-----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, MvFv5PJ0ZxLRwMqiblRJQfToSfqmYCTRRsO6X5HeaN4l6vFjml8Txe+dphMva22K aWv1G3kzXkVhX0axtLsNcw== 0001015402-04-002203.txt : 20040517 0001015402-04-002203.hdr.sgml : 20040517 20040517171607 ACCESSION NUMBER: 0001015402-04-002203 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040517 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: 04813558 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 doc1.txt ================================================================================ 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 March 31, 2004 -------------- 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 May 17, 2004 was 12,698,827. Transitional Small Business Disclosure Format (check one): Yes No x --- --- ================================================================================
CADENCE RESOURCES CORPORATION Form 10-QSB Index PART I.. FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 3. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . . . . . . . . 6 Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . . . . . . 6 Item 4. Submission Of Matters To A Vote Of Security Holders. . . . . . . . . . . . . . 6 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 6
i PART I. FINANCIAL INFORMATION ITEM 1. [Financial Statements and Notes]
CADENCE RESOURCES CORPORATION BALANCE SHEETS BALANCE SHEETS March 31, September 30, 2004 -------------------------------- (Unaudited) 2003 2002 ------------ --------------- --------------- ASSETS CURRENT ASSETS Cash $ 485,543 $ 3,619,345 $ 40,011 Oil & gas revenue receivable 385,640 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 137,225 5,925 27,500 Other current assets 27,425 425 431 ------------ --------------- --------------- TOTAL CURRENT ASSETS 1,052,426 3,726,863 123,180 ------------ --------------- --------------- OIL AND GAS PROPERTIES, USING SUCCESSFUL EFFORTS ACCOUNTING Proved properties 638,917 590,747 48,694 Unproved properties 3,785,555 833,836 78,997 Wells and related equipment and facilities 474,312 202,886 67,374 Support equipment and facilities 331,858 151,963 105,108 Prepaid mineral leases 540,013 395,973 111,111 Less accumulated depreciation, depletion, amortization and impairment (604,885) (61,611) (4,312) ------------ --------------- --------------- TOTAL OIL AND GAS PROPERTIES 5,165,770 2,113,794 473,038 ------------ --------------- --------------- PROPERTY AND EQUIPMENT Furniture and equipment 4,226 1,660 1,440 Less accumulated depreciation (1,625) (1,451) (1,440) ------------ --------------- --------------- TOTAL PROPERTY AND EQUIPMENT 2,601 209 - ------------ --------------- --------------- OTHER ASSETS Investments 185,092 394,454 448,793 ------------ --------------- --------------- NONCURRENT ASSETS Net assets of discontinued operations 246,757 246,757 246,757 ------------ --------------- --------------- TOTAL ASSETS $ 6,652,646 $ 6,482,077 $ 1,291,768 ============ =============== ===============
See accompanying condensed notes to interim financial statements. 2
CADENCE RESOURCES CORPORATION BALANCE SHEETS March 31, September 30, September 30, 2004 -------------------------------- (Unaudited) 2003 2002 ------------- --------------- --------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 633,774 $ 584,866 119,923 Revenue distribution payable 136,795 68,929 14,835 Payable to related party - 550,000 2,500 Deferred working interest - - 22,184 Interest payable 13,054 15,752 - Accrued compensation 8,165 94,920 66,261 Notes payable - related parties 510,000 460,000 - Notes Payable 1,000,000 - - ------------- --------------- --------------- TOTAL CURRENT LIABILITIES 2,301,788 1,774,467 225,703 ------------- --------------- --------------- REDEEMABLE PREFERRED STOCK 59,925 59,925 - ------------- --------------- --------------- STOCKHOLDERS' EQUITY Common stock, $.01 par value; 100,000,000 shares authorized, 12,673,800,12,512,827 and 6,866,210 shares issued and outstanding, respectively 126,738 125,128 68,662 Additional paid-in capital 18,711,738 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 (15,379,773) (14,863,687) (12,906,132) Accumulated other comprehensive income (loss) (429,849) (219,257) (248,554) ------------- --------------- --------------- TOTAL STOCKHOLDERS' EQUITY 4,290,933 4,647,685 1,066,065 ------------- --------------- --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,652,646 6,482,077 $ 1,291,768 ============= =============== ===============
See accompanying condensed notes to interim financial statements. 3
CADENCE RESOURCES CORPORATION STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Three Months Ended Six Months Ended March 31, March 31, ---------------------------------------- ---------------------------------------- 2004 2003 2002 2004 2003 2002 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) ------------ ------------ ------------ ------------ ------------ ------------ REVENUES $ 688,368 $ 44,449 $ - $ 1,247,752 $ 77,825 $ - ------------ ------------ ------------ ------------ ------------ ------------ GENERAL AND ADMINISTRATIVE EXPENSES Depreciation, depletion and amortization 309,173 8,496 - 542,284 17,131 - Officers' and directors' compensation 35,000 173,477 40,000 90,000 218,477 52,510 Consulting 82,100 21,425 374,904 140,513 99,655 470,518 Professional fees 150,389 41,393 5,366 440,436 49,428 33,222 Oil and gas lease expenses 114,126 39,095 34,870 223,512 59,447 49,642 Oil and gas consulting 27,500 - - 42,500 - - Oil and gas productions costs 33,171 - - 72,650 - - Exploration and drilling 12,000 - 177,038 12,000 - 177,038 Lease operating expenses 2,410 5,663 - 3,658 42,179 - General and administrative 60,223 26,222 7,396 195,203 62,425 20,317 ------------ ------------ ------------ ------------ ------------ ------------ Total expenses 826,092 315,771 639,574 1,762,756 548,742 803,247 ------------ ------------ ------------ ------------ ------------ ------------ OPERATING LOSS (137,724) (271,322) (639,574) (515,004) (470,917) (803,247) ------------ ------------ ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSES) Interest income 213 46 11 4,193 126 24 Interest expense (8,132) (81,762) (1,329) (10,313) (83,001) (2,389) Partnership loss - (159) - - (8,468) - Refund of production taxes 5,155 - - 5,155 - - Gain on debt forgiveness - - - - - 6,109 Gain (loss) on disposition and impairment of assets (720) (29,969) 11,265 (720) (64,592) (21,468) ------------ ------------ ------------ ------------ ------------ ------------ Total other income (expense) (3,484) (111,844) 9,947 (1,685) (155,935) (17,724) ------------ ------------ ------------ ------------ ------------ ------------ LOSS BEFORE TAXES (141,208) (383,166) (629,627) (516,689) (626,852) (820,971) INCOME TAX BENEFIT - - - - - 66,040 ------------ ------------ ------------ ------------ ------------ ------------ LOSS FROM CONTINUING OPERATIONS (141,208) (383,166) (629,627) (516,689) (626,852) (754,931) GAIN (LOSS) FROM DISCONTINUED OPERATIONS Gain from mining operations (net of income taxes) - - - - - 264,158 ------------ ------------ ------------ ------------ ------------ ------------ NET INCOME (LOSS) (141,208) (383,166) (629,627) (516,689) (626,852) (490,773) OTHER COMPREHENSIVE INCOME (LOSS) Unrealized gain (loss) on market value of investments (103,299) 32,655 3,215 (210,593) 41,332 13,675 ------------ ------------ ------------ ------------ ------------ ------------ COMPREHENSIVE INCOME (LOSS) $ (244,507) $ (350,511) $ (626,412) $ (727,282) $ (585,520) $ (477,098) ============ ============ ============ ============ ============ ============ NET INCOME (LOSS) PER COMMON SHARE BASIC AND DILUTED Net loss from continuing operations $ (0.02) (0.04) $ (0.16) $ (0.06) $ (0.07) $ (0.21) Net income (loss) from discontinued operations nil nil nil nil nil $ 0.07 ------------ ------------ ------------ ------------ ------------ ------------ NET INCOME (LOSS) PER COMMON SHARE $ (0.02) $ (0.04) $ (0.05) $ (0.06) $ (0.07) $ (0.14) ============ ============ ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED 12,645,330 9,037,193 3,891,433 12,630,615 8,721,129 3,571,614 ============ ============ ============ ============ ============ ============
See accompanying condensed notes to interim financial statements. 4
CADENCE RESOURCES CORPORATION STATEMENTS OF CASH FLOWS Six Months Ended March 31, ------------------------------------- 2004 2003 2002 (Unaudited) (Unaudited) (Unaudited) ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss (516,689) (626,852) (490,773) Adjustments to reconcile net loss to net cash used by operating activities: Loss on sale of investments 720 64,592 21,468 Partnership loss - 8,468 - Gain from mining operations - - (330,198) Gain on debt forgiveness - - 6,109 Depreciation, depletion and amortization 542,284 17,131 - Issuance of common stock for services 97,175 142,200 58,500 Issuance of common stock for loan consideration - 78,000 - Investment given for services - 7,200 - Issuance of stock options for consulting fees - - 324,000 Changes in assets and liabilities: Oil & gas revenue receivable (301,065) 9,159 - Receivable from working interest owners - 3,164 (2,752) Prepaid expenses (131,300) 15,000 1,275 Notes receivable - (3,241) - Other current assets (27,000) 6 - Prepaid mineral leases - 47,258 (88,350) Deferred working interest - (22,184) 38,527 Accounts payable 48,908 20,367 (33,980) Revenue distribution payable 67,866 1,314 - Interest payable (2,698) 2,433 - Accrued expenses (86,755) 39,500 52,510 ----------- ----------- ----------- Net cash provided (used) by operating activities (308,554) (196,485) (443,664) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments (6,250) (9,172) (21,677) Sale of investments 4,300 15,279 79,124 Purchase of fixed assets (375,708) (44,467) (17,086) Purchase of proved and unproved properties (2,846,068) (177,995) - Purchase of mineral leases (376,522) (47,500) - Sale of fixed assets - - - ----------- ----------- ----------- Net cash provided (used) by investing activities (3,600,248) (263,855) 40,361 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of notes payable (425,000) - (35,000) Proceeds from notes payable 475,000 300,000 - Payments on payables to related parties (550,000) - - Proceeds from secured notes payable 1,000,000 - - Issuance of redeemable preferred stock for cash - 59,925 - Issuance of common stock and warrants for cash 275,000 110,000 - Issuance of common stock for cash - - 374,900 ----------- ----------- ----------- Net cash provided by financing activities 775,000 469,925 339,900 ----------- ----------- ----------- Net increase (decrease) in cash (3,133,802) 9,585 (63,403) ----------- ----------- -----------
See accompanying condensed notes to interim financial statements. 5
CADENCE RESOURCES CORPORATION STATEMENTS OF CASH FLOWS Six Month Ended March 31, ---------------------------------------- 2004 2003 2002 (Unaudited) (Unaudited) (Unaudited) ------------ ------------ ------------ Net increase (decrease) in cash (balance forward) $(3,133,802) $ 9,585 $ (63,403) Cash, beginning of period $ 3,619,345 $ 40,011 $ 191,684 ------------ ------------ ------------ Cash, end of period $ 485,543 $ 49,596 $ 128,281 ============ ============ ============ SUPPLEMENTAL CASH FLOW DISCLOSURE: Income taxes paid $ - $ - $ - Interest paid $ - $ - $ - NON-CASH INVESTING AND FINANCING ACTIVITIES: Common stock issued for services rendered and accrued compensation $ 97,175 $ 142,200 $ 92,500 Common stock issued for loan consideration $ - $ 78,000 $ - Common stock issued for debt $ - $ - $ 90,000 Common stock issued for investment and stock subscription receivable $ - $ - $ - Common stock issued for investment $ - $ - $ 120,000 Investment received for mining claims $ - $ - $ 350,198 Investment given for related party payable $ - $ - $ 8,231 Investment received for note receivable $ - $ - $ 15,000 Stock options issued for servies $ - $ - $ 324,000 Investment given for consulting services $ - $ 7,200 -
See accompanying condensed notes to interim financial statements. 6 CADENCE RESOURCES CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 31, 2004 NOTE 1 - BASIS OF PRESENTATION The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Regulation S-B as promulgated by the Securities and Exchange Commission ("SEC"). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements for the year ended September 30, 2003. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented. The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company's financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of the Company's financial position and results of operations. Operating results for the six month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending September 30, 2004. NOTE 2 - STOCKHOLDERS' EQUITY During the six months ended March 31, 2004, a total of 110,000 shares of common stock were issued at $2.50 per share for cash proceeds of $275,000 and a total of 51,000 shares of common stock were issued at $1.40 to $2.50 per share for services valued at $97,175. Also in the same period, the Company paid cash dividends aggregating $2,249. During the six months ended March 31, 2004, no stock options or warrants were issued or exercised. 7 CADENCE RESOURCES CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 31, 2004 NOTE 3 - NOTES PAYABLE At March 31, 2004, the Company had short-term notes payable to related parties in the amount of $510,000, of which $345,000 was received in the quarter just ended. In April 2004, these liabilities were paid in full. Additionally, the Company received $1,000,000 in short-term financing in late March 2004 from unrelated parties. These amounts were repaid from the proceeds of the long-term notes payable in early April 2004. No interest was accrued on these short-term loans. NOTE 4 - SUBSEQUENT EVENTS In April 2004, the Company completed a private placement of $6,000,000 of senior secured notes from a group of institutional and individual lenders. These notes payable accrue interest at the rate of 10% per year (subject to increase under certain conditions), payable quarterly, with the principal due and payable on March 31, 2006. The Company is obligated however, to make principal repayments equivalent to 10% of the principal amount of the notes on each of September 30 and December 31 of 2005 if the Company's weighted average share price falls below $5.00 per share at such times. The notes are secured by all of the assets of Cadence. As part of the private placement, the noteholders received warrants to purchase a total of 765,000 shares of common stock, exercisable at $4 per share, expiring in three years. Both the number of warrants and the exercise price per share are adjustable, dependent upon certain future equity transactions of the Company. The value of the warrants upon issuance of $688,500, will be recorded as a discount on long term debt. 8 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. 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: - - If we continue to experience significant operating losses, we may not be able to continue as a going concern. - - We have no full-time employees and are dependent on our directors, officers and third-party contractors. - - We lack experience in the oil and gas industry and must rely on third parties to conduct our oil and gas exploration activities. - - Our drilling activities may be unsuccessful. - - We do not operate any of our oil and gas properties. - - We may be unable to make acquisitions of producing properties or prospects or successfully integrate them into our operations. - - The failure to develop reserves could adversely affect our production and cash flows. - - We may have difficulty financing our planned growth. - - Oil and gas prices are volatile. A substantial decrease in oil and natural gas prices could adversely affect our business. - - We may not have good and marketable title to our properties. - - Competition in our industry is intense, and we are smaller and have a more limited operating history than most of our competitors. - - Oil and natural gas operations involve various risks. - - We lack insurance that would lower risks to our investors. 1 - - We are subject to complex federal, state and local laws and regulations that could adversely affect our business. CAPITAL RESOURCES AND LIQUIDITY As of March 31, 2004, we had cash and cash equivalents of $485,543, a decrease of approximately 87% from September 30, 2003 levels of $3,619,345, and 36% from December 31, 2003. 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 began to receive significantly higher revenues from our Louisiana gas production during the quarter ended December 31, 2003, given the level of our operating activity, we are still dependent upon outside capital resources to provide liquidity and 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 six months ended March 31, 2004 we invested $2,951,719 in unproved properties, $48,170 in proved properties, and $451,321 in fixed assets, including well equipment, pipelines, tanks, casings and pumping units. A portion of this was funded from existing cash balances and a portion was funded from short-term loans of $510,000 received from officers, directors, and other insiders of the Company, as well as $1,000,000 of non-interest bearing short-term notes received in late March 2004. Subsequent to the quarter ending March 31, 2004, we closed $6,000,000 of senior secured notes from a group of investors. These notes are secured by substantially all of the assets of the Company and are payable in two years and bear interest at the rate of 10% per annum, payable quarterly. Pre-payments of 10% of the principal shall be required on each of September 30, 2005 and December 31, 2005 if the share price of the Company is less than $5 per share. In conjunction with this financing, the note holders also received warrants to purchase 765,000 shares of the Company common stock which are exercisable at $4 and expire in three years. The shares underlying the warrants bear registration rights and the Company is committed to the filing of a registration statement covering these shares no later than June 1, 2004. 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 increased as we complete wells in that area. In the quarter ended March 31, 2004 we drilled five new wells in this area and completed four of these. We have experienced a lower rate of production from two of these wells than we anticipated and are studying methods to enhance the production by completing or re-completing other indicated pay zones in the wells. All of our five producing wells in De Soto Parish as of December 31, 2003 were drilled to Cotton Valley formation to depths of in excess of 10,000 feet. During the quarter ended March 31, 2004 we drilled two wells to the shallower Hosston sand formation, which lies between 6,450 and 8,950 feet. As noted above, we have generally been disappointed at the rate of production from the Hosston formation wells and we are currently assessing the situation. In light of this, our most recent well has been drilled to the Cotton Valley formation in which we have had better success at completion. We are in active discussions with our joint venture partner in determining our future drilling plans in this area. 2 Results of Operations Three months ended March 31, 2004 and 2003 REVENUES During the three months ended March 31, 2004, we had revenues totaling $688,368, which came from production of oil from our property in Wilbarger County, Texas, and from gas production from our De Soto Parish property in Louisiana, and our property in Michigan. During the same period in 2003, revenues were $44,449, all of which was from the sale of oil production from our oil wells in Texas. Of our net revenue from the quarter ended March 31, 2004, approximately $249,815 came from the sale of oil produced from our Texas properties, $52,494 came from the sale of natural gas at our Michigan properties, and $375,997 came from the sale of natural gas produced from our Louisiana properties. We also accrued a revenue receivable in the amount of about $10,060. The decline curve from our past production from Louisiana is rapid, dropping from an initial peak of approximately 1,500 Mcf/day to a level of approximately 600 Mcf/day after about 60 days and a level of about 450 Mcf/day after 120 days. Production from our new wells in the Hosston sand formation has, to date, failed to offset this decline, and therefore revenues are not increasing at the same pace as our older wells level off. EXPENSES Our expenses during the three months ended March 31, 2004 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, drilling costs, exploitation costs, exploration 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 March 31, 2004 and 2003, and the percentages each of these categories comprise of total expenses:
THREE MONTHS ENDED MARCH 31, ------------------------------------------ % of 2004 % of 2003 Total Total 2004 Expenses 2003 Expenses -------- ---------- -------- ---------- Corporate and Administrative Overhead $327,712 40% $241,092 76% Expenses from Oil and Gas Operations $498,380 60% $ 74,679 24% -------- ---------- -------- ---------- Total Expenses $826,092 100% $315,771 100% ======== ========== ======== ==========
3 The Company's corporate and administrative expenses for the three month period ended March 31, 2004 increased $86,620 over the level of these expenses for the same period in 2003. This increase was principally due to increases in professional fees (primarily for legal services). General and administrative expenses increased $34,001, but officer and director compensation declined $138,477 due to the reduction in the amount of quarterly restricted stock awards to officers and directors as compensation for their services. 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 March 31, 2004 and 2003. 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 MARCH 31, ---------------------------------------- 2004 2003 ------------------- ------------------- % of % of Total Total 2004 Expenses 2003 Expenses -------- --------- ------- ---------- Depreciation, depletion and amortization $309,173 62.0% $ 8,496 11.4% Oil and gas lease expenses $114,126 22.9% $39,095 52.3% Oil and gas lease operating expenses $ 47,581 9.6% $ 5,663 7.6% Oil and gas consulting $ 27,500 5.5% $21,425 28.7% -------- --------- ------- ---------- Total Expenses from oil and gas operations $498,380 100.0% $74,679 100.0% ======== ========= ======= ==========
Our depreciation, depletion and amortization expense increased to $309,173 during the quarter ended March 31, 2004, from $8,496 during the same period in 2003 as our production increased from 2,061 barrels of oil to 8,082 barrels of oil and about 71,896 Mcf of gas. We spent $161,707 in the three months ended March 31, 2004 for oil and gas lease expenses and lease operating expenses, compared to $44,758 in the same period last year. These lease operating expenses were primarily for the acquisition of acreage in the State of Kansas. 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 (a) 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 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. 4 (b) Changes in Internal Controls. The Company evaluates its internal controls for financial reporting purposes on a regular basis. Based upon the results of these evaluations, the Company considers what revisions, improvements and/or corrective actions are necessary in order to ensure that its internal controls are effective. The Company has improved its internal controls by hiring a part-time outside bookkeeper and implementing a new bookkeeping system that is computerized and has automated the process of collection of financial data. (c) Audit Committee. During the quarter ended March 31, 2004 the Company established an audit committee consisting of the three independent directors of the Company. The function of the audit committee shall be to oversee the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company and to assist the Board in fulfilling the Board's oversight responsibilities with respect to: - the integrity of the Company's financial statements; - the Company's compliance with legal and regulatory requirements; - the independent auditors' qualifications and independence; and - the performance of the independent auditors. 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. 5 CADENCE RESOURCES CORPORATION PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS During the quarter ended March 31, 2004, 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 April 2, 2004, the Company completed a placement of $6,000,000 of secured notes and warrants exercisable for 765,000 shares of the Company's common stock to seven accredited investors. The Company received $6,000,000 in exchange for such notes and warrants. The notes are not convertible or exercisable into the Company's common stock. In exchange for certain services provided by Sunrise Securities Corp. to the Company, the Company paid Nathan A. Low a note in the aggregate principal amount of $300,000 (which is in addition to $6,000,000 of notes issued in the placement) and warrants to purchase 76,500 shares of the Company's common stock. All of the warrants described in this paragraph are exercisable at $4.00 per share and expire on April 2, 2007. All of the notes described in this paragraph bear interest at the rate of 10% and mature on March 31, 2006. The notes and warrants were issued in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended. 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 (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 3/01/04. 6 CADENCE RESOURCES CORPORATION 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 By: Date: May 17, 2004 /S/ Howard M. Crosby ------------ --------------------- Howard M. Crosby Chief Executive Officer Date: May 17, 2004 /s/ John P. Ryan ------------ ---------------- John P. Ryan Chief Financial Officer 7 EX-31.1 2 doc2.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: May 17, 2004 0 EX-31.2 3 doc3.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: May 17, 2004 1 EX-32.1 4 doc4.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: May 17, 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-32.2 5 doc5.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: May 17, 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-----