-----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, EFxyNCSS1wPwwuAMVofIXe8uSFpzEPz1riHWpcig3+anfbe5Tk0BJLGv9BDa1ynn 5MukGfXaBRQHn6EAX4TPag== 0001144204-05-025846.txt : 20050816 0001144204-05-025846.hdr.sgml : 20050816 20050816135226 ACCESSION NUMBER: 0001144204-05-025846 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050816 DATE AS OF CHANGE: 20050816 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25170 FILM NUMBER: 051030146 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/A 1 v024198_10qsb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10QSB Under Section 12(b) or Section 12(g) of The Securities Exchange Act of 1934 For the quarter ended June 30, 2005 COMMISSION FILE NUMBER: 0-25170 CADENCE RESOURCES CORPORATION (Name of Small Business Issuer in its Charter) Utah 87-0306609 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 6 East Rose Street, P.O. Box 2056 Walla Walla, WA 99362 (Address of principal executive office) Issuer's telephone number: (509) 526-3491 Securities to be registered under Section 12(b) of the Act: None (Title of Class) Securities to be registered under Section 12(g) of the Act: Common (Title of Class) ================================================================================ 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 |_| Transitional Small Business Disclosure: Yes |_| No |X| The number of shares outstanding at June 30, 2005: 20,702,327 shares ================================================================================ CADENCE RESOURCES CORPORATION Financial Statements June 30, 2005 ================================================================================ CADENCE RESOURCES CORPORATION C O N T E N T S Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Statements of Operations and Comprehensive Loss. . . . . . . . . . . . . . . 3 Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . . . . 6 Management Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . 9 CADENCE RESOURCES CORPORATION BALANCE SHEETS
June30 September 30, 2005 -------------------------- (Unaudited) 2004 2003 ----------- ----------- ----------- ASSETS CURRENT ASSETS Cash $ 1,657,209 $ 1,922,993 $ 3,619,345 Oil & gas revenue receivable 517,823 335,407 84,575 Receivable from working interest owners -- -- 12,873 Notes receivable 23,720 8,720 3,720 Prepaid expenses 496,837 39,410 5,925 Other current assets 425 425 425 ----------- ----------- ----------- TOTAL CURRENT ASSETS 2,696,014 2,306,955 3,726,863 ----------- ----------- ----------- OIL AND GAS PROPERTIES, USING SUCCESSFUL EFFORTS ACCOUNTING Proved properties 6,303,405 5,731,108 590,747 Unproved properties 673,125 505,501 833,836 Wells and related equipment and facilities 1,066,423 855,562 202,886 Support equipment and facilities 538,107 506,427 151,963 Prepaid oil and gas leases 413,085 456,219 395,973 Less accumulated depreciation, depletion, amortization and impairment (6,101,065) (3,911,939) (61,611) ----------- ----------- ----------- TOTAL OIL AND GAS PROPERTIES 2,893,080 4,142,878 2,113,794 ----------- ----------- ----------- PROPERTY AND EQUIPMENT Furniture and equipment 4,785 4,785 1,660 Less accumulated depreciation (2,450) (1,949) (1,451) ----------- ----------- ----------- TOTAL PROPERTY AND EQUIPMENT 2,335 2,836 209 ----------- ----------- ----------- OTHER ASSETS Investments 907,039 238,088 394,454 Mineral properties available for sale 197,406 197,406 246,757 ----------- ----------- ----------- TOTAL OTHER ASSETS 1,104,445 435,494 641,211 ----------- ----------- ----------- TOTAL ASSETS $ 6,695,874 $ 6,888,163 $ 6,482,077 =========== =========== ===========
See accompanying condensed notes to interim financial statements. 1 CADENCE RESOURCES CORPORATION BALANCE SHEETS
June 30 September 30, 2005 ---------------------------- (Unaudited) 2004 2003 ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable $ 257,776 $ 358,588 $ 584,866 Revenue distribution payable 34,620 32,387 68,929 Payable to related party -- 300,000 550,000 Accrued dividends payable 13,490 -- -- Accrued compensation 22,500 -- 94,920 Interest payable -- 4,781 15,752 Notes payable -- -- 460,000 ------------ ------------ ------------ TOTAL CURRENT LIABILITIES 328,386 695,756 1,774,467 ------------ ------------ ------------ LONG-TERM LIABILITIES Secured notes, net of discount -- 5,071,147 -- ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES -- -- -- ------------ ------------ ------------ REDEEMABLE PREFERRED STOCK 59,925 59,925 59,925 ------------ ------------ ------------ STOCKHOLDERS' EQUITY Common stock, $.01 par value; 100,000,000 shares authorized, 20,702,327, 12,892,327 and 12,512,827 shares issued and outstanding, respectively 207,023 128,923 125,128 Additional paid-in capital 24,004,243 18,995,458 18,343,422 Stock options 1,642,614 1,642,614 1,210,704 Stock warrants 4,480,387 794,512 51,375 Accumulated deficit (23,525,705) (20,035,605) (14,863,687) Accumulated other comprehensive income (loss) (500,999) (464,567) (219,257) ------------ ------------ ------------ TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 6,307,563 1,061,335 4,647,685 ------------ ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,695,874 $ 6,888,163 $ 6,482,077 ============ ============ ============
See accompanying condensed notes to interim financial statements. 2 CADENCE RESOURCES CORPORATION STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended June 30 June 30 --------------------------------------- --------------------------------------- 2005 2004 2003 2005 2004 2003 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) ----------- ----------- ----------- ----------- ----------- ----------- REVENUES Oil and gas sales net of production taxes $ 635,027 $ 638,513 $ 110,955 $ 1,783,287 $ 1,886,265 $ 188,780 ------------ ------------ ------------ ------------ ------------ ------------ GENERAL AND ADMINISTRATIVE EXPENSES Depreciation, depletion and amortization 693,152 189,133 19,234 2,189,626 731,417 36,365 Officers' and directors' compensation 45,006 254,950 55,000 193,988 344,950 273,477 Consulting -- 10,040 378,015 67,986 150,553 477,670 Professional fees 116,229 223,935 59,782 462,638 664,371 109,210 Oil and gas lease expenses 151,811 103,010 26,568 443,150 326,522 86,015 Oil and gas consulting 65,000 25,500 -- 135,000 68,000 -- Oil and gas production costs 2,111 65,114 -- 5,698 137,764 -- Exploration & drilling 13,113 6,758 74,438 174,482 18,758 74,438 Lease operating expenses 49,999 4,090 146,561 182,126 7,748 188,740 Other general and administrative 98,116 185,548 46,473 518,748 380,751 108,898 ------------ ------------ ------------ ------------ ------------ ------------ Total expenses 1,234,537 1,068,078 806,071 4,373,442 2,830,834 1,354,813 ------------ ------------ ------------ ------------ ------------ ------------ OPERATING LOSS (599,510) (429,565) (695,116) (2,590,155) (944,569) (1,166,033) ------------ ------------ ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSES) Interest income 299 8,154 10 10,169 12,347 136 Interest expense -- (253,944) (5,629) (210,134) (264,257) (88,630) Partnership loss -- -- (6,732) -- -- (15,200) Miscellaneous income -- 4,037 -- 846 9,192 -- Loss on repayment of debt -- -- (1,699) (660,559) -- (1,699) Loss on sale of investments -- -- -- -- (588,102) (67,020) Gain (loss) on disposition and impairment of assets -- (587,382) (2,428) (40,267) -- -- ------------ ------------ ------------ ------------ ------------ ------------ Total other income (expense) 299 (829,135) (16,478) (899,945) (830,820) (172,413) ------------ ------------ ------------ ------------ ------------ ------------ LOSS BEFORE TAXES (599,211) (1,258,700) (711,594) (3,490,100) (1,775,389) (1,338,446) INCOME TAX BENEFIT -- -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ NET INCOME (LOSS) (599,211) (1,258,700) (711,594) (3,490,100) (1,775,389) (1,338,446) OTHER COMPREHENSIVE INCOME (LOSS) Unrealized gain (loss) on market value of investments (38,162) (22,850) 211,715 (48,416) (233,442) 253,047 ------------ ------------ ------------ ------------ ------------ ------------ COMPREHENSIVE INCOME (LOSS) $ (637,373) $ (1,281,550) $ (499,879) $ (3,538,516) $ (2,008,831) $ (1,085,399) ============ ============ ============ ============ ============ ============ NET LOSS PER COMMON SHARE BASIC AND DILUTED $ (0.03) $ (0.10) $ (0.08) $ (0.20) $ (0.14) $ (0.15) ============ ============ ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED 20,702,327 12,741,660 9,463,691 17,231,216 12,678,605 8,976,820 ============ ============ ============ ============ ============ ============
See accompanying condensed notes to interim financial statements. 3 CADENCE RESOURCES CORPORATION STATEMENTS OF CASH FLOWS
Nine Months Ended June 30 ----------------------------------------- 2005 2004 2003 (Unaudited) (Unaudited) (Unaudited) ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(3,490,100) $(1,775,389) $(1,338,446) Adjustments to reconcile net loss to net cash used by operating activities: Loss (gain) on sale of investments 40,267 6,204 65,220 Impairment of long lived assets -- 581,899 Loss on repayment of debt 660,559 Partnership loss -- 15,200 Gain on debt forgiveness -- 1,699 Amortization of deferred financing fees 268,294 103,155 Depreciation, depletion and amortization 2,189,626 731,535 36,365 Issuance of common stock for services -- 107,555 271,200 Issuance of common stock for expenses -- 169,200 Issuance of common stock for loan consideration -- 78,000 Issuance of stock options for consulting fees -- 222,343 Investment given for services -- 7,200 Changes in assets and liabilities: Oil & gas revenue receivable (182,416) (473,868) 2,701 Receivable from working interest owners -- 3,164 Prepaid expenses (457,427) (131,300) 22,500 Note receivable (15,000) 1,575 3,058 Other current assets (109,610) Deposits 6 Prepaid mineral leases 43,134 73,925 Deferred working interest (22,184) Accounts payable (100,812) 362,474 12,975 Revenue distribution payable 2,233 (19,967) (850) Interest payable (4,781) (2,617) 6,733 Accrued expenses 22,500 (46,755) 38,100 ----------- ----------- ----------- Net cash provided (used) by operating activities (1,023,923) (495,909) (501,091) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments (788,854) (18,685) (10,147) Sale of investments 43,205 23,440 16,614 Purchase of fixed assets (242,541) (679,705) (54,872) Purchase of proved and unproved properties (739,921) (4,814,609) (169,210) Purchase of mineral leases -- (47,500) ----------- ----------- ----------- Net cash provided (used) by investing activities (1,728,111) (5,489,559) (265,115) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of notes payable (5,000,000) (1,050,000) (140,000) Proceeds from notes payable 115,000 300,000 Payments of notes payable to related party (300,000) Payments of preferred stock dividends -- (2,249) (4,290) Proceeds from secured notes payable -- Procedds from secured notes payable -- 5,920,000 Issuance of redeemable preferred stock for cash -- 59,925 Issuance of common stock and warrants for cash 7,786,250 110,000 Issuance of common stock units for cash -- 286,400 480,000 ----------- ----------- ----------- Net cash provided by financing activities 2,486,250 5,269,151 805,635 ----------- ----------- ----------- Net increase (decrease) in cash $ (265,784) $ (716,317) $ 39,429 ----------- ----------- -----------
See accompanying condensed notes to interim financial statements. 4 CADENCE RESOURCES CORPORATION STATEMENTS OF CASH FLOWS
Nine Months Ended June 30 ----------------------------------------- 2005 2004 2003 (Unaudited) (Unaudited) (Unaudited) ----------- ----------- ----------- Net increase (decrease) in cash (balance forward) $ (265,784) $ (716,317) $ 39,429 Cash, beginning of period 1,922,993 3,619,345 40,011 ----------- ----------- ----------- Cash, end of period $ 1,657,209 $ 2,903,028 $ 79,440 =========== =========== =========== Supplemental cash flow disclosure: Income taxes paid $ -- $ -- $ -- Interest paid $ 150,000 $ -- $ -- Non-cash investing and financing activities: Common stock issued for services rendered and accrued compensation $ -- $ 97,175 $ 271,200 Common stock issued for loan consideration $ -- $ -- $ 78,000 Investment given for consulting services $ -- $ -- $ 7,200 Issuance of common stock for loan repayment $ 1,000,000 $ -- $ -- Common stock issued for related party payable $ -- $ -- $ 120,000 Investment given for accrued compensation $ -- $ -- $ 7,500 Stock options issued for services $ -- $ -- $ 222,343 Payable to related party issued for fixed assets, proved and unproved properties $ -- $ -- $ 299,000
See accompanying condensed notes to interim financial statements. 5 CADENCE RESOURCES CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS June 30, 2005 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, 2004. 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 nine month period ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending September 30, 2005. NOTE 2 - STOCKHOLDERS' EQUITY On January 31, 2005, Cadence entered into a purchase agreement with twenty-two accredited investors pursuant to which the investors purchased 7,810,000 shares of common stock and common stock warrants enabling the warrant holders to purchase 14,050,000 shares of common stock at an exercise price of $1.75 per share. The aggregate proceeds from the security sales were $9,762,500 before commissions. NOTE 3 - LONG-TERM DEBT 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. A financing fee of $80,000 was paid in connection with the securing of this debt. This financing fee has been recorded as a discount on long-term debt, and will be written off ratably over the life of the debt. For the period ending March 31, 2005, $10,000 of this financing fee was written off. 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. 6 CADENCE RESOURCES CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS June 30, 2005 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 $745,237 has been recorded as a discount on long-term debt, and will be written off ratably over the life of the debt. For the three months ended March 31, 2005, $93,155 of this discount was written off. Additionally, a related party was granted 76,500 options valued at $71,910 as a finders fee related to these notes. On January 31, 2005, Cadence entered into an agreement with the seven accredited investors (each of whom signed the agreement in its April 2004 private placement) pursuant to which the Company was permitted to repay the $6,000,000 in notes held by such investors without any prepayment penalties in exchange for the exercise price of the warrants to purchase 765,000 shares of common stock issued in the April 2004 private placement being reduced from $4.00 per share to $1.25 per share. As part of this transaction, $5,000,000 of the notes were repaid in cash and $1,000,000 of the notes were converted into common stock and warrants of Cadence (see Note 2). Additionally, all deferred financing costs associated with these notes were written off, resulting in a loss on repayment of debt in the amount of $660,559. As of June 30, 2005, the Company has no long term debt outstanding. NOTE 4 - REDEEMABLE PREFERRED STOCK On April 23, 2001 the Company's board of directors authorized 20,000,000 shares of preferred stock with a par value of $0.01 per share and rights and preferences to be determined. No shares were issued and outstanding as of September 30, 2002. During the year ended September 30, 2003, the Company issued 34,950 shares of its preferred stock to investors at prices ranging from $1.50 to $2.00 per share for aggregate proceeds of $59,925. The shares are convertible to common stock at a price of $1.50 per share under certain terms and conditions. At September 30, 2003 the shares carried a preferred dividend of 15% per annum. The Class A preferred shares mature seven years from the date of issuance. At maturity, the Class A preferred shares will be redeemed for cash or common stock at Cadence's option in an amount equal to the amount paid by the investors for the shares plus any accrued and unpaid dividends. If shares of common stock are to be issued at maturity, the conversion price shall be determined by the average closing bid price for the 20 trading days prior to the maturity date. 7 CADENCE RESOURCES CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS June 30, 2005 At June 30, 2005, the Company had $13,490 of accrued dividends payable to preferred shareholders. NOTE 5 - SUBSEQUENT EVENTS On November 19, 2004, the Company signed a letter of intent establishing a 60 day exclusivity period in order to conduct due diligence and negotiate terms for acquisition of all of the outstanding shares of Aurora Energy, Ltd., a privately held company based in Traverse City, Michigan in exchange for shares of common stock of Cadence. On January 31, 2005, Cadence, Aurora Acquisition Corp., a wholly owned subsidiary of Cadence, and Aurora entered into a definitive merger agreement providing for the acquisition of all of the outstanding shares and options of Aurora by Cadence. The closing is conditioned upon, among other things, obtaining approval of Aurora's shareholders and the shares of Cadence's common stock being issued to Aurora's shareholders being registered on a Form S-4 registration statement. Upon consummation of the merger, (i) Cadence will issue two shares of its common stock for each share of Aurora common stock, (ii) all options and warrants to purchase Aurora common stock will become options or warrants to receive shares of Cadence common stock, and (iii) Aurora will become a wholly owned subsidiary of Cadence. It is contemplated by the parties that if this effort is successfully consummated, Cadence will relocate its operational headquarters to Aurora's offices in Traverse City and the board of directors and management of Cadence will be significantly restructured. On May 11, 2005, the Company filed Form S-4, registering up to 48,297,694 shares of its common stock, 10,205,328 shares of which are issuable upon exercise of options, for issuance to the shareholders and option holders of Aurora Energy, Ltd. pursuant to the agreement and plan of merger between Cadence, Aurora Acquisition Corp., Cadence's wholly owned subsidiary, and Aurora Energy, Ltd. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion in conjunction with our financial statements, together with the notes to those statements, included elsewhere in this report. 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. Overview We were formed in 1969 as Royal Resources, Inc. to acquire and develop mineral properties and we pursued mining operations under several different names until mid-2001 when we changed our name to Cadence Resources Corporation, split our stock on a 1-for-20 reverse basis, and changed our business to acquiring, exploring and developing oil and gas properties. The current management of Cadence, Mr. Crosby and Mr. Ryan, assumed control of Cadence in 1996, in connection with the acquisition of Cadence by an entity they controlled. Although the management of Cadence has been reduced in size since 1996, our key executives, Mr. Crosby and Mr. Ryan, have remained with Cadence. Following a corporate reorganization in May 2001 to shift our focus to oil and gas exploration, we began to lease oil and gas properties in Louisiana in the fall of 2001, and in both Texas and Louisiana in fiscal 2002, but did not produce commercial quantities of oil and gas until the fourth quarter of the fiscal year ended September 30, 2002, when production began from our properties in Texas. During the fourth quarter of 2003, we began to produce gas from our properties in Louisiana that we are developing together with Bridas Energy USA, Inc. As a result of our change from a mineral exploration company to an oil and gas exploration company in 2001, our Board determined to write-off and dispose of our inventory of mineral properties to the greatest extent possible. Because mineral properties at the exploration stage have limited marketability, and because the management of Cadence does not have the extensive time it would take to attempt to reach the limited number of buyers for our properties, we have not been successful at disposing of our properties in outright arms' length sales, but have chosen to write-down the carrying value of a substantial majority of our properties to zero, or to sell the properties to other entities controlled by the management of Cadence in non-arms' length transactions. Recent Developments On November 19, 2004, Cadence issued a press release announcing that Cadence signed a letter of intent establishing a 60 day exclusivity period in order to conduct due diligence and negotiate terms for acquisition of all of the outstanding shares of Aurora Energy, Ltd., a privately held company based in Traverse City, Michigan in exchange for shares of common stock of Cadence. On January 31, 2005, Cadence, Aurora Acquisition Corp., a wholly owned subsidiary of Cadence, and Aurora entered into a definitive merger agreement providing for the acquisition of all of the outstanding shares and options of Aurora by Cadence. Upon consummation of the merger, (i) Cadence will issue two shares of its common stock for each share of Aurora common stock, (ii) all options and warrants to purchase Aurora common stock shall become options or warrants to receive shares of Cadence common stock, and (iii) Aurora will become a wholly owned subsidiary of Cadence. On January 31, 2005, Cadence entered into a purchase agreement (the "Purchase Agreement") with twenty two accredited investors (each of whom is listed on the schedules of purchasers to the purchase agreement) pursuant to which the investors purchased 7,810,000 shares of common stock and warrants to purchase 14,050,000 shares of common stock at an exercise price of $1.75 per share for $9,762,500. The Nathan A. Low Family Trust dated 4/12/96 and Bear Stearns as Custodian for Nathan A. Low Roth IRA, both of which are controlled by Nathan Low, a greater than 10% holder of Cadence's common stock, invested in Cadence pursuant to the Purchase Agreement. Sunrise Securities Corporation, an affiliate of Nathan Low, received a commission equal to $926,250 and a warrant to purchase 2,186,000 shares of Cadence's common stock for services rendered as the placement agent in the transaction. In May, 2005 the Company filed a registration statement on Form S4 which seeks to register the shares to be exchanged to the Aurora stockholder in exchange for shares of the Company and describes in greater detail the reasons for the transaction and the business of Aurora. 9 Capital Resources and Liquidity From our reorganization in mid-2001 until the date of this report, we have funded our operations principally through the private sale of equity securities, borrowings from officers, directors and shareholders, and borrowings from third party individuals and we expect this to continue to be the case for at least the remainder of 2005. In February 2004, we borrowed $410,000 in short term notes from three directors of Cadence and a company of which two of Cadence's officers and directors are also affiliated. These notes bore interest at the rate of 12% per annum, and were repaid in full in April, 2004. On April 2, 2004, we issued $6,000,000 of senior secured notes to seven individual investors. These notes are secured by substantially all of our assets are due and payable on March 31, 2006 and bear interest at the rate of 10% per annum, payable quarterly. Pre-payments of 10% of the principal are required on September 30, 2005 and December 31, 2005 if the weighted average price of our common stock is less than $5 per share. Each $50,000 principal amount of the notes was accompanied by warrants to purchase 6,375 shares of our common stock, or an aggregate of 765,000 shares, at a price of $4.00 per share. The warrants expire on April 2, 2007. During this reporting period these secured notes were repaid in full. In conjunction with early repayment of the notes, the exercise price of the warrants was lowered to $1.25. We realized net proceeds of $941,900 from the sale of our common stock and warrants during fiscal year 2002, net proceeds of approximately $4,830,000 from the sale of our common stock, preferred stock and warrants during the year ended September 30, 2003. Additionally, we received net proceeds of $288,500 from the sale of common stock and exercise of warrants during the year ended September 30, 2004. In the periods ended September 30, 2002, 2003 and 2004, we received approximately $86,000, $16,000 and $14,000 respectively from the sale of investments in various public companies. The sales of these investments were made to fund our working capital needs. Prior to our refocus upon the exploration and development of oil and gas properties, we would from time to time make investments in public companies. These investments were passive in nature and were generally relatively small. Given our focus on oil and gas, future investments of this nature are likely to be limited to opportunities that are of some strategic value to our core oil and gas business and are likely to be less passive in nature. In our 2001 fiscal year, we borrowed $125,000 from Howard Crosby, (an officer and shareholder of Cadence) and $10,000 from Dotson Exploration, a related party which is 48% owned by Messrs. Crosby and Ryan. These amounts were repaid in fiscal 2002 for cash of $45,000, and 300,000 shares of our common stock. In fiscal 2002, we had no net borrowings, and in the year ended September 30, 2003, we had total borrowings of $600,000, of which $140,000 was repaid in cash. As of September 30, 2003, $50,000 was owed to Nathan Low Family Trust, a shareholder of Cadence, $85,000 was owed to Mr. Crosby, $25,000 was owed to Kevin Stulp and $300,000 was owed to CGT Management Ltd. All of such amounts were repaid by in October of 2003. During the year ended September 30, 2004, we borrowed $410,000 in short-term notes from officers, directors, and other insiders of Cadence, as well as $1,000,000 of non-interest bearing short-term notes received in late March 2004. These liabilities were repaid in full in April 2004. On January 31, 2005, we entered into a share purchase agreement with twenty-two accredited investors pursuant to which the investors purchased 7,810,000 shares of common stock and common stock warrants enabling the warrant holders to purchase 14,050,000 shares of common stock at an exercise price of $1.75 per share. The aggregate proceeds from the security sales were $9,762,500 before commissions. The proceeds of this financing were used in part to retire the April 2, 2004 debt financing and all accrued interest thereon. 10 We spent $144,000 in fiscal 2002, $321,000 in fiscal 2003 and $530,167 in fiscal 2004 for oil and gas lease expenses and lease operating expenses. In the same periods we spent $134,000, $145,000, and $308,000, respectively, for oil and gas drilling, production and operating expenses. We obtain professional oil and gas geologic and engineering services solely on a consulting basis. We spent approximately $934,000 in fiscal 2002, $591,000 in fiscal 2003 and $424,873 in fiscal 2004, for consulting services in various disciplines. During fiscal 2002, 2003 and 2004, we purchased fixed assets in the amounts of $172,000, $183,000 and $980,000, respectively. These expenditures were primarily related to the purchase of well equipment, including pipelines, tanks, casings and pumping units. As of June 30, 2005, we had cash and cash equivalents of approximately $1,657,209. We anticipate funding most of our near-term operating and administrative overhead out of revenues from the sale of our Texas oil production and Louisiana and Michigan gas production. Results of Operations For the periods ended June 30, 2005 and 2004 Revenues During the quarter ended June 30, 2005, revenues from the sale of oil and gas totaled approximately $635,027, from production from our wells in Texas, Louisiana and Michigan. This revenue came from the sale of oil from our wells in Texas for revenues of $274,676. The balance of our revenues of $360,351 came from the sale of natural gas from our wells in Louisiana and Michigan, plus a small amount from our New Mexico property. Comparing this to the net revenue from the quarter ended June 30, 2004 of $638,513, approximately $205,526 came from the sale of oil produced from our Texas properties, and the balance of $432,987 came from the sale of natural gas at our Michigan and Louisiana natural gas properties. Expenses Our expenses during this reporting period for 2005 and 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, leases, drilling expenses, 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 quarters ended June 30, 2005 and June 30, 2004, and the percentages each of these categories comprise of total expenses:
- ------------------------------------------------------------------------------------------------------ Quarter Ended June 30, - ------------------------------------------------------------------------------------------------------ % of 2005 % of 2004 2005 Total Expenses 2004 Total Expenses - ------------------------------------------------------------------------------------------------------ Corporate and Administrative Overhead $ 259,351 21.04% $ 674,473 67.25% - ------------------------------------------------------------------------------------------------------ Expenses from Oil and Gas Operations $ 973,075 78.96% $ 328,491 32.75% - ------------------------------------------------------------------------------------------------------ Total Expenses $1,189,842 100.0% $1,002,964 100.0% ========== ===== ========== ===== - ------------------------------------------------------------------------------------------------------
11 When comparing the same reporting periods on a year over year basis, Cadence's corporate and administrative expenses decreased from 2004 to 2005 by approximately $415,122, principally because of decreased expenses and commissions associated with financing of the Company as well as decreased costs associated with the issuance of options to Officers and Directors of the Company. The comparable year to year 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 fiscal 2005 and 2004.
- ------------------------------------------------------------------------------------------------------------------ Quarterly Period Ended June 30, - ------------------------------------------------------------------------------------------------------------------ 2005 2004 - ------------------------------------------------------------------------------------------------------------------ % of Total % of Total 2005 Expenses 2004 Expenses - ------------------------------------------------------------------------------------------------------------------ Exploration and drilling $ 13,113 1.35% $ 6,758 2.06% - ------------------------------------------------------------------------------------------------------------------ Depreciation, depletion and amortization $693,152 71.23% $189,133 57.58% - ------------------------------------------------------------------------------------------------------------------ Oil and gas lease expenses $151,811 15.60% $103,010 31.36% - ------------------------------------------------------------------------------------------------------------------ Oil and gas lease operating expenses $ 49,999 5.14% $ 4,090 1.25% - ------------------------------------------------------------------------------------------------------------------ Oil and gas consulting $ 65,000 6.68% $ 25,500 7.76% - ------------------------------------------------------------------------------------------------------------------ Total Expenses from oil and gas operations $973,075 100.0% $328,491 100.0% ======== ===== ======== ===== - ------------------------------------------------------------------------------------------------------------------
Oil and gas lease expenses and lease operating expenses increased by $644,584 from the 2004 reporting period. The largest increase in oil and gas related expenses came in the category of depreciation, depletion and amortization, which increased by $504,019 from the prior year, and as a percentage, increased from 57.58% to 71.23% of the total. 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. Within the 90 days prior to the filing of this Quarterly Report on Form 10-Q (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. 12 (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. In anticipation of closing the acquisition of Aurora Energy, Ltd., the Company has began integrating its financial recording tasks with those of the head office of Aurora located in Traverse City, Michigan. Upon closing of the acquisition it is anticipated that all of the financial recording and payment of Company payables will occur from the Aurora head office, and that all banking functions of the Company will occur with banking institutions located in Traverse City, and that other Cadence bank accounts in other locations will be closed. The Officers of the Company believe that these steps will enhance the overall internal controls and financial reporting functions of the Company. The Company has not made any other significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their last evaluation. 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 ITEM 1. LEGAL PROCEEDINGS. The management of the Company is unaware of any other pending or threatened legal proceedings involving the Company at this time. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. We had 20,702,327 shares of common stock issued and outstanding as of June 30, 2005. Common Stock None issued during the reporting period. Options The Board of the Company has approved a total of 250,000 options to be issued to the five members of the Board of Directors as retention options for service in 2005. These director options had not been issued as of the end of the reporting period and are therefore not reflected in the financial statements attached. Warrants None issued during the reporting period. 13 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 None. (b) Reports on Form 8-K. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. CADENCE RESOURCES CORPORATION Dated: Aug. 15, 2005 By: /s/ Howard Crosby - ------------------------------------- Howard Crosby President and Chief Executive Officer (Principal Executive Officer) Dated: Aug. 15, 2005 By: /s/ John P. Ryan - ------------------------------------- John P. Ryan Chief Financial Officer EX-31.1 2 v024198_ex31-1.txt Exhibit 1.1 Certification Pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended I, Howard Crosby, certify that: 1. I have reviewed this report on Form 10-QSB 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; t 0 6 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; 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. Date: Aug. 15, 2005 /s/ Howard Crosby Howard Crosby President and Chief Executive Officer EX-31.2 3 v024198_ex31-2.txt Exhibit 1.2 Certification Pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended I, John P. Ryan, certify that: 1. I have reviewed this report on Form 10-QSB for 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; 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. Date: Aug. 15, 2005 /s/ John P. Ryan John P. Ryan Chief Financial Officer EX-32 4 v024198_ex32.txt Exhibit 2 Certification Pursuant to 18 U.S.C. Sec. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) - -------------------------------------------------------------------------------- In connection with the filing by CADENCE RESOURCES CORPORATION (the "Company") of the Quarterly Report on Form 10-QSB for the period ending June 30, 2005 (the "Report"), each of the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his 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 Crosby Howard Crosby President and Chief Executive Officer /s/ John P. Ryan John P. Ryan Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----