. Additionally, the Company has capital loss carryovers of approximately $4,830,000. 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 remediating contaminated sites, other companies' clean-up experience and data released by The Environmental Protection Agency (EPA) 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 reports an asset separately from the associated liability. At June 30, 2002, the Company had no accrued liabilities for compliance with environmental regulations. Investments ----------- Investments, consisting of equity securities of private and small public companies, are stated at current market value. Revenue Recognition -------------------- As noted in its statement of operations, Cadence has not produced any revenue in the periods ended June 30, 2002 or 2001. When the Company does produce revenue, sales will be recognized at the point of passage of title specified in the underlying contract. 12 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impaired Asset Policy ----------------------- The Company adopted financial Accounting Standard Board statement SFAS No. 121 titled "Accounting for Impairment of Long-Lived Assets," which has been replaced by SFAS No. 144, "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 fiscal years 1999, 2000, and 2001, the Company does not believe any further adjustments are needed to the carrying value of its assets at June 30, 2002. See Note 3. Fair Value Standards ---------------------- The Company has adopted the fair value accounting rules to record all transactions in equity instruments for goods or services. Principles of Consolidation ----------------------------- The financial statements include those of 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. Reclassifications ----------------- Certain amounts from prior periods have been reclassified to conform with the current period presentation. This reclassification has resulted in no changes to the Company's accumulated deficit and net losses presented. Fair Value of Financial Instruments ----------------------------------- The carrying amounts for cash, receivables, deposits, payables, and advances from related parties approximate their fair value. 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", which is effective for the Company as of January 1, 2001. This standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. 13 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Derivative Instruments (Continued) ------------------------------------ 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 June 30, 2002, the Company has not engaged in any transactions that would be considered derivative instruments or hedging activities. Accounting Pronouncements ------------------------- In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", 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 64, which amended FASB 4, was rescinded as it was no longer necessary. FASB 145 amended FASB 13 to eliminate an inconsistency between the required accounting for sale-leaseback transaction and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. Management has not yet determined the effects of adopting this Statement on the financial position or results of operations, except for the need to reclassify debt extinguishments previously reported as extraordinary. 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 144 replaces SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." This new standard establishes a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations. Statement 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 144 and does not believe that the adoption will have a material impact on the financial statements of the Company at June 30, 2002. 14 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounting Pronouncements (Continued) ------------------------------------- In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities and also provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS No. 140 is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000, and is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Company believes that the adoption of this standard will not have a material effect on the Company's results of operations or financial position. 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 does not believe that the adoption will have a material impact on the financial statements of the Company at June 30, 2002. In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". 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 is not anticipated to have any material effect on the Company's financial statements. Interim Financial Statements ------------------------------ The interim financial statements as of and for the nine months ended June 30, 2002 included herein have been prepared for the Company without audit. They reflect all adjustments, which are, in the opinion of management, necessary to present fairly the results of operations for these periods. All such adjustments are normal recurring adjustments. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full fiscal year. 15 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Going Concern -------------- As shown in the accompanying financial statement, the Company has no revenues, has incurred a net loss of $684,106 for the period ended June 30, 2002, has a pre-exploration stage accumulated deficit of $11,102,595 and a deficit accumulated during exploration stage of $1,342,192. These factors indicate that the Company may be unable to continue in existence. The financial statements do not include any adjustments related to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. The Company's management has strong beliefs that significant and imminent private placements will generate sufficient cash for the Company to operate for the next few years. The Company also believes that the occasional sale of its equity investments will provide cash as needed for operations. Concentration of Credit Risk for Cash Held at Banks --------------------------------------------------- The Company maintains cash balances at several banks. Accounts are insured by the Federal Deposit Insurance Corporation up to $100,000. At June 30, 2002 the cash balance exceeded this insured amount by $25,734. NOTE 3 - MINERAL PROPERTIES The Company's mineral properties are being disposed of as discontinued operations pursuant to the Company's adoption of the plan for a new development stage concerning natural resource properties on July 1, 2001. Mineral Properties in North Idaho ------------------------------------- The Company, directly and through its subsidiary Celebration Mining Company, holds forty-three unpatented mining claims in the Coeur d'Alene Mining District in four distinct groups called the Kil Group, West Mullan Group, South Galena 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. The majority of these claims were written off as permanently impaired at September 30, 2001. 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. on its eight-claim Palisades Group property. The lease calls 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 has the right to explore and potentially develop the property under certain conditions. 16 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 3 - MINERAL PROPERTIES (CONTINUED) Mineral Properties in North Idaho (Continued) -------------------------------------------------- On October 31, 2001, the Company sold its Kil Group and West Mullan Group claims to Caledonia Silver-Lead Mines, Inc., an affiliated company. The combined sale price for these claims was 3,501,980 shares of the common stock of Caledonia, having an estimated market value of $0.10 per share and valued at $350,198. The net effect of the transaction was a gain of $330,198. See Note 5. In October 1994 the Company entered into a lease agreement with Fausett International, Inc. ("Fausett") covering the Crescent Mine located in Shoshone County, Idaho. The validity of this lease was challenged by both the Environmental Protection Agency and Shoshone County who claimed to have an ownership interest in the property. After considerable legal deliberation, in June 2001, the Company delivered a quitclaim deed to the Crescent Mine to Fausett, which disposed of its interest in the mine. See Note 14. Other Domestic Properties --------------------------- In the fourth quarter of the year ended September 30, 2001, the Company elected to write off all of its interests in mineral properties except for the ViPont Mine, Kil Group Claims and West Mullan Group Claims. The net effect of this write down was to record a loss on asset impairment of $432,090 during the year ended September 30, 2001. NOTE 4 - 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 years. Depreciation expense for the periods ended June 30, 2002, 2001 and 2000 was $-0-, $402 and $7,948, respectively. NOTE 5 - INVESTMENTS The Company's securities investments 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 securities which are classified as trading securities. At June 30, 2002 and September 30, 2001, the market values of investments were as follows: 17 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 5 - INVESTMENTS (CONTINUED) June 30, September 30, 2002 2001 --------- -------------- Elite Logistics, Inc. $ 5,245 $ 35,632 Integrated Pharmaceuticals, Inc. - 4,444 Ashington Mining Company 5,709 7,200 Oxford Metallurgical, Inc. - 600 Sterling Mining Co. 4,859 6,300 Metalline Mining Co., Inc. 5,512 - Enerphaze Corporation 70,450 - Caledonia Silver-Lead Mines, Inc. 350,198 - Trend Mining Company 54,567 50,167 --------- -------------- $ 496,540 $ 104,343 ========= ============== Other information regarding the Company's investments follows: Envirogold, LLC ---------------- During January 2000, the Company announced that together with Nuvotec, Inc., it had formed Envirogold LLC ("Envirogold"). Envirogold was 50% owned by each and had signed a technology licensing agreement with Integrated Environmental Technologies ("Integrated") for the development and use of certain patented technology for applications in the mining and mineral processing industries. The Company received notification on February 27, 2001 that the technology license assigned by Integrated had been withdrawn. After further investigation, it was mutually determined by all parties that Envirogold had no ongoing business without the license and a determination was made to dissolve Envirogold LLC. Enerphaze Corporation ---------------------- During October 2001, the Company received 8,000 shares of Enerphaze Corporation common stock in payment of a $15,000 note receivable. During January and February 2002, the Company received 65,000 shares of Enerphaze Corporation common stock for 400,000 shares of the Company's common stock. No gain or loss was recognized on these transactions. 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, approximates its fair value. The carrying value of these shares will be reevaluated at each reporting period and adjustments, if appropriate, will be made to the carrying value of these securities. The net effect of the transaction resulted in a gain of $330,198. See Note 3. 18 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 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 marketing agreement (Note 12) 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 to 100,000,000 shares. During the nine months ended June 30, 2002, the Company issued 518,834 shares of its common stock to officers, consultants and others for services valued at $169,667, and also issued 400,000 shares of its common stock for an investment 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 723,000 shares of its common stock for $211,900. During the nine months ended June 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.) NOTE 7 - 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 June 30, 2002. 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 of work performed. As of June 30, 2002, only 638 shares of common stock had been awarded under the Plan. 19 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 8 - COMMON STOCK OPTION AND AWARD PLAN (CONTINUED) 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 have been granted under the plan, of which 12,750 options have been forfeited and none have been exercised through the period ending June 30, 2002. The old existing options are attributed to the merger of Celebration Mining Company with Royal in August 1995. Following is a summary of the stock options during the period ended June 30, 2002 and the year ended September 30, 2001. Weighted Number Average of Exercise Options Price --------- --------- Outstanding at 10/1/2000 60,000 $ 18.60 --------- --------- Granted - - Exercised - - Expired or forfeited - - --------- --------- Outstanding at 9/30/2001 60,000 $ 18.60 --------- --------- Options exercisable at 9/30/2001 60,000 $ 18.60 --------- --------- Weighted average fair value of options granted during the year ended 9/30/2001 $ - ========= Outstanding at 10/1/2001 60,000 $ 18.60 Granted 400,000 .75 Exercised - - Expired or forfeited 60,000 18.60 --------- --------- Outstanding at 6/30/2002 400,000 $ .75 ========= ========= Options exercisable at 6/30/2002 400,000 $ .75 ========= ========= Weighted average fair value of options granted during the period ended 6/30/2002 $ 0.81 ========= Weighted Average Exercise Date Number of Shares Price per Share -------------- ---------------- --------------- On or before January 22, 2007 400,000 $0.75 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 the salaried compensation for services. 20 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 9 - WARRANTS During the nine months ended June 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 is 5%, volatility is 100% and expected life is 5 years. These warrants may be used to purchase 2,333,336 shares of the Company's common stock at $0.30 per share. The warrants remain exercisable through 2007. The Company also issued a warrant to a Consultant of the Company in the amount of 25,000 shares at $1.50 exercisable until June 21, 2005. 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. At least 51 drilled wells were previously commercially successful in adjacent acreage. As of the dates of these financial statements, the Company has leased a total of 1,920 acres. At June 30, 2002 and September 30, 2001, $140,358 and $82,155, respectively, of leases in Louisiana are included in the attached financial statements as prepaid mineral leases. Management has estimated a cost of $1,100,000 to drill the initial test well on this property. Texas ----- Subsequent to the year ended September 30, 2001, the Company acquired an exploration permit and lease option agreement for an oil well project in Wilbarger County, Texas known as Pinnacle Reef. During the period ended March 31, 2002, the Company drilled its initial test well to a total depth of 4,237 feet and encountered four pay zones. The two lowest pay zones were completed and initial drill stem tests and flow tests were run. At March 31, the decision had been made to run electricity to the site, install a pump jack and commence commercial production. At June 30, 2002, $14,400 is included in the attached financial statements as prepaid mineral leases relating to Texas property. During the nine months ended June 30, 2002, the Company sold a partial interest in a portion of its Pinnacle Reef prospect for $210,000. The Company's cost in the portion of the prospect sold totaled $3,200. The Company anticipates incurring over $230,000 in exploration and 21 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 10 - OIL AND GAS PROPERTIES (CONTINUED) Texas (Continued) ------------------ development costs relating to the interest retained in the prospect. Because the Company has received proceeds from the sales of the working interests in excess of exploration and development costs attributable to those working interests, the Company has recorded a deferred credit of $44,396. As exploration and development costs of $175,263 during the nine months ended June 30, 2002 were incurred on this prospect, they were charged against the deferred credit. At June 30, 2002, the Company recorded a receivable in the amount of $18,830 to reflect some sales of the prospect's partial interest, which were collected by the Company subsequent to June 30, 2002. 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 NOT RETAINED THE SERVICES OF AN INDEPENDENT GEOLOGIST TO ESTIMATE ITS OIL AND GAS RESERVES. NATURAL GAS RESERVES (OF WHICH THERE ARE NONE AT THIS TIME) AND PETROLEUM RESERVES ARE ESTIMATED BY MANAGEMENT. THE ESTIMATES INCLUDE RESERVES IN WHICH CADENCE HOLDS AN ECONOMIC INTEREST UNDER LEASE AND OPERATING AGREEMENTS. Reserves attributable to certain oil and gas discoveries are not considered proved as of June 30, 2002 due to geological, technical or economic uncertainties. 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 Company had no proven reserves at September 30, 2001. The changes in proved reserves for the nine months ended June 30, 2002 were as follows: Petroleum Liquids Natural Gas (barrels) (cubic feet) United States United States -------------- -------------- Reserves at October 1, 2001 - - Purchases 100,485 - -------------- -------------- Reserves at June 30, 2002 100,485 - ============== ============== 22 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 The aggregate amounts of capitalized costs relating to oil and gas producing activities and the related accumulated depreciation, depletion and amortization as of June 30, 2002 and September 30, 2001 were as follows: NOTE 11 - OIL AND GAS PRODUCING ACTIVITIES (CONTINUED) June 30, September 30, 2002 2001 --------- -------------- Proved properties $ 45,427 $ - Unproved properties 78,997 - Wells and related equipment and facilities 89,914 - Support equipment and facilities 11,687 - Prepaid mineral leases 154,758 82,155 Accumulated depreciation, depletion and amortization - - --------- -------------- Total capitalized costs $ 380,783 $ 82,155 ========= ============== Costs both capitalized and expensed, incurred in oil and gas-producing activities during the period ended June 30, 2002 and the year ended September 30, 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. June 30, September 30, 2002 2001 --------- -------------- Property acquisition costs: Proved properties $ 4,000 $ - Unproved properties 200,973 84,503 Exploration costs 271,441 - Development costs 168,827 - --------- -------------- Total expenditures $ 645,241 $ 84,503 ========= ============== There were no results of operations for oil and gas producing activities (including operating overhead) for the year ended September 30, 2001 since exploration and development activities had not commenced. Results of operation for oil and gas activities (including operating overhead) for the nine months ended June 30, 2002 were as follows: 23 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 11 - OIL AND GAS PRODUCING ACTIVITIES (CONTINUED) Revenues $ - Exploration costs 271,441 Depreciation, depletion and amortization - Other operating expenses - ------------ Results before income taxes (271,441) Income tax expense - ------------ Results of operation from oil and gas producing activities $ (271,441) ============ The standardized measure of discounted estimated future net cash flows related to proved oil and gas reserves at June 30, 2002 was as follows: Future cash flows $1,748,439 Future development and production costs 1,100,000 Future income tax expense - ---------- Future net cash flows 648,439 10% annual discount 303,832 ---------- Standardized measure of discounted future net cash flows $ 344,607 ========== Future net cash flows were computed using year-end prices and gas to year-end quantities of proved reserves. 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 year, based on year-end costs and assuming continuation of existing economic conditions. Estimated future income tax expense is calculated by applying 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 reserve 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. 24 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 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 - COMMITMENTS AND CONTINGENCIES Litigation ---------- The 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. In its countersuit, the Company is seeking both full title to the aforementioned mineral property and compensatory damages as well as punitive damages. The Company believes its countersuit will prevail. 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 well bores, 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 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 cause certain liabilities to arise. The Company is not aware of any environmental issues related to any of its assets from discontinued operations. Capital Commitments ------------------- At June 30, 2002, the Company has estimated capital and investment commitments of $1,100,000 to drill its initial test well in Louisiana. In Texas, future capital commitments are dependent upon the Company's decision to proceed with additional well development. See Note 9. No accruals have been made in the accompanying financial statements for these amounts. Other Commitments ------------------ During September 2001, the Company entered into a consulting agreement with American Financial Group for promotion to investors. The agreement calls 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. 25 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED) Other Commitments (Continued) ------------------------------- The Company leased office facilities in Walla Walla, Washington from Coldwell Banker Commercial 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 period ended June 30, 2002 was $3,600. NOTE 13 - NOTES PAYABLE At June 30, 2002 and September 30, 2001, notes payable consisted of the following: June 30, September 30, Creditor and Conditions 2002 2001 ------------------------------------------- --------- -------------- Howard Crosby, (an officer and shareholder of the Company), unsecured, interest at 6%, due on January 1, 2003. $ - $ 125,000 Dotson Exploration, (a related party), unsecured, interest at 6%, due on January 1, 2003. 10,000 10,000 --------- -------------- Total $ 10,000 $ 135,000 ========= ============== NOTE 14 - SETTLEMENT AGREEMENT Fausett International, Inc. ----------------------------- During June 2001, the Company entered into a settlement agreement wherein the Company relinquished all claims to the Crescent Mine (located in Shoshone County, Idaho) under a previously executed lease and delivered to counsel for Fausett International, Inc. (hereinafter "Fausett"), a quitclaim deed to the Crescent Mine. Upon receipt of the quitclaim deed, Fausett transferred all interest in the Crescent Mine to Shoshone County and delivered to the Company for cancellation certificates for 8,600 shares of the Company's common stock held by Fausett and an officer of Fausett. The settlement agreement released the Company from further obligations under the lease agreement. It also contained a general release in favor of the Company from the Environmental Protection Agency and from Shoshone County. 26 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 15 - RELATED PARTY TRANSACTIONS The Company 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. Total rent paid for this office space during the period ended June 30, 2001 was $3,600. The Company entered into a mineral lease agreement with Oxford Metallurgical, Inc. for the five-year period ending September 1, 2005. Under this agreement, Oxford receives a leasehold interest in certain mining properties in Kootenai County, Idaho in exchange for semi-annual lease payments of $300 and the maintenance of property and liability insurance on the lease properties. During the period ended June 30, 2002, the Company sold several mineral properties located in Shoshone County, Idaho to Caledonia Silver-Lead Mines, Inc. See Note 5. Because both Oxford Metallurgical, Inc. and Caledonia Silver-Lead are controlled by two officers of Cadence, these transactions cannot be considered to be the product of an arms-length negotiation. Other related party transactions are disclosed in Notes 5, 6, 11 and 13. NOTE 16 - GAIN ON DEBT FORGIVENESS During the period ended June 30, 2002, an accounts payable vendor chose to reverse interest charges on its delinquent account. This transaction resulted in the recognition of other income of $6,109. NOTE 17 - SUBSEQUENT EVENTS Oil and Gas Leases --------------------- Subsequent to the date of these financial statements, the Company has completed the logging and commenced production of its initial well in north Texas. Initial results have estimated proven and recoverable reserves at 100,485 barrels of crude oil. This estimate of reserves is an estimates of the Company's management and consultants and not an estimate of an independent petroleum engineer. The Company intends to obtain an independent estimate if at such time in the future the Company has sufficient oil wells in Texas to justify the cost of such a study. The Company expects to receive its initial revenue check from production in August or September 2002, and to continue to receive such checks on a monthly basis so long as its wells in Texas remain in production. Subsequent to the end of the reporting period the Company issued a warrant to a Consultant of the Company in the amount of 200,000 shares at $1.35 exercisable until July 8, 2007. 27 CADENCE RESOURCES CORPORATION (FORMERLY ROYAL SILVER MINES, INC.) (AN EXPLORATION STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2002 NOTE 17 - SUBSEQUENT EVENTS (CONTINUED) Credit Facility ---------------- Subsequent to the date of these financial statements, the Company secured a credit facility of up to $20,000,000 for drilling of its oil and gas properties in Texas and Louisiana. Under terms of the agreement with investors, the facility is structured as a limited partnership and may be funded in traunches. The credit facility will begin with an initial traunche of $250,000, with priority payback of funds to the investor and an 11% preferred return, among other non-equity terms. 28 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company has not had revenues from operations during the last two years. The Company intends to spend its existing cash on exploration on its existing oil and gas lease in Texas. The Company does not intend to acquire substantial additional oil and gas leases until it completes further exploration operations on its existing leases in Texas and Louisiana. The Company has drilled and completed three oil wells in Texas. Two of these are commercial oil wells, while the third was non-commercial and completed as a salt-water disposal well. The Company has recently taken a $250,000 draw-down of funding from its Limited Partnership facility for the purpose of drilling two more oil wells in Texas, one to be drilled by the end of the month of August. As noted, the Company will need additional capital to continue to drill its wells. The amount of capital required is dependant on the success it has on its current projects because the Company anticipates funding some future drilling of wells from cash flow from its existing wells and current targets. The Company hopes to reduce its dependence on new finances by completing sufficient wells to fund most of its new wells out of cash flow. Due to the declining nature of oil & gas production, the Company must continue to explore and drill new wells to maintain its sources of revenue. There is no assurance, however, the Company's current wells and target wells will provide sufficient revenue to fund other future wells. If they do not prove successful, the Company will have to rely upon future new finances from outside sources in order to both continue exploring for new oil and gas deposits, and to continue its operations. The Company sold 40% of the working interest in its first and third wells to raise funds to drill and complete these wells. It may sell a portion of the working interest in future wells to investors in order to raise the capital to drill such wells. The first well is in production while the third well was non-commercial and is used as a disposal well. The second well of the Company was funded 100% by the Company and should be in production by the end of the month of August, 2002. Selling a portion of the working interest enables the Company to raise some of the risk capital to drill wells from outside investors and thus the "dry hole risk" to the Company is reduced and may be totally eliminated. The major disadvantage is that the Company will give up a percentage of its future cash flow to the working interest investors which will reduce Company revenues and profits in the future from successful wells. The Company's auditors have issued a going concern opinion. This means that the Company's auditors believe there is substantial doubt that the Company can continue as an on-going business for the next twelve months unless it obtains additional capital. This is because the Company has not generated sufficient from its producing oil well to fully fund the cash requirements if the Company and execute its business plan. Accordingly, the Company must raise cash from sources other than from the sale of oil or gas found on its property. That cash must be raised from other outside sources. The Company's only other source for cash at this time are investments or loans by others to the Company, as well as draw-downs of funds from its Limited Partnership funding facility. There are certain constraints on the Limited Partnership facility which disallow the use of these funds from any other activity other than exploration and development of oil or gas wells. Other constraints and covenants also limit the use of these funds. Therefore, the Company has inadequate cash to maintain operations during the next twelve months. In order to meet its cash requirements the Company may have to raise additional capital through the sale of securities or loans. The Company is actively pursuing additional equity capital at the time of this report. The terms of such equity fundings, if successful, may be dilutive to existing shareholders. However, as of the date hereof, the Company has no firm commitments for loans or for purchases of additional securities and there is no assurance that it will be able to raise additional capital through loans or the sale of securities in the future. In the event that the Company is unable to raise additional capital, it may have to suspend or cease operations. The Company does not intend to conduct any research or development during the next twelve months other than as described herein. See "Business." The Company does not intend to purchase a plant or significant equipment. The Company will hire employees on an as needed basis, however, the Company does not expect any significant changes in the number of employees. 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 listed in the section captioned "Management's Discussion and Analysis or Plan of Operation," 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 or Plan of Operation" section and elsewhere in this Form 10-QSB could have a material adverse effect on our business, operating results and financial condition. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is a party to a lawsuit regarding the Vipont mining property located in Box Elder County, Utah. A lawsuit was initially filed by the plaintiff alleging breach of contract and various other causes of action against the Company. In June 1999, Box Elder County Superior Court rejected the plaintiff's lawsuit and let stand the Company's counter-suit alleging fraudulent misrepresentation and other claims. The plaintiffs then filed an appeal of this dismissal with the Utah Supreme Court. On July 31, 2001, the Utah Supreme Court found in favor of the Company and against the plaintiffs. The Company has elected to continue to pursue its counter-suit against the plaintiffs and is seeking full and clear title to the disputed mining property as well as monetary damages. The Company cannot predict, however, the outcome of its countersuit and there is no assurance that the Company will be successful. ITEM 2. CHANGES IN SECURITIES. Common Stock ------------ During the nine months ended June 30, 2002, the Company issued 518,834 shares of its common stock to officers, consultants and others for services valued at $169,667, and also issued 400,000 shares of its common stock for an investment 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 723,000 shares of its common stock for $211,900. During the nine months ended June 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. The Company had 6,735,860 shares of common stock issued and outstanding as of June 30, 2002. The issuances discussed under this section are exempted from registration under Rule 506 of the Securities Act ("Rule 504") or Section 4(2) of the Securities Act ("Section 4(2)"), as provided. All purchasers of the securities acquired the shares for investment purposes only and all stock certificates reflect the appropriate legends. No underwriters were involved in connection with the sales of securities referred to in this section. Options and Warrants -------------------- In the nine month period ended June 30, 2002 the Company issued the following stock options and warrants: The Company issued an option pursuant to its stock option plan to a Director of the Company in the amount of 200,000 shares at $.75 exercisable until January 22, 2007. The Company issued an option pursuant to its stock option plan to a Consultant of the Company in the amount of 200,000 shares at $.75 exercisable until January 22, 2007. The Company issued a warrant to a Consultant of the Company in the amount of 25,000 shares at $1.50 exercisable until June 21, 2005. The Company issued 2,333,336 shares of stock with 2,333,336 warrants attached. Such warrants grant the holder the right to purchase 2, 333,336 shares of common stock at $0.30 per share. The warrants are exercisable as a cashless transaction if and only if the common stock of the Company trades at or above $1.50 per share. The warrants remain exercisable through 2007. Subsequent to the end of the reporting period the Company issued a warrant to a Consultant of the Company in the amount of 200,000 shares at $1.35 exercisable until July 8, 2007. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. None. 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. Dated this 19th day of August, 2002. CADENCE RESOURCES CORPORATION By: /s/ Howard Crosby ----------------- Howard Crosby Its: Chief Executive Officer By: /s/ John Ryan ------------- John Ryan Its: Chief Financial Officer 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 accompanying 10-QSB of Cadence Resources Corporation for the period beginning April 01, 2002 and ending June 30, 2002, Howard M. Crosby, Chief Executive Officer, and John P. Ryan, Chief Financial Officer of Cadence Resources Corporation Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that: (1) such Form 10-QSB of Cadence Resources Corporation, for the period beginning April 01, 2002 and ending June 30, 2002, 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 such Form 10-QSB of Cadence Resources Corporation for the period beginning April 01, 2002 and ending June 30, 2002, fairly presents, in all material respects, the financial condition and results of operations of Cadence Resources Corporation. /s/Howard M. Crosby ------------------------- Howard M. Crosby Chief Executive Officer /s/John P. Ryan ------------------------- John P. Ryan Chief Financial Officer