SB-2

       As filed with the Securities and Exchange Commission on November 14, 2005
                                                           Registration No. 333-

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM SB-2

             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

                          CADENCE RESOURCES CORPORATION

                 (Name of Small Business Issuer in its Charter)



                                                            
             Utah                              1311                   87-0306609
- -------------------------------    ----------------------------    ----------------
(State or other jurisdiction of    (Primary Standard Industrial    (I.R.S. Employer
incorporation or organization)      Classification Code Number)   Identification No.)


                          William W. Deneau, President
                             3760 North US 31 South
                                  P. O. Box 961
                       Traverse City, Michigan 49685-0961
                                 (231) 941-0073
           (Name, Address and Telephone Number of Principal Executive
                         Offices and Agent for Service)

                                 With a Copy to:
                             Henry I. Rothman, Esq.
                             Timothy I. Kahler, Esq.
                              Troutman Sanders LLP
                              The Chrysler Building
                              405 Lexington Avenue
                            New York, New York 10174
                                 (212) 704-6000

      Approximate date of commencement of proposed sale to the public: From time
to time after this post-effective amendment is declared effective.

      If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: |X|

      If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: |_|

      If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|

      If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|

      If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: |_|



                                              CALCULATION OF REGISTRATION FEE
========================================================================================================================
                                                    Amount         Proposed Maximum    Proposed Maximum     Amount of
           Title of Each Class of                   to be           Offering Price        Aggregate       Registration
        Securities to be Registered             Registered(1)         per Share       Offering Price(2)      Fee(2)
- ------------------------------------------------------------------------------------------------------------------------
                                                                                               
Common Stock, $.01 par value                       21,860,000           $3.48(2)          $76,072,800      $8,954
- ------------------------------------------------------------------------------------------------------------------------


(1)   Total represents 21,860,000 shares of common stock, 14,050,000 shares of
      which are issuable upon the exercise of warrants, to be offered by selling
      security holders of the Registrant. In the event of a stock split, stock
      dividend or similar transaction involving the common stock of the
      Registrant, in order to prevent dilution, the number of shares registered
      shall be automatically increased to cover additional shares in accordance
      with Rule 416(a) under the Securities Act.




      (2) Estimated solely for the purpose of calculating the registration fee
in accordance with Rule 457(c) under the Securities Act based on the average of
the closing bid and asked prices of the common stock on November 11, 2005 as
reported on the OTC Bulletin Board.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.




      The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell nor is it seeking an offer to buy these securities in any state where
the offer or sale is not permitted.

                 Subject to completion, dated November 14, 2005.

                          CADENCE RESOURCES CORPORATION

                        21,860,000 Shares of Common Stock
                                 $0.01 par value

      We are registering up to 21,860,000 shares of our common stock, 14,050,000
shares of which are issuable upon exercise of warrants, for sale by certain of
our shareholders from time to time. The selling security holders will receive
all the proceeds from the sale of the offered shares. See "Selling Shareholders"
on page 74 of this prospectus.

      Our common stock is traded on the OTC Bulletin Board under the symbol
"CDNR.OB." On November 11, 2005, the last reported bid price of our common stock
was $3.48 per share.

      Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 4 to read about certain risks you should consider
before buying shares of our common stock.

      Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.

      Our principal executive offices are located at 3760 North US 31 South, P.
O. Box 961, Traverse City, Michigan 49685-0961. Our telephone number is (231)
941-0073.

                 The date of this Prospectus is       , 2005.




                                TABLE OF CONTENTS

PROSPECTUS SUMMARY.............................................................1
RISK FACTORS...................................................................4
USE OF PROCEEDS...............................................................13
FORWARD-LOOKING STATEMENTS....................................................14
MARKET FOR OUR COMMON STOCK AND RELATED SHAREHOLDER MATTERS...................13
BUSINESS......................................................................16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
  AND RESULTS OF OPERATIONS...................................................44
MANAGEMENT....................................................................64
EXECUTIVE COMPENSATION........................................................67
PRINCIPAL SHAREHOLDERS........................................................72
SELLING SHAREHOLDERS..........................................................74
PLAN OF DISTRIBUTION..........................................................78
RELATED PARTY TRANSACTIONS....................................................79
DESCRIPTION OF SECURITIES.....................................................81
TRANSFER AGENT AND REGISTRAR..................................................83
LEGAL MATTERS.................................................................83
EXPERTS.......................................................................83
WHERE YOU CAN FIND MORE INFORMATION...........................................84
FINANCIAL STATEMENTS.........................................................F-1




                               PROSPECTUS SUMMARY

      This prospectus is part of a registration statement we filed with the U.S.
Securities and Exchange Commission. You should rely on the information provided
in this prospectus. Neither we nor the selling security holders listed in this
prospectus have authorized anyone to provide you with information different from
that contained in this prospectus. The selling security holders are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of common stock. Applicable
SEC rules may require us to update this prospectus in the future.

The Company

      Cadence Resources Corporation is a Utah corporation incorporated on April
7, 1969 to explore and mine natural resources under the name Royal Resources,
Inc. In January 1983, we changed our name to Royal Minerals, Inc. In March 1994,
we changed our name to Consolidated Royal Mines, Inc. In September 1995, we
changed our name to Royal Silver Mines, Inc. On May 2, 2001 we changed our name
to Cadence Resources Corporation in connection with a corporate reorganization
to focus our operations on oil and gas exploration.

      We acquired Aurora Energy, Ltd. ("Aurora") on October 31, 2005 through the
merger of our wholly-owned subsidiary with and into Aurora. As a result of that
merger, Aurora became our wholly-owned subsidiary. The acquisition of Aurora
will be accounted for as a reverse merger, with Aurora being the acquiring party
for accounting purposes. The acquisition of Aurora was pursuant to the Agreement
and Plan of Merger dated as of January 31, 2005 (the "Merger Agreement"). In
connection with the acquisition of Aurora, we issued an aggregate of 37,512,366
shares of our common stock to the former shareholders of Aurora, and have
reserved an additional 10,497,328 shares of our common stock for issuance upon
exercise of option or warrants that had been issued by Aurora prior to the
acquisition and that were previously exercisable for shares of the common stock
of Aurora. Pursuant to the terms of the Merger Agreement our board of directors
will be composed of seven individuals, three of whom were directors of Aurora
prior to the acquisition and two of whom were directors of Cadence prior to the
acquisition. As of November 10, 2005, our Board of Directors consisted of
William W. Deneau, the former Chairman and President of Aurora, Howard M. Crosby
and Kevin D. Stulp. Messrs. Crosby and Stulp were directors of the Company
immediately prior to the acquisition of Aurora. On November 10, 2005, we mailed
an information statement to our holders of record of our common stock, par value
$0.01 per share, at the close of business on October 28, 2005 pursuant to
Section 14(f) of the Securities Exchange Act of 1934 (the "Exchange Act") and
Rule 14f-1 promulgated thereunder, in connection with the change of control and
composition of our board of directors as contemplated by the Merger Agreement.
Eleven days after mailing the information statement on Form 14f-1 to our
shareholders, the following four additional directors designated by Aurora
management will become directors: Earl V. Young, Gary J. Myles, Richard Deneau
and Ronald E. Huff. See Management.

      In addition, as a result of the acquisition, we will revise certain of our
accounting principles applicable to our oil and gas properties, and have changed
our accounting fiscal year to end on December 31, commencing December 31, 2005.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation."

      We are engaged in acquiring, exploring, developing, and producing oil and
gas properties. We have operations in Wilbarger County, Texas, DeSoto Parish,
Louisiana, Eddy County, New Mexico and Alpena County, Michigan. We also have
leased interests in western Kansas and southern Texas. Through our subsidiary
Aurora, we have an interest in the following productive properties: the Hudson,
Treasure Island, Black Bean, Beyer, Blue Spruce, Timm, Devil River, and Paxton
Quarry Antrim Shale projects in Michigan; and the Bergsasi oil well and Church
Lake oil field in Michigan. We also own a number of non-producing properties
described below that are in various stages of development.

      One of our primary goals is to produce gas from lower risk unconventional
gas reservoirs such as black shales, coal seams and tight sands, targeting
projects where large acreage blocks can be easily evaluated with a series of low
cost test wells prior to development investments. To achieve this goal, we have
a particular, but not exclusive, focus on the black shales of Michigan and
Indiana.


                                        1


      Historically, we have acquired and then resold (for cash) mineral leases,
often with a retained interest. Those mineral leasehold interests in which we or
our affiliates currently have an interest are described below. In 2004, we sold
80% of a substantial block of our Michigan Antrim leaseholds and working
interests to Samson Resources Company. This transaction with Samson Resources
Company is described below in more detail under the caption "Samson Transaction"
(the "Samson Transaction"). In 2003, 2004 and 2005, we sold substantial blocks
of our Indiana New Albany Shale assets as described below. These sales, and
others, were undertaken to generate cash that we could use to continue work on
our development plan. Greater detail about the terms of these sales is provided
below. Our Aurora subsidiary also has a $30 million credit facility with Trust
Company of the West. In addition, during December 2004 and January 2005, we
raised an aggregate of $22,312,500 million through the sale of equity and
warrants in two private placements, one through our Cadence division and the
second through our Aurora subsidiary.

      Our longer term goal is to generate revenues from the sale of oil and gas
production sufficient to support ongoing development. Once wells are drilled and
in production, the underlying gas reserves will be characterized as proved
developed producing reserves, which have greater value than unproven probable
reserves. As a general rule, once the underlying reserves are characterized as
proved developed producing reserves, the underlying assets can be pledged to
support debt financing. We currently have one such financing facility in place.
Proved developed producing reserves are also generally more attractive to
prospective asset purchasers such as larger oil and gas companies.

      During the year ended September 30, 2004, substantially all of our
revenues were derived from our Cadence division's interests in five producing
oil wells in Wilbarger County, TX and eleven producing natural gas wells in
DeSoto Parish, LA. We received small revenues from our Cadence division's
interest in nine producing gas wells in Alpena County, MI and in September 2004
received our first production revenue from a minority interest in a producing
well in Eddy County, NM. As of December 31, 2004 our Aurora division had 200
gross (42.35 net) oil and gas wells, 7,956 gross (2,739 net) acres of developed
wells and 408,379 gross (276,459 net) acres of undeveloped wells. With the
acquisition of Aurora and with the proceeds that we received from the private
placements in January 2005, we have greatly expanded our drilling program.

      At the completion of our 2004 fiscal year in September, we were continuing
to evaluate the performance of our Cadence division's natural gas wells in
DeSoto Parish. Along with our partner, Bridas Energy, we have not made plans to
drill additional wells at that location. In the first two fiscal quarters of
2005, we drilled four new wells on our West Electra Lake Unit and a new well on
our E lease, all in Wilbarger County, TX, completed the seismic evaluation
process on the north block of our Kansas acreage, participated for a working
interest in development wells being drilled in Eddy County, NM and participated
for a working interest in an exploratory well in Tennessee.

      We plan to drill a total of 150 new wells in the Michigan Antrim Shale
during the year 2005. Over 100 such wells have been drilled to date. We believe
that with the recent equity financings and our existing credit facilities we
will have access to sufficient resources to meet the 2005 goals that are
included in our business plan. If the business plan changes in response to new
opportunities, we may seek additional financing.

      Our principal executive offices are located at 3760 North US 31 South,
P.O. Box 961, Traverse City, Michigan 49685-0961


                                        2


                                  The Offering

Common stock offered by the selling security holders:  21,860,000

Common stock outstanding as of November 1, 2005        59,373,693 shares

Use of Proceeds:                                       We will not receive any
                                                       of the proceeds from the
                                                       sale of the shares by the
                                                       selling security holders.
                                                       We may receive proceeds
                                                       in connection with the
                                                       exercise of warrants, the
                                                       underlying shares of
                                                       which may be sold by the
                                                       selling security holder
                                                       under this prospectus.
                                                       Risk Factors: See "Risk
                                                       Factors" beginning at
                                                       page 4 for a discussion
                                                       of factors that you
                                                       should consider before
                                                       deciding to invest in
                                                       shares of our common
                                                       stock.

OTC Bulletin Board Symbol                              CDNR.OB


                                        3


                                  RISK FACTORS

      An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and the other information
contained in this prospectus and in the documents incorporated by reference
before deciding to invest in our common stock.

                          RISKS RELATED TO OUR BUSINESS

      THE INTEGRATION OF THE CADENCE AND AURORA BUSINESSES MAY BE COSTLY AND THE
FAILURE TO SUCCESSFULLY EFFECT THE INTEGRATION MAY ADVERSELY AFFECT OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

      Our ability to realize some of the anticipated benefits of the acquisition
of Aurora will depend in part on our ability to integrate Aurora's operations
and Cadence's operations in a timely and efficient manner. The integration
process may require significant efforts from each company, although the fact
that we do not have offices to dismantle or staff to integrate may make this
process easier in this case than is true for many other mergers. Nonetheless,
the integration process may distract our management's attention from the
day-to-day business of the combined company. If we are unable to successfully
integrate the operations of the two companies or if this integration process is
delayed or costs more than expected, our business, operating results and
financial condition may be negatively impacted.

WE CONTINUE TO EXPERIENCE SIGNIFICANT OPERATING LOSSES.

      We reorganized our business in July 2001 to pursue oil and gas exploration
and development opportunities and in October 2005 increased our business
activities through the acquisition of Aurora. We have a limited operating
history in our current form. Since July 2001, our Cadence division's operating
costs have exceeded its revenue in each quarter. Our Cadence division has
incurred cumulative net losses of approximately $8,700,000 from June 30, 2001
through September 30, 2004, and we anticipate a net loss at least through 2005.
Our Cadence division may not be able to obtain or maintain any level of
revenues, natural gas and crude oil reserves or production. If our Cadence
division is unsuccessful in these efforts it may never achieve profitability.

      Our Aurora division reported profit from operations during the twelve
months ended December 31, 2002 and 2003, and a loss from operations during the
twelve months ended December 31, 2004. The loss for the twelve months ended
December 31, 2004 was directly attributable to financing expenses and expenses
associated with the sale of assets. We also expect that our Aurora division will
operate at a loss for the twelve months ended December 31, 2005. Part of the
reason for this is an accounting issue associated with the acquisition of
Aurora, which required us to amortize Cadence's intangible assets over a period
of three years. This will result in a non-cash expense deduction of
approximately $1,535,000 on our profit and loss statement for the twelve months
ended December 31, 2005. In addition, our Aurora division is drilling many wells
in 2005 from which cash flow from production will not be generated until late
2005 or 2006. Our Aurora division may be unable to return to and maintain
profitability.

WE MAY BE UNABLE TO MAKE ACQUISITIONS OF PRODUCING PROPERTIES OR PROSPECTS OR
SUCCESSFULLY INTEGRATE THEM INTO OUR OPERATIONS.

      Acquisitions of producing properties and undeveloped oil and gas leases
have been an essential part of our long-term growth strategy. We may not be able
to identify suitable acquisitions in the future or to finance these acquisitions
on favorable terms or at all. In addition, we compete against other companies
for acquisitions, many of whom have substantially greater managerial and
financial resources than us. The successful acquisition of producing properties
and undeveloped oil and gas leases require an assessment of such properties'
potential oil and gas resources, future oil and gas prices, development costs,
operating costs, potential environmental and other liabilities and other factors
beyond our control. These assessments are necessarily inexact and their accuracy
inherently uncertain. Such a review may not reveal all existing or potential
problems, nor will it necessarily permit us to become sufficiently familiar with
the properties to fully assess their merits and deficiencies. Significant
acquisitions can change the nature of our operations and business depending upon
the character of the acquired properties, which may be substantially different
in operating and geological characteristics or geographic location than existing
properties. Our acquisitions may not be integrated successfully into our
operations and may not achieve desired profitability objectives.


                                        4


WE DO NOT HAVE COMPLETE MANAGEMENT CONTROL OVER ALL OUR PROPERTIES.

      Our Cadence division does not operate any of the properties in which we
have an interest. Our Aurora subsidiary conducts most of its oil and gas
exploration, development and production activities in joint ventures with
others. In some cases, Aurora acts as operator and retains significant
management control. In other cases, Aurora has reserved only an overriding
royalty interest and has surrendered all management rights. In still other
cases, Aurora has reserved the right to participate in management decisions, but
does not have ultimate decision-making authority. As a result of these varying
levels of management control, in a large portion of the properties in which we
have an interest, we have no control over:

o     how many wells will be drilled;

o     the location of wells to be drilled;

o     the timing of drilling and recompleting of wells;

o     the field company hired to drill and maintain the wells;

o     the timing and amounts of production;

o     the approval of other participants in drilling wells;

o     development and operating costs;

o     capital calls on working interest owners; and

o     negative gas balance conditions.

      These and other aspects of the operation of our properties and the success
of our drilling and development activities will in many cases be dependent on
the expertise and financial resources of our joint venture partners and
third-party operators.

WE MAY LOSE KEY MANAGEMENT PERSONNEL.

      Our current management team has substantial experience in the oil and gas
business. We do not have employment agreements with any members of our
management team. The loss of any of these individuals could adversely affect our
business. If one or more members of our management dies, becomes disabled or
otherwise voluntarily terminates employment with us, there is no assurance that
a suitable or comparable substitute will be found.

MOST OF OUR AURORA DIVISION'S PROVED RESERVES ARE NOT YET PRODUCING.

      Of our Aurora division's proved reserves at December 31, 2004,
approximately 22% are classified as "proved developed non-producing" and
approximately 64% are classified as "proved undeveloped." Production revenues
from estimated proved developed non-producing reserves will not be realized
until some time in the future, after we have installed supporting infrastructure
or taken other necessary steps. It will be necessary to incur additional capital
expenditures to install this required infrastructure. Production revenues from
estimated proved undeveloped reserves will not be realized until after such
time, if ever, as we make significant capital expenditures with respect to the
development of such reserves, including expenditures to fund the cost of
drilling wells and building the supporting infrastructure. The reserve data
assumes that we will make significant capital expenditures to develop our
reserves. Although we have prepared estimates of the costs associated with
developing these reserves in accordance with industry standards, no assurance


                                        5


can be given that our estimates of capital expenditures will prove accurate,
that our financing sources will be sufficient to fully fund our planned
development activities, or that development activities will be either successful
or in accordance with our schedule. We cannot control the performance of our
joint venture partners on whom we depend for development of a substantial number
of properties in which we have an economic interest and which are included in
our reserves. Further, any significant decrease in oil and gas prices or any
significant increase in the cost of development could result in a significant
reduction in the number of wells drilled. No assurance can be given that any
wells will yield commercially viable quantities.

OUR AURORA DIVISION'S CREDIT FACILITY HAS OPERATING RESTRICTIONS AND FINANCIAL
COVENANTS THAT LIMIT ITS FLEXIBILITY AND MAY LIMIT ITS BORROWING CAPACITY.

      The TCW Energy credit facility limits the amount of earnings from
production that our Aurora division has access to for the properties pledged as
collateral on the loan, and has numerous other operational restrictions that
limit our Aurora division's flexibility. The credit facility also requires our
Aurora division's borrowing subsidiary to maintain certain ratios of collateral
asset values to debt and proved developed producing reserves value to debt. If
the ratio requirements are not satisfied, curative action may be required, such
as repaying a part of the outstanding principal or pledging more assets as
collateral, and our Aurora Division's borrowing subsidiary will be unable to
draw more funds to use in development.

      The value of the assets held by our Aurora division's borrowing subsidiary
will depend on the then current commodity prices for natural gas. If prices drop
significantly, our Aurora division may have trouble satisfying the ratio
covenants of the credit facility. As noted below, oil and gas prices are
volatile. If our Aurora division is unable to make use of this credit facility,
it may be difficult to find replacement sources of financing to use for working
capital, capital expenditures, drilling, technology purchases or other purposes.
Even if replacement financing is available, it may be on less advantageous terms
than the TCW Energy, credit facility.

      During the quarter ended June 30, 2005, our Aurora division was in
violation of a debt coverage ratio under the TCW facility. The lender has
granted Aurora a waiver of this violation. Aurora's recent acquisition of
financing from Northwestern Bank may violate the covenants contained in the TCW
Energy credit facility. Although the terms of the Northwestern Bank financing
are currently being renegotiated to resolve this problem we cannot be certain
what the ultimate resolution will be or if the problem will be resolved at all.

SOME OF OUR AURORA'S DIVISIONS BANK ACCOUNTS ARE NOT FULLY INSURED.

      Some of our Aurora division's bank accounts periodically exceed the
$100,000 limit of FDIC insurance for deposits. In the unlikely event that
Aurora's bank should fail, it is possible that our Aurora division will lose
some of its funds on deposit.

OUR DRILLING ACTIVITIES MAY BE UNSUCCESSFUL.

      We cannot predict prior to drilling and testing a well whether the well
will be productive or whether we will recover all or any portion of our
investment in the well. Our drilling for oil and natural gas may involve
unprofitable efforts, not only from dry holes but from wells that are productive
but do not produce sufficient quantities to cover drilling and completion costs,
and thus which are not economically viable. Our efforts to identify commercially
productive reservoirs, such as studying seismic data, the geology of the area
and production history of adjoining fields, do not conclusively establish that
oil and gas is present in commercial quantities. If our drilling efforts are
unsuccessful, our profitability will be adversely affected.

PRODUCTION LEVELS CANNOT BE PREDICTED WITH CERTAINTY.

      Until a well is drilled and has been in production for a number of months,
we will not know what volume of production we can expect to achieve from the
well. Even after a well has achieved its full production capacity, we cannot be
certain how long the well will continue to produce or the production decline
that will occur over the life of the well. Estimates as to production volumes
and production life are based on studies of similar wells, and therefore
speculative and not fully reliable. As a result, our revenue budgets for
producing wells may prove to be inaccurate.


                                        6


PRODUCTION DELAYS MAY OCCUR.

      In order to generate revenues from the sale of oil and gas production from
new wells, we must complete significant development activity. Delays in
receiving governmental permits, adverse weather conditions, a shortage of labor
or parts, and/or dewatering time frames may cause production delays, as
discussed below. These delays will mean that we will be delayed in achieving
revenues from these new wells.

      Oil and gas producers often compete for experienced and competent
drilling, completion and facilities installation vendors and production
laborers. The unavailability of experienced and competent vendors and laborers
may cause development and production delays.

      From time to time, vendors of equipment needed for oil and gas drilling
and production become backlogged, forcing delays in development until suitable
equipment can be obtained.

      For each new well, before drilling can commence, we will have to obtain a
drilling permit from the state in which the well is located. We will also have
to obtain a permit from the United States Environmental Protection Agency for
each salt water disposal well. It is possible that for reasons outside of our
control, the issuance of the required permits will be delayed, thereby delaying
the time at which production is achieved.

      Adverse weather may foreclose any drilling or development activity,
forcing delays until more favorable weather conditions develop. This is more
likely to occur during the winter and spring months, but may occur at other
times of the year.

      Different natural gas reservoirs contain different amounts of water. The
actual amount of time required for dewatering with respect to each well cannot
be predicted with accuracy. The period of time when the volume of gas that is
produced is limited by the dewatering process may be extended, thereby delaying
revenue production.

OIL AND GAS PRICES ARE VOLATILE. A SUBSTANTIAL DECREASE IN OIL AND NATURAL GAS
PRICES COULD ADVERSELY AFFECT OUR BUSINESS.

      Our revenues, profitability and future growth depend in part on prevailing
natural gas and crude oil prices. Prices also affect the amount of cash flow
available for capital expenditures and our ability to borrow and raise
additional capital. Lower prices may also reduce the amount of natural gas and
crude oil that we can economically produce. It is possible that prices will be
low at the time periods in which the wells are most productive, thereby damaging
overall returns. It is possible that prices will drop so low that production
will become uneconomical. Ongoing production costs that will continue include
equipment maintenance, compression and pumping costs. If production becomes
uneconomical, we may decide to discontinue production until prices improve.

      Prices for natural gas and crude oil fluctuate widely, as evidenced by the
volatility in natural gas prices in response to the war between the United
States and Iraq. The prices for oil and natural gas are subject to a variety of
factors beyond our control, including:

      o     the level of consumer product demand;

      o     weather conditions;

      o     domestic and foreign governmental regulations;

      o     the price and availability of alternative fuels;

      o     political conditions in oil and gas producing regions;

      o     the domestic and foreign supply of oil and gas;

      o     market uncertainty; and

      o     worldwide economic conditions.


                                        7


PIPELINE CAPACITY MAY BE INADEQUATE.

      Because of the nature of natural gas development, there may be periods of
time when pipeline capacity is inadequate to meet our gas transportation needs.
It is often the case that as new development comes on line, pipelines are close
to or at capacity. During periods when pipeline capacity is inadequate, we may
be forced to reduce production or incur additional expense as existing
production is compressed to fit into existing pipelines.

OUR RELIANCE ON THIRD PARTIES FOR GATHERING AND DISTRIBUTION COULD CURTAIL
FUTURE EXPLORATION AND PRODUCTION ACTIVITIES.

      The marketability of our production will depend on the proximity of our
reserves to and the capacity of, third party facilities and services, including
oil and natural gas gathering systems, pipelines, trucking or terminal
facilities, and processing facilities. The unavailability or insufficient
capacity of these facilities and services could force us to shut-in producing
wells, delay the commencement of production, or discontinue development plans
for some of our properties, which would adversely affect our financial condition
and performance.

THERE IS A POTENTIAL FOR INCREASED COSTS.

      The oil and gas industry has historically experienced periods of rapidly
increasing drilling and production costs, frequently during times of increased
drilling activity. If significant cost increases occur with respect to our
development activity, we may have to reduce the number of wells we drill, which
may adversely affect our financial performance.

WE MAY INCUR COMPRESSION DIFFICULTIES AND EXPENSE.

      As production of natural gas increases, more compression is generally
required to compress the production into the pipeline. As more compression is
required, production costs increase, primarily because more fuel is required in
the compression process. Furthermore, because compression is a mechanical
process, a breakdown may occur that will cause us to be unable to deliver gas
until repairs are made.

UNITIZATION PRESENTS SOME RISKS.

      Some or all of our wells will be unitized with wells owned by other owners
within the same field. Because unitization of production combines the operating
results of more than one owner of wells, there is a risk that the performance of
the wells we do not own will lower our financial performance if the wells we do
not own do not perform as well as the wells we do own. In addition, it may be
argued that the owners of wells developed later in a field have an advantage
because they have more production history upon which to evaluate the investment,
they are able to use their money for other purposes before committing their
resources to the wells in the field, and they are getting the benefit of all
reserves when some of the reserves have already been depleted. Nonetheless, in
management's opinion, these risks may be outweighed in some circumstances by the
benefit of spreading the costs of infrastructure over a greater number of wells,
thereby reducing the costs per well for all owners of wells in the field.

THE FAILURE TO DEVELOP RESERVES COULD ADVERSELY AFFECT OUR PRODUCTION AND CASH
FLOWS.

      Our success depends upon our ability to find, develop or acquire oil and
gas reserves that are economically recoverable. We will need to conduct
successful exploration or development activities or acquire properties
containing proved reserves, or both. The business of developing or acquiring oil
and gas reserves is capital intensive. We may not be able to make the necessary
capital investment to expand our oil and natural gas reserves from cash flows
and external sources of capital may be limited or unavailable. Our drilling
activities may not result in significant reserves and we may not have continuing
success drilling productive wells. Exploratory drilling involves more risk than
development drilling because exploratory drilling is designed to test formations
for which proved reserves have not been discovered. Additionally, while our
revenues may increase if prevailing oil and gas prices increase significantly,
our finding costs for reserves also could increase and we may not be able to
finance additional exploration or development activities.


                                        8


THE OIL AND NATURAL GAS RESERVE DATA INCLUDED IN THIS DOCUMENT ARE ESTIMATES
BASED ON ASSUMPTIONS THAT MAY BE INACCURATE AND EXISTING ECONOMIC AND OPERATING
CONDITIONS THAT MAY DIFFER FROM FUTURE ECONOMIC AND OPERATING CONDITIONS.

      Reservoir engineering is a subjective and inexact process of estimating
underground accumulations of oil and natural gas that cannot be measured in an
exact manner and is based upon assumptions that may vary considerably from
actual results. Accordingly, reserve estimates may be subject to downward or
upward adjustment. Actual production, revenue and expenditures with respect to
our reserves will likely vary from estimates, and such variances may be
material. Information regarding discounted future net cash flows should not be
considered as the current market value of the estimated oil and natural gas
reserves that will be attributable to our properties. The estimated discounted
future net cash flows from proved reserves are based on prices and costs as of
the date of the estimate, while actual future prices and costs may be materially
higher or lower. Actual future net cash flows also will be affected by factors
such as the amount and timing of actual production, supply and demand for oil
and natural gas, increases or decreases in consumption, and changes in
governmental regulations or taxation. The reserve report for Aurora's properties
assumes that production will be generated from each well for a period of 40
years. Because production is expected for such an extended period of time, the
probability is enhanced that conditions at the time of production will vary
materially from the current conditions used to calculate future net cash flows.
In addition, the 10% discount factor, which is required by the Financial
Accounting Standards Board in Statement of Financial Account Standards No. 69 to
be used on calculating discounted future net cash flows for reporting purposes,
is not necessarily the most appropriate discount factor based on interest rates
in effect from time to time and risks that will be associated with our
operations or the oil and natural gas industry in general.

WE MAY HAVE DIFFICULTY FINANCING OUR PLANNED GROWTH.

      We have experienced and expect to continue to experience substantial
capital expenditure and working capital needs, particularly as a result of our
property acquisition and development drilling activities. We may require
additional financing, in addition to cash generated from our operations, to fund
our planned growth. If our cash flow from operations is not sufficient to
satisfy our capital expenditure requirements, additional financing may not be
available to us on acceptable terms or at all. If additional capital resources
are unavailable, we may be forced to curtail our acquisition, development
drilling and other activities or to sell some of our assets on an untimely or
unfavorable basis.

WE MAY NOT HAVE GOOD AND MARKETABLE TITLE TO OUR PROPERTIES.

      It is customary in the oil and gas industry that upon acquiring an
interest in a non-producing property, only a preliminary title investigation be
done at that time and that a drilling title opinion be done prior to the
initiation of drilling, neither of which can substitute for a complete title
investigation. We have followed this custom and intend to continue to follow
this custom in the future. Furthermore, title insurance is not available for
mineral leases, and we will not obtain title insurance or other guaranty or
warranty of good title. If the title to our prospects should prove to be
defective, we could lose the costs that we have incurred in their acquisition,
or incur substantial costs for curative title work.

COMPETITION IN OUR INDUSTRY IS INTENSE, AND WE ARE SMALLER AND HAVE A MORE
LIMITED OPERATING HISTORY THAN MOST OF OUR COMPETITORS.

      We will compete with major and independent oil and gas companies for
property acquisitions and for the equipment and labor required to operate and
develop these properties. Most of our competitors have substantially greater
financial and other resources than we do. In addition, larger competitors may be
able to absorb the burden of any changes in federal, state and local laws and
regulations more easily than we can, which would adversely affect our
competitive position. These competitors may be able to pay more for exploratory
prospects and productive natural gas and oil properties and may be able to
define, evaluate, bid for and purchase a greater number of properties and
prospects than we can. Our ability to explore for oil and gas prospects and to
acquire additional properties in the future will depend on our ability to
conduct operations, to evaluate and select suitable properties and to complete
transactions in this highly competitive environment.


                                        9


OIL AND NATURAL GAS OPERATIONS INVOLVE VARIOUS RISKS.

      The oil and gas business involves operating hazards such as well blowouts,
craterings, explosions, uncontrollable flows of crude oil, natural gas or well
fluids, fires, formations with abnormal pressures, pipeline ruptures or spills,
pollution, releases of toxic gas and other environmental hazards and risks.
Personal injuries, damage to property and equipment, reservoir damage, or loss
of reserves may occur if such a catastrophe occurs, any one of which could cause
us to experience substantial losses. In addition, we may be liable for
environmental damage caused by previous owners of properties purchased or leased
by us.

      Federal and state regulation of oil and gas production and transportation,
tax and energy policies, changes in supply and demand and general economic
conditions all could adversely affect our ability to produce and market our
natural gas and crude oil. Production from gas wells in many geographic areas of
the United States, including Louisiana and Texas, has been curtailed or shut-in
for considerable periods of time due to a lack of market demand, and such
curtailments may continue for a considerable period of time in the future. There
may be an excess supply of gas in areas where our operations will be conducted.
In such event, it is possible that there will be no market or a very limited
market for our production.

      As a result of operating hazards, regulatory risks and other uninsured
risks, we could incur substantial liabilities to third parties or governmental
entities, the payment of which could reduce or eliminate funds available for
exploration, development or acquisitions.

WE LACK INSURANCE THAT COULD LOWER RISKS TO OUR INVESTORS.

      Our Cadence division has procured an errors and omissions policy for its
directors and officers, but has not obtained any other insurance policies. Our
Cadence division has chosen to rely only on the insurance provided by the well
operators, and over which our Cadence division has no control. Our Cadence
division's properties are therefore at risk of loss in the event of a
catastrophic event.

      Our Aurora division has procured insurance policies for general liability,
property/pollution, well control, workers' compensation and automobile, as well
as a $5 million excess liability umbrella policy. Nonetheless, the policy limits
may be inadequate in the case of a catastrophic loss, and there are some risks
that are not insurable. An uninsured loss could adversely affect our financial
performance.

WE ARE SUBJECT TO COMPLEX FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS THAT
COULD ADVERSELY AFFECT OUR BUSINESS.

      Oil and gas operations are subject to various federal, state and local
government laws and regulations, which may be changed from time to time in
response to economic or political conditions. Matters that are typically
regulated include:

      o     discharge permits for drilling operations;

      o     drilling bonds;

      o     reports concerning operations;

      o     spacing of wells;

      o     unitization and pooling of properties;

      o     environmental protection; and

      o     taxation.


                                       10


      From time to time, regulatory agencies have imposed price controls and
limitations on production by restricting the rate of flow of oil and gas wells
below allowed production capacity to conserve supplies of natural gas and crude
oil. We also are subject to changing and extensive tax laws, the effects of
which we cannot predict.

      The development, production, handling, storage, transportation and
disposal of natural gas and crude oil, by-products and other substances and
materials produced or used in connection with oil and gas operations are subject
to laws and regulations primarily relating to protection of human health and the
environment. The discharge of natural gas, crude oil or pollutants into the air,
soil or water may give rise to significant liabilities on our part to the
government and third parties and may result in the assessment of civil or
criminal penalties or require us to incur substantial costs of remediation.

      Legal and tax requirements frequently are changed and subject to
interpretation, and we are unable to predict the ultimate cost of compliance
with these requirements or their effect on our operations. Existing laws or
regulations, as currently interpreted or reinterpreted in the future, could harm
our business, results of operations and financial condition.

                   RISKS RELATED TO THE OWNERSHIP OF OUR STOCK

WE MAY EXPERIENCE VOLATILITY IN OUR STOCK PRICE, WHICH COULD NEGATIVELY AFFECT
YOUR INVESTMENT, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE
OFFERING PRICE.

      The market price of our common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control,
including:

      o     quarterly variations in operating results;

      o     changes in financial estimates by securities analysts;

      o     changes in market valuations of other similar companies;

      o     announcements by us or our competitors of new products or of
            significant technical innovations, contracts, acquisitions,
            strategic partnerships or joint ventures;

      o     additions or departures of key personnel;

      o     any deviations in net sales or in losses from levels expected by
            securities analysts; and

      o     future sales of common stock.

      In addition, the stock market has recently experienced extreme volatility
that has often been unrelated to the performance of particular companies. These
market fluctuations may cause our stock price to fall regardless of our
performance.

BECAUSE OUR SECURITIES TRADE ON THE OTC BULLETIN BOARD, YOUR ABILITY TO SELL
YOUR SHARES IN THE SECONDARY MARKET MAY BE LIMITED.

      Our shares of common stock have been listed and principally quoted on the
Nasdaq OTC Bulletin Board since May 1994. Because our securities currently trade
on the OTC Bulletin Board, they are subject to the rules promulgated under the
Securities Exchange Act of 1934, as amended, which impose additional sales
practice requirements on broker-dealers that sell securities governed by these
rules to persons other than established customers and "accredited investors"
(generally, individuals with a net worth in excess of $1,000,000 or annual
individual income exceeding $200,000 or $300,000 jointly with their spouses).
For such transactions, the broker-dealer must determine whether persons that are
not established customers or accredited investors qualify under the rule for
purchasing such securities and must receive that person's written consent to the
transaction prior to sale. Consequently, these rules may adversely effect the
ability of purchasers to sell our securities and otherwise affect the trading
market in our securities. Because our shares are deemed "penny stocks," you may
have difficulty selling them in the secondary trading market.


                                       11


      The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price (as defined in the regulations) less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions.
Additionally, if the equity security is not registered or authorized on a
national securities exchange or Nasdaq, the equity security also would
constitute a "penny stock." As our common stock falls within the definition of
penny stock, these regulations require the delivery, prior to any transaction
involving our common stock, of a risk disclosure schedule explaining the penny
stock market and the risks associated with it. Disclosure is also required to be
made about compensation payable to both the broker-dealer and the registered
representative and current quotations for the securities. In addition, monthly
statements are required to be sent disclosing recent price information for the
penny stocks. The ability of broker/dealers to sell our common stock and the
ability of shareholders to sell our common stock in the secondary market would
be limited. As a result, the market liquidity for our common stock would be
severely and adversely affected. We can provide no assurance that trading in our
common stock will not be subject to these or other regulations in the future,
which would negatively affect the market for our common stock.

A LARGE NUMBER OF SHARES WILL BE ELIGIBLE FOR FUTURE SALE AND MAY DEPRESS OUR
STOCK PRICE

      Our shares that are eligible for future sale may have an adverse effect on
the market price of our common stock. As of November 1, 2005, there were
59,573,693 shares of our common stock outstanding. As of November 1, 2005 over
31,134,704 shares of our common stock will be freely tradeable without
substantial restriction or the requirement of future registration under the
Securities Act of 1933, as amended. The majority of the remainder of our
outstanding shares, most of which are held by our officers, directors and
greater than 5% shareholders, may be sold without registration under the
exemption from registration provided by Rule 144 under the Securities Act.
However, in connection with the merger of Cadence and Aurora, certain of our
officers directors and shareholders have agreed not to sell more than 10% of
their respective holdings of our common stock, measured immediately prior to the
merger, for a period of 36 months following the merger, representing an
aggregate of approximately 770,745 shares of our common stock. In addition,
William Deneau, John Miller and John Tucker, our President, Vice President of
Exploration & Production and Vice President of Land & Development, respectively,
and each of their affiliates, have executed lock-up agreements in which they
agree not to sell more than 10% of the shares of our common stock that they
receive in the merger for a period of 36 months, representing an aggregate of
approximately 974,288 shares of our common stock. In addition, as of November 1,
2005, an additional 11,967,418 shares were subject to outstanding options or
warrants or were issuable upon the conversion of our Class A Preferred Shares.

      Sales of substantial amounts of our common stock, or a perception that
such sales could occur, and the existence of options or warrants to purchase
shares of our common stock at prices that may be below the then current market
price of the common stock, could adversely affect the market price of our common
stock and could impair our ability to raise capital through the sale of our
equity securities.

WE DO NOT HAVE CUMULATIVE VOTING AND A SMALL NUMBER OF EXISTING SHAREHOLDERS
CONTROL CADENCE, WHICH COULD LIMIT YOUR ABILITY TO INFLUENCE THE OUTCOME OF
SHAREHOLDER VOTES.

      Our shareholders do not have the right to cumulative votes in the election
of our directors. Cumulative voting, in some cases, could allow a minority group
to elect at least one director to our board. Because there is no provision for
cumulative voting, a minority group will not be able to elect any directors.
Accordingly, the holders of a majority of the shares of common stock, present in
person or by proxy, will be able to elect all of the members of our board of
directors.


                                       12


      In connection with the closing of the merger of Cadence and Aurora,
certain of our shareholders, including certain former Aurora shareholders who
became shareholders of us in connection with the merger, executed and delivered
voting agreements pursuant to which they agreed, for a period of 36 months, to
vote an aggregate of 22,740,830 of their shares of our common stock in favor of
(i) five directors designated by William W. Deneau, who shall initially be
William W. Deneau, Earl V. Young, Gary J. Myles, Richard Deneau, and Ronald E.
Huff; and (ii) two directors designated by William W. Deneau from among our
Board of Directors immediately before the closing of the merger, who shall
initially be Howard Crosby and Kevin Stulp. In addition, such shareholders
agreed to vote all of their shares of common stock to ensure that the size of
our Board of Directors will be set and remain at seven directors. In addition,
also in connection with the closing of the merger, certain of our shareholders
executed and delivered irrevocable proxies naming, for a period of 36 months,
William W. Deneau and Lorraine King as proxies to vote an aggregate of
10,102,286 shares of our common stock held by such shareholders in the manner
determined by such proxies. These provisions will limit your ability to
influence the outcome of shareholder votes including votes concerning the
election of directors, the adoption or amendment of provisions in our articles
of incorporation or bylaws and the approval of mergers and other significant
corporate transactions for a period of three years following closing of the
merger.

OUR ARTICLES OF INCORPORATION CONTAIN PROVISIONS THAT DISCOURAGE A CHANGE OF
CONTROL.

      Our articles of incorporation contain provisions that could discourage an
acquisition or change of control without our board of directors' approval. Our
articles of incorporation authorize our board of directors to issue preferred
stock without shareholder approval. If our board of directors elects to issue
preferred stock, it could be more difficult for a third party to acquire control
of us, even if that change of control might be beneficial to our shareholders.

                                 USE OF PROCEEDS

      We will not receive any of the proceeds from the sale of the shares owned
by the selling security holders. We may receive proceeds in connection with the
exercise of warrants, the underlying shares of which may in turn be sold by
selling security holder. Although the amount and timing of our receipt of any
such proceeds are uncertain, such proceeds, if received, will be used for
general corporate purposes.

           MARKET FOR OUR COMMON STOCK AND RELATED SHAREHOLDER MATTERS

Market for Our Common Stock

      Our common stock trades under the symbol CDNR on the Over-the-Counter
Bulletin Board Electronic Quotation System maintained by the National
Association of Securities Dealers, Inc. Approximately fifteen professional
market makers hold themselves out as willing to make a market in our common
stock. Following is information about the range of high and low bid prices for
our common stock for each fiscal quarter in the last two fiscal years and the
first two fiscal quarters of the current fiscal year. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.

      Quarter Ended                    High Bid Quotation      Low Bid Quotation
      September 30, 2003                        $ 3.55                  $ 1.75
      December 31, 2003                         $ 3.60                  $ 2.75
      March 31, 2004                            $ 4.40                  $ 3.00
      June 30, 2004                             $ 3.75                  $ 1.75
      September 30, 2004                        $ 2.15                  $ 1.70
      December 31, 2004                         $ 1.65                  $ 0.98
      March 31, 2005                            $ 1.70                  $ 1.09
      June 30, 2005                             $ 2.65                  $ 2.11
      September 30, 2005                         $3.35                  $ 1.86
      December 31, 2005
      (through October 31, 2005)                $ 3.90                  $ 3.15


                                       13


Holders

      As of October 31, 2005, there were 415 holders of record of our common
stock, although we believe that there are additional beneficial owners of our
common stock who own their shares in "street name."

Dividends

      There have been no cash dividends declared on our common stock since our
company was formed. Dividends are declared at the sole discretion of our board
of directors. It is not anticipated that any dividends will be declared for the
foreseeable future on our common stock.

                           FORWARD-LOOKING STATEMENTS

      This prospectus, supplements to this prospectus and the documents
incorporated by reference contain certain forward-looking statements about our
financial condition, results of operations and business. These statements may be
made expressly in this document or may be "incorporated by reference" to other
documents we have filed with the Securities and Exchange Commission. You can
find many of these statements by looking for words such as "believes,"
"expects," "anticipates," "estimates" or similar expressions used in this
prospectus, supplements to this prospectus or documents incorporated by
reference.

      These forward-looking statements are subject to numerous assumptions,
risks and uncertainties. Factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by us in those statements include, among
others, the following:

      o     the quality of our properties with regard to, among other things,
            the existence of reserves in economic quantities;

      o     our ability to increase our production and oil and gas income
            through exploration and development;

      o     the number of locations to be drilled and the time frame within
            which they will be drilled;

      o     future prices of natural gas and crude oil;

      o     anticipated domestic demand for oil and natural gas; and

      o     the adequacy of our capital resources and liquidity.

      Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. You are cautioned not to place undue reliance on
such statements, which speak only as of the date of this prospectus or
supplements to this prospectus or, in the case of documents incorporated by
reference, as of the date of such document.

      We do not undertake any responsibility to release publicly any revisions
to these forward-looking statements to take into account events or circumstances
that occur after the date of this prospectus or supplements to this prospectus.
Additionally, we do not undertake any responsibility to update you on the
occurrence of any unanticipated events which may cause actual results to differ
from those expressed or implied by the forward-looking statements.


                                       14


                                    BUSINESS

The Company

      Cadence Resources Corporation is a Utah corporation incorporated on April
7, 1969 to explore and mine natural resources under the name Royal Resources,
Inc. In January 1983, we changed our name to Royal Minerals, Inc. In March 1994,
we changed our name to Consolidated Royal Mines, Inc. In September 1995, we
changed our name to Royal Silver Mines, Inc. On May 2, 2001 we changed our name
to Cadence Resources Corporation in connection with a corporate reorganization
to focus our operations on oil and gas exploration.

      We acquired Aurora Energy, Ltd. ("Aurora") on October 31, 2005 through the
merger of our wholly-owned subsidiary with and into Aurora. As a result of that
merger, Aurora became our wholly-owned subsidiary. The acquisition of Aurora
will be accounted for as a reverse merger, with Aurora being the acquiring party
for accounting purposes. The acquisition of Aurora was pursuant to the Agreement
and Plan of Merger dated as of January 31, 2005 (the "Merger Agreement"). In
connection with the acquisition of Aurora, we issued an aggregate of 37,512,366
shares of our common stock to the former shareholders of Aurora, and have
reserved an additional 10,497,328 shares of our common stock for issuance upon
exercise of option or warrants that had been issued by Aurora prior to the
acquisition and that were previously exercisable for shares of the common stock
of Aurora. Pursuant to the terms of the Merger Agreement our board of directors
will be composed of seven individuals, three of whom were directors of Aurora
prior to the acquisition and two of whom were directors of Cadence prior to the
acquisition. As of November 10, 2005, our Board of Directors consisted of
William W. Deneau, the former Chairman and President of Aurora, Howard M. Crosby
and Kevin D. Stulp. Messrs. Crosby and Stulp were directors of the Company
immediately prior to the acquisition of Aurora. On November 10, 2005, we mailed
an information statement to our holders of record of our common stock, par value
$0.01 per share, at the close of business on October 28, 2005 pursuant to
Section 14(f) of the Securities Exchange Act of 1934 (the "Exchange Act") and
Rule 14f-1 promulgated thereunder, in connection with the change of control and
composition of our board of directors as contemplated by the Merger Agreement.
Eleven days after mailing the information statement on Form 14f-1 to our
shareholders, the following four additional directors designated by Aurora
management will become directors: Earl V. Young, Gary J. Myles, Richard Deneau
and Ronald E. Huff. See Management.

      In addition, as a result of the acquisition, we will revise certain of our
accounting principles applicable to our oil and gas properties, and have changed
our accounting fiscal year to end on December 31, commencing December 31, 2005.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation."

      We are engaged in acquiring, exploring, developing, and producing oil and
gas properties. We have operations in Wilbarger County, Texas, DeSoto Parish,
Louisiana, Eddy County, New Mexico and Alpena County, Michigan. We also have
leased interests in western Kansas and southern Texas. Through our subsidiary
Aurora, we have an interest in the following productive properties: the Hudson,
Treasure Island, Black Bean, Beyer, Blue Spruce, Timm, Devil River, and Paxton
Quarry Antrim Shale projects in Michigan; and the Bergsasi oil well and Church
Lake oil field in Michigan. We also own a number of non-producing properties
described below that are in various stages of development.

      One of our primary goals is to produce gas from lower risk unconventional
gas reservoirs such as black shales, coal seams and tight sands, targeting
projects where large acreage blocks can be easily evaluated with a series of low
cost test wells prior to development investments. To achieve this goal, we have
a particular, but not exclusive, focus on the black shales of Michigan and
Indiana.

      Historically, we have acquired and then resold (for cash) mineral leases,
often with a retained interest. Those mineral leasehold interests in which we or
our affiliates currently have an interest are described below. In 2004, we sold
80% of a substantial block of our Michigan Antrim leaseholds and working
interests to Samson Resources Company. This transaction with Samson Resources
Company is described below in more detail under the caption "Samson Transaction"
(the "Samson Transaction"). In 2003, 2004 and 2005, we sold substantial blocks
of our Indiana New Albany Shale assets as described below. These sales, and
others, were undertaken to generate cash that we could use to continue work on
our development plan. Greater detail about the terms of these sales is provided
below. Our Aurora subsidiary also has a $30 million credit facility with Trust
Company of the West. In addition, during December 2004 and January 2005, we
raised an aggregate of $22,312,500 million through the sale of equity and
warrants in two private placements, one through our Cadence division and the
second through our Aurora subsidiary.


                                       15


      Our longer term goal is to generate revenues from the sale of oil and gas
production sufficient to support ongoing development. Once wells are drilled and
in production, the underlying gas reserves will be characterized as proved
developed producing reserves, which have greater value than unproven probable
reserves. As a general rule, once the underlying reserves are characterized as
proved developed producing reserves, the underlying assets can be pledged to
support debt financing. We currently have one such financing facility in place.
Proved developed producing reserves are also generally more attractive to
prospective asset purchasers such as larger oil and gas companies.

      During the year ended September 30, 2004, substantially all of our
revenues were derived from our Cadence division's interests in five producing
oil wells in Wilbarger County, TX and eleven producing natural gas wells in
DeSoto Parish, LA. We received small revenues from our Cadence division's
interest in nine producing gas wells in Alpena County, MI and in September 2004
received our first production revenue from a minority interest in a producing
well in Eddy County, NM. As of December 31, 2004 our Aurora division had 200
gross (42.35 net) oil and gas wells, 7,956 gross (2,739 net) acres of developed
wells and 408,379 gross (276,459 net) acres of undeveloped wells. With the
acquisition of Aurora and with the proceeds that we received from the private
placements in January 2005, we have greatly expanded our drilling program.

      At the completion of our 2004 fiscal year in September, we were continuing
to evaluate the performance of our Cadence division's natural gas wells in
DeSoto Parish. Along with our partner, Bridas Energy, we have not made plans to
drill additional wells at that location. In the first two fiscal quarters of
2005, we drilled four new wells on our West Electra Lake Unit and a new well on
our E lease, all in Wilbarger County, TX, completed the seismic evaluation
process on the north block of our Kansas acreage, participated for a working
interest in development wells being drilled in Eddy County, NM and participated
for a working interest in an exploratory well in Tennessee.

      We plan to drill a total of 150 new wells in the Michigan Antrim Shale
during the year 2005. Over 100 of such wells have been drilled to date. We
believe that with the recent equity financings and our existing credit facility,
we will have access to sufficient resources to meet the 2005 goals that are
included in our business plan. If the business plan changes in response to new
opportunities, we may seek additional financing.

Oil and Natural Gas Operations

DeSoto Parish, Louisiana

      We leased over 4,250 acres in DeSoto Parish (approximately 40 miles south
of Shreveport, Louisiana) in the summer of 2001 and throughout 2002. Our acreage
is southwest of the Holly Field and southeast of the Bethany Longstreet Field,
both extensively drilled and developed since 1996 by Sonat (now El Paso
Corporation). In April 2003, we contributed these leases to a joint exploration
and development program with Bridas Energy, which has operations in the
Texas-Louisiana Gulf Coast area. Under this program, Bridas Energy is the
operator of the DeSoto Parish properties. Bridas Energy is a wholly-owned
subsidiary of Bridas Corporation, an Argentinean-based private, independent
energy company with headquarters in Buenos Aires.

      Under the terms of our joint exploration agreement with Bridas Energy, we
assigned Bridas Energy a 55% working interest in all of the acreage constituting
the area of mutual interest of our DeSoto Parish leases in return for a cash
payment of $50,000. Bridas Energy agreed to fund all costs of drilling,
completing and bringing to production the initial test well, the Ardis-Martin
Timber #27-1, drilled during June 2003, in Section 27 of this prospect. Upon
successful completion of this test well, we conveyed an additional 20% working
interest to Bridas Energy in that well and all other leases covering acreage in
Section 27, leaving us a 25% working interest in Section 27. We retain a 45%
working interest in all other wells on the leased acreage in this prospect and a
lesser working interest in any wells drilled in the area of mutual interest
around the leased acreage, depending upon the amount of acreage leased by each
respective party in that particular section.


                                       16


      As of June 30, 2005 we had eleven producing wells in this field. During
the month of June 2005, these wells produced an aggregate of 13,247 MCF of
natural gas on a net basis to us. At March 31, 2005, twelve wells had produced
an aggregate of 16,072 MCF of natural gas on a net basis to us. In May, 2005 one
well was removed from production due to low output.

      We decided to impair the carrying value of the Leon Gamble #33-1 and the
Eugene Cowdin #27-1 effective as of June 30, 2004, and decided to impair the
carrying value of the Adell Thomas, the JB Barr #2 and the Sampson 33-1 as of
September 30, 2004.

      As of June 30, 2005, all but two of our producing wells in DeSoto Parish
were from the Cotton Valley formation. The Cotton Valley formation lies
immediately below the Hosston, with the best sands typically extending to about
10,300 feet. Of the eleven producing wells as of June 30, 2005, we have a 25%
working interest and an approximate 20% net revenue interest in three of them, a
45% working interest and an approximate 36% net revenue interest in seven of
them, and a 22.5% working interest and an approximate 18% net revenue interest
in one of them.

      In May, 2004, the J.B. Barr #28-2 well was drilled to the shallower Paluxy
and Rodessa sand formations. This well was drilled to intersect shallower pay
which was revealed in the deeper Barr #28-1 well previously drilled in November,
2003. The well was completed in the Paluxy formation and began producing in
early July. Although the initial flow rates for this Puluxy well were
encouraging, the decline over the first three months was very dramatic, and as
of June 30, 2005 the well produced only a net of 302 MCF of gas to our interest.

      The DeSoto Parish properties are located on a major anti-clinorium on the
southeast side of the Sabine Uplift. The Sabine Uplift is a large structure that
is related to the cretaceous and younger rocks in the established oil and gas
fields of northeast Texas and northern Louisiana. In this area, wells from these
formations produce approximately 35% to 50% of the well's total anticipated
output in the first 24 months of production, with the remainder produced over 12
to 15 years.

      Our drilling and completion costs for these DeSoto Parish wells drilled to
the Cotton Valley formation, to the 8/8ths interest, are approximately $1.25
million to $1.3 million per well. Ready access points to both interstate and
intrastate gas pipelines are available. We were generally disappointed by the
initial performance of these wells but have recently been encouraged that the
production rates from the field have somewhat stabilized. We will continue to
evaluate the performance of each well, in particular the Hosston formation wells
and formulate future development plans in this field.

      Our technical staff has been studying other completion techniques being
used successfully by other operators of Hosston wells in the area to assess the
application of these techniques to our wells. However, as of the date of this
report, no specific recommendations have been made to our management.

Wilbarger County, Texas

      Our property in Texas is located on the Waggoner Ranch, a large,
privately-held ranch in Wilbarger County from which oil and gas has been
produced since 1910, approximately 50 miles northwest of Wichita Falls, Texas,
and 15 miles south of the Oklahoma border. Since October 2001, we have conducted
exploration activities on the Waggoner Ranch. The W.T. Waggoner Estate is the
operator of all of our wells on the Waggoner Ranch and the sole purchaser of all
production from these properties. We logged our first productive well in this
field in January 2002. As of June 30, 2005, we owned interests in seven wells on
these properties, producing an aggregate of approximately 113 net working
interest barrels per day, to the 8/8ths interest, of 35(degree) API sweet crude
oil.

      The major geologic feature in this part of north Texas is the Red River
Arch, which consists of Permian and Leonardon shales and sands. This structure
has historically produced more than 150 million barrels of oil from several
geologic features, including the Canyon limestone formation. Our primary targets
on this prospect are oil-bearing pinnacle reefs in the Canyon limestone
formation, typically located between 3,000 and 3,600 feet. In addition, numerous
"stacked" oil-bearing shallower horizons are also known to exist in this area.
These zones are also primary targets of our exploration. We are producing oil
from two areas of the Ranch: the east side of Electra Lake, referred to as the
Virgin Reef Prospect, and the west side of Electra Lake, referred to as the West
Electra Lake Prospect.


                                       17


      The Virgin Reef Leasehold consists of approximately 160 acres. In August
2002, we signed an exploration agreement with the Waggoner Ranch on 1,000 acres
in the West Electra Lake Prospect, with a surrounding 1/2 mile area of mutual
interest, from which our current production comes. The West Electra Lake
Leasehold currently consists of an aggregate of 532 acres under lease and a 1/2
mile area of mutual interest surrounding such acreage.

      Because of the shallow nature of the wells in this area, prospect,
drilling and completion costs have ranged between approximately $160,000 and
$180,000 per well, on an 8/8ths basis. The typical production profile of wells
in the Lower Milham Sand formation is a steady decline of approximately 15% per
year. Wells producing from the Canyon formation are expected to decline at rates
approaching 25% per year.

      We have two producing wells on the Virgin Reef Prospect, the #1A in which
we have a 60% working interest and a 45.6% net revenue interest and the #1B
well, in which we have 100% working interest and a 76% net revenue interest. The
#1A well was logged in January 2002 and showed four pay zones between 2,400 feet
and 3,002 feet. This well is currently producing from the Lower Milham Sand at a
depth of approximately 2,500 feet. We have already produced this well from the
deeper Canyon formation zones and re-completed the well in the Lower Milham
zone. One more zone in this well remains to be completed. This well produced an
average of approximately 50 net working interest barrels per day during
September 2004. The #1B well produced only a nominal 5.5 net working interest
barrels of oil per day during April 2004, and by September 2004 was producing
only a nominal rate of oil.

      In August 2002, we began developing the West Electra Lake Prospect. We
logged our first well in the first quarter of calendar 2003. We have three
producing wells in this prospect, all of which are producing from the upper
Milham Sand at a depth of approximately 2,600 feet. The first well, the West
Electra Lake #1, in which we have a 45% working interest and a 34.2% net revenue
interest, has 10 feet of net pay. The West Electra Lake #2 and #3 wells, in
which we have a 50% working interest and a 38% net revenue interest, were both
drilled in June 2003 and encountered 10 feet and 11 feet of net pay,
respectively, in the same zone. These three wells are subject to Texas Railroad
Commission production limits and during September 2004, produced at the rate of
an aggregate of approximately 72 barrels of oil per day, which is below the
maximum allowable rate of an aggregate of 120 barrels of oil per day, with the
pumps operating for only eight hours per day. At this time we expect that rate
of production to continue for at least the next two years, subject to normal
decline. Drilling and completion costs for the wells on the West Electra Lake
Prospect have ranged from approximately $160,000 to $220,000 per well, on an
8/8th basis.

      In December 2004 we commenced a program to drill three more wells on the
West Electra Lake unit. The first well was logged on December 7th, and indicated
the expected Milham pay interval, as well as an unexpected 12 feet of pay in the
Saddle Creek formation at about 1700 feet. The second new well was logged on
December 18, 2004 and encountered some ten feet of net pay in the Upper Milham
formation. Both of these wells have been completed as of January 31, 2005. Four
new wells were drilled in March and April, 2005 in the West Electra Lake area.
As of June 30, 2005, three of these new wells are producing commercial
quantities of oil. The 4th well encountered shows of natural gas, but as there
is no gas pipeline in the area, this well has been capped. We drilled four more
development wells in the West Electra Lake area during September and October of
2005.

      We have drilled three non-commercial wells on the Virgin Reef and West
Electra Leases. In May, 2002 we drilled the #2A well which targeted the lower
Milham Sand formation. This well was only marginally productive, so we converted
it to a saltwater disposal well. In December, 2002 we drilled the #2B well which
targeted a reef prospect in the Canyon limestone formation. The #2B well was a
dry hole. In July, 2004 we drilled the 1D and encountered only a sub economic
pay in the Dyson sand. The well was therefore plugged and abandoned.

      In December 2002, we began participating in a natural gas drilling program
in Alpena County, Michigan. As of June 30, 2004, we had a 22.5% working interest
(before payout, 20% after payout), 18% net revenue interest (before payout, 16%
after payout), in ten producing wells in Alpena County. Production commenced
from this field in June 2003, and our ten producing wells produced at an average
aggregate rate of approximately 90 MCF per day during June 2005 and received an
average price of $5.72 per MCF. See `Antrim Shale' subsection below".


                                       18


New Mexico

      In June 2004, we participated for a 20% working interest, 15% net revenue
interest, in the Santa Nina Prospect in Eddy County, NM. This prospect was
developed by and is operated by SDX Resources of Midland, TX, an experienced
operator with over 20 years of operational experience in the Permian Basin. The
well was completed in July 2004, with an initial flow rate in excess of 50
barrels of oil per day, plus natural gas. The well was produced for some 40
days, and then shut in to allow a gas pipeline to be attached. This work is in
process. We received our first production check for this well in October 2004.

      Early in 2004, we announced that we had signed an agreement with SDX
Resources for an option to participate for up to a 25% working interest, 20% net
revenue interest, in up to 17 development wells in a project called the
Sparkplug Unit. These wells will be offsetting existing production in the San
Andreas and Yeso formations to a maximum depth of about 5,000 feet. Drilling on
the initial development well, in which we elected to take a 20% working
interest, commenced on December 16, 2004. Initial results indicate multiple pay
horizons in the San Andreas formation and the well was completed in February
2005.

Tennessee

      In August 2004 we acquired a 25% equity ownership in TN Oil Company, which
owns leases covering some 1500 acres prospective for oil in central and north
central Tennessee. Subsequent to the end of the fiscal year, we elected to
participate for 100% of the working interest in a well being drilled by TN Oil,
as operator, to a depth of some 1700 feet. This well targeted oil production
from the Murfreesboro and Knox formations. The well was spudded in December
2004. Based upon the well logs, our geologists determined that this well was
non-commercial and elected to plug the well.

Western Kansas

      Our newest oil exploration project is in the Anadarko Basin in Lane and
Ness Counties, Kansas. In June 2004, we completed our first leasing program in
the area, consisting of approximately 26,000 acres. We have a 100% working
interest and an approximate 83% net revenue interest in these leases. During
September and October 2004, we completed a three dimensional seismic shooting
program on the 13,000 acres which constitute the Cadence North Block. We will
acquire 3-D seismic data on the remainder of the acreage prior to making a
decision to drill any test wells. We plan to use a local third-party operator to
develop these prospects, and we currently expect to begin drilling on the
acquired acreage during the 2005 fiscal year. As the project moves into the
exploratory drilling and operational phases, we expect to contract out drilling
and operations to experienced local operators in the State of Kansas. During the
quarter ended June 30, 2005, we drilled our first two exploratory wells on the
north block of its Kansas acreage. The first test well did not encounter
commercial quantities of oil, and was plugged as a dry hole. The second well has
been in production for the last 60 days and has produced commercially viable
quantities of oil.

Southern Texas

      We have completed the leasing of 58 acres in Matagorda County, Texas, on a
salt dome prospect. One well has been tested and it was determined to be a
commercially viable oil well. We expect the drilling and completion costs on
this well to range from approximately $200,000 to $215,000. Operations will be
contracted for with third parties experienced in this part of Texas.

Antrim Shale Operations

      Antrim Shale is a black shale that underlies the entire Michigan Basin.
The shale is very thick (140 to over 200 feet) and has a high percentage organic
content (15% to over 20%). Due to the nature of the natural fractures in the
Antrim Shale, production will vary from well to well.

      The productive, fractured trend for the Antrim Shale runs across the
northern portion of the Michigan Basin from Lake Huron to Lake Michigan (160
miles). Gas wells have been drilled and produced in the Antrim Shale from depths
of 250 feet down to 1,500 feet. Almost every well drilled in the Antrim Shale
has been put into production, although as noted above, levels of production vary
from well to well. Nearly 8,000 wells are currently producing in the Antrim
Shale. In recent years, 200 to 300 wells have been drilled annually. It is
expected that a similar number of wells will be drilled in 2005.


                                       19


      The gas produced from the Antrim Shale is a combination of thermogenic and
biogenic gas. At shallower depths the gas is primarily biogenic due to the
presence of microbes in the low to medium saline waters. The low-density pay
zones in the Antrim Shale are over 100 feet thick. Methane gas is continuously
being generated by anaerobic bacteria that feed on CO2, organic material, and
the heavier thermogenic gases stored in the shale.

      The Antrim Shale gas adsorbs to organic material in a similar manner to
coal seams. Water in the natural fractures of the shale provides a trapping
mechanism to hold the gas in place. As the water is produced to the surface,
lowering the fluid and pressure in the reservoir, gases are released from the
organic material and are produced to the surface. At depths of less than 1,500
feet, the gas-in-place is typically 90% methane or greater, with the balance
being CO2 and some heavier thermogenic gases.

      The oldest Antrim Shale gas field was drilled in the 1940s. It is still in
production today. The production curve for the shale typically contains a peak
rate of gas occurring after the first two years of production when the shale
reservoir has been thoroughly de-watered. Peak rate production usually continues
for some time. Cash values of production may be better five years or more into
the life of a well than in the first six months of production, since dewatering
takes up to two years to complete. After the water is off the formation and the
gas is able to fully release from the shale into the well bore, the rate of
production will typically begin to decline hyperbolically to a slow 2% to 3%
exponential decline per year.

      We have identified the Michigan Antrim Shale as an area with natural
fractures using a variety of diagnostic tests, including a review of production
trends, fracture imaging logs and geological mapping. In management's opinion,
based upon performance information from almost 8,000 wells in similar
circumstances, areas with natural fractures in shale have good production
potential.

      We currently plan to focus much of our development activity over the next
few years in the Michigan Antrim Shale. If sufficient capital is procured, we
plan to drill up to 620 wells in the Michigan Antrim Shale over the next four
years. Management believes that so long as our existing credit facility remains
available and increases as production increases, we will have sufficient
financing to achieve this goal. However, changes in circumstances could
necessitate more financing than currently contemplated, such as greater than
budgeted costs or lower than expected production or gas prices. Other variables
that will affect our ability to achieve our goals include unexpected drilling
results, delays in testing and drilling, difficulties in acquiring leases, and
new opportunities that cause management to change focus. Any one of these
variables could cause actual results to differ materially from our current
business plan.

Samson Transaction

      On May 14, 2004, we entered into a Purchase and Sale Agreement ("PSA") and
Exploration Agreement with Samson Resources Company ("Samson") with respect to a
substantial portion of our Michigan Antrim Shale properties. Pursuant to the
PSA, we assigned to Samson 80% of our interest in the following assets:

      o     Our working interests in all of our producing wells and related
            leaseholds in the Michigan Antrim comprising a total of 116
            permitted wells, 66 of which had been drilled, and approximately
            6,521 proved developed producing net leasehold acres.

      o     Our interest in approximately 15,000 acres of undeveloped leaseholds
            in the Michigan Antrim. We did not include all of our Michigan
            Antrim leaseholds in this transaction, but limited this assignment
            to leases within an Area of Mutual Interest ("AMI") located
            generally in Alcona and Alpena Counties and the eastern 3/4ths of
            Montmorency County.

      o     Our interest in an approximately 3.5 mile long pipeline that
            services the producing wells assigned, including equipment, leases,
            easements and permits.


                                       20


      o     Our interest in material contracts, such as marketing,
            transportation and gas treatment contracts, development agreements,
            unitization agreements, and equipment leases that relate to the
            assigned acreage.

      Samson paid us $6,433,890 for these assets. With respect to the wells and
leaseholds for which we served as operator, Samson was appointed as a
replacement operator. The assignment was given a March 1, 2004 effective date.

      The Exploration Agreement addresses development within the AMI with
respect to leases that are jointly owned or jointly acquired by both us and
Samson. The Exploration Agreement generally provides as follows:

      o     Lease maintenance and acquisition expenses will be paid 80% by
            Samson and 20% by us.

      o     Samson will be designated as the operator, but will hire us to
            conduct or oversee pre-drilling activities and operations for wells
            drilled in the AMI. We will specifically be responsible for lease
            acquisition; staking and surveying of wells to be drilled;
            regulatory and administrative matters such as well permitting,
            pipeline permitting and compliance with bonding requirements; title
            review and title curative; surface/access negotiations and
            settlements; and location preparation. Samson will pay us $750 per
            well drilled for these activities, an expense to which we are not
            required to contribute.

      o     Samson is responsible for the receipt and distribution of all
            revenues.

      o     For the first 150 wells drilled pursuant to the Exploration
            Agreement, Samson will pay 88% of the actual cost to drill and
            complete, and we will pay 12%. This includes costs for gathering and
            surface equipment that are included in the Authority for Expenditure
            ("AFE") prepared by Samson. This is called a "promoted" share.
            Samson's obligation is, however, capped at 110% of the estimated
            drilling and completion costs for the well as reflected in the AFE.

      o     From the 151st well forward, Samson will pay 80% of the development
            costs and we will pay 20%.

      o     The working interest for each well will be owned 80% by Samson and
            20% by us. All operating costs, costs associated with compression,
            treatment (such as CO2 removal), processing or road use/access, and
            expenses associated with pipeline, gathering or surface facilities
            not included in the AFE for the well, will track the working
            interest percentages. Revenue participation will also track the
            working interest percentages.

      o     Each party has a preferential right to purchase (right of first
            refusal) that applies if the other party seeks to assign its
            interest in a lease or well within the AMI.

      As of June 30, 2005, approximately 74 wells have been drilled under the
Exploration Agreement. Of these, 25 are producing, 43 are not yet in production,
3 are salt water disposal wells, and 3 were plugged and abandoned.

CDX Transaction

      In January 2002, we sold the leases for several Antrim prospects to CDX
Gas, LLC ("CDX"). This included approximately 6,569 acres in the Black Bear
prospect; 3,606 acres in the Huron prospect; 4,328 acres in the Long Lake
prospect; and 4,140 acres in the Almira prospect. We retained a carried working
interest. In 2004, we entered into a Farmout Agreement with CDX with respect to
an area of mutual interest that included much of the acreage we had sold to CDX.
Since then, we have reached an agreement in principal with CDX to rescind the
Farmout Agreement, and in its place, to effectuate an exchange, pursuant to
which CDX will assign to us all of CDX's interest (including reversionary
interests) in Michigan Antrim Shale properties, including the Black Bear and
Almira-Long Lake properties. In return, we will assign to CDX all of our
interest (including reversionary interests) in the CDX Indiana and Kentucky New
Albany Shale properties, including the Corydon, Dumada-Loogootec, Maria Creek,
Orleans, Jordan and Hogback properties. The assignments necessary to implement
this exchange are in the process of being drafted.


                                       21


Samson Antrim Projects

      As of June 30, 2005, we own the following properties in the Michigan
Antrim Shale, which are part of the Samson joint venture.

      o     The Treasure Island Antrim Project is located in Alpena County,
            Michigan, and consists of approximately 2,373 acres. This project
            currently has 26 wells. Twenty-two of these wells are producing
            commercial rates of gas. Two of these wells have been plugged and
            abandoned. One Salt Water Disposal Well has also been drilled. One
            well is not yet in production. Production from the initial wells in
            the project began in October 2003. Gas is transported on the DTE
            Alpena LP Pipeline and sold into the Alpena Gaylord line. The
            project is expected to have a production life of approximately 30 to
            40 years. We currently own an 18% working interest.

      o     The Black Bean Antrim Project is located in Alpena County, Michigan,
            and consists of approximately 4,385 acres. This project is currently
            divided into four separate projects, as described below. Gas from
            this project is sold through the Paxton Quarry facility into the
            Thunder Bay Pipeline. The project is expected to have a producing
            life of approximately 30 to 40 years.

      o     Black Bean #1 currently has 16 drilled wells. Twelve of these wells
            have been completed and are producing commercial rates of gas. Two
            wells have been plugged and abandoned, and one Salt Water Disposal
            Well has been drilled. One well is not yet in production. Our
            business plan contemplates that five additional wells, in addition
            to those currently permitted, will be drilled as part of Black Bean
            #1. We and our affiliates currently own approximately a 15.5%
            working interest in the Black Bean #1 project.

      o     Black Bean #2 currently has two drilled wells. They are not yet in
            production. Two more wells have been permitted, but have not yet
            been drilled. Our business plan contemplates that five additional
            wells in addition to those currently permitted, will be drilled as
            part of Black Bean #2. We currently hold approximately a 28.72%
            working interest in Black Bean #2.

      o     Black Bean #3 currently has four drilled wells. They are not yet in
            production. One more well has been permitted, but has not yet been
            drilled. We currently hold approximately a 29.22% working interest
            in Black Bean #3.

      o     Black Bean #4 does not yet have any wells that have been drilled. No
            specific drilling plans have yet been proposed. We will hold
            approximately a 20.00% working interest in Black Bean #4.

      o     The Beyer Antrim Natural Gas Field Project is located in Alpena,
            Michigan. It consists of approximately 2,575 acres. This project
            currently has 18 drilled wells. Fifteen are producing commercial
            rates of gas. One well has been plugged and abandoned. One well is
            not yet in production. One Salt Water Disposal Well has also been
            drilled. Two additional wells have been permitted but not yet been
            drilled. Our business plan contemplates that, in addition to those
            wells currently permitted, one more well will be permitted and
            drilled. Production began in this field in February 2002. Gas is
            sold through the Paxton Quarry Facility into the Thunder Bay
            Pipeline. The project should have a production life of approximately
            30 years. We and our affiliates currently own a 7.639% working
            interest in this project.

      o     The Paxton Quarry Antrim Project is located in Alpena County,
            Michigan, and consists of approximately 2,485 acres. Currently, 18
            wells have been drilled. Fifteen wells have been completed and are
            producing commercial rates of gas. Two of the wells have been
            plugged and abandoned. One of the wells is a Salt Water Disposal
            Well. Production from this field began in November 1998. Gas is sold
            into the Thunder Bay Pipeline. The project should have a production
            life of approximately 30 years. We own a 19.8% working interest in
            this project.

      o     The Clear Lake Project is located in Alpena County, Michigan, and
            consists of approximately 4,148 acres. Two wells have been drilled
            in this project. They are not yet in production. Gas will be sold
            into the Thunder Bay Pipeline. We currently hold a 20% working
            interest in this project.


                                       22


      o     The Discard Project is located in Alpena County, Michigan, and
            consists of approximately 1,512 acres. One well has been drilled in
            this project. It is not yet in production. Four more wells have been
            permitted, but have not yet been drilled. Gas will be sold into the
            Thunder Bay Pipeline. We currently hold a 20% working interest in
            this project.

      o     The Gehrke Project is located in Alpena County, Michigan, and
            consists of approximately 2,698 acres. Seventeen wells have been
            drilled in this project. None of them are yet in production. Eight
            more wells have been permitted, but have not yet been drilled. Our
            business plan contemplates that five more wells in addition to the
            wells currently permitted will be drilled as a part of this project.
            Gas will be sold into the Thunder Bay Pipeline. We currently hold a
            20% working interest in this project.

      o     The Green Bean #1 Project is located in Alpena County, Michigan, and
            consists of approximately 1,656 acres. No wells have yet been
            drilled in this project, but five wells have been permitted. Our
            current business plan contemplates that a total of 13 wells will be
            drilled in this project. Gas will be sold into the Paxton Quarry
            Facility and then into the Thunder Bay Pipeline. We currently hold a
            20% working interest in this project.

      o     The Green Bean #2 Project is located in Alpena County, Michigan, and
            consists of approximately 980 acres. One well has been drilled in
            this project. It is not yet in production. Three more wells have
            been permitted, but have not yet been drilled. Our current business
            plan contemplates that a total of 12 wells will ultimately be
            drilled in this project. Gas will be sold into the Paxton Quarry
            Facility and then into the Thunder Bay Pipeline. We currently hold a
            39.22% working interest in this project.

      o     The Leeseberg #1 Project is located in Alpena County, Michigan, and
            consists of approximately 429 acres. No wells have yet been drilled
            in this project, but three wells have been permitted. Our current
            business plan contemplates that a total of seven wells will be
            drilled in this project. Gas will be sold into the Thunder Bay
            Pipeline. We currently hold a 20% working interest in this project.

      o     The Leeseberg #2 Project is located in Alpena County, Michigan, and
            consists of approximately 1,094 acres. No wells have yet been
            drilled in this project, but one well has been permitted. Our
            current business plan contemplates that a total of five wells will
            be drilled in this project. Gas will be sold into the Thunder Bay
            Pipeline. We currently hold a 20% working interest in this project.

      o     The Mackinaw #1 Project is located in Alpena County, Michigan, and
            consists of approximately 1,421 acres. No wells have yet been
            drilled in this project, but two wells have been permitted. Our
            current business plan contemplates that a total of 12 wells will be
            drilled in this project. Gas will be sold into the Thunder Bay
            Pipeline. We currently hold a 20% working interest in this project.

      o     The Mackinaw #2 Project is located in Alpena County, Michigan, and
            consists of approximately 2,915 acres. Nine wells have been drilled
            in this project. They are not yet in production. Seven more wells
            have been permitted, but have not yet been drilled. Our current
            business plan contemplates that a total of 18 wells will be drilled
            in this project. Gas will be sold into the Thunder Bay Pipeline. We
            currently hold a 20% working interest in this project.

      o     The Mt. Mohican Project is located in Alcona County, Michigan, and
            consists of approximately 15,201 acres. Three wells have been
            drilled in this project. They are not yet in production. Eight more
            wells have been permitted, but have not yet been drilled. Our
            current business plan contemplates that a total of 61 wells will be
            drilled in this project. The pipeline to be used has not yet been
            determined. We currently hold a 20% working interest in this
            project.

      o     The Nicholson Hill #1 Project is located in Alpena County, Michigan,
            and consists of approximately 569 acres. Two wells have been drilled
            in this project. They are not yet in production. Two more wells have
            been permitted, but have not yet been drilled. Our current business
            plan contemplates that a total of five wells will be drilled in this
            project. Gas will be sold into the Thunder Bay Pipeline. We
            currently hold a 20% working interest in this project.


                                       23


      o     The Nicholson Hill #2 Project is located in Alpena County, Michigan,
            and consists of approximately 2,976 acres. One well has been
            drilled. It is not yet in production. Our current business plan
            contemplates that a total of 11 wells will be drilled in this
            project. Gas will be sold into the Thunder Bay Pipeline. We
            currently hold a 20% working interest in this project.

      o     The Nicholson Hill #3 Project is located in Alpena County, Michigan,
            and consists of approximately 1,494 acres. One well has been
            drilled. It is not yet in production. Our current business plan
            contemplates that a total of 11 wells will be drilled in this
            project. Gas will be sold into the Thunder Bay Pipeline. We
            currently hold a 20% working interest in this project.

      o     The Northwest Michigan Project is located in Benzie County,
            Michigan, and consists of approximately 41,266 acres. Two wells have
            been drilled, one of which has been plugged and abandoned. The other
            well is not in production. No further wells are currently scheduled
            to be drilled in this project, but the plans could change in the
            future.

      o     The Sequin Project is located in Alpena County, Michigan, and
            consists of approximately 1,779 acres. Seventeen wells have been
            drilled. Thirteen of these wells are producing commercial quantities
            of gas, one well has been plugged and abandoned, one well is a salt
            water disposal well, and two wells are not yet in production. We
            currently hold a 20% working interest in this project.

Hudson Antrim Project

      The Hudson Antrim Project is located in Charlevoix County, Michigan. It is
being developed in a joint venture with Oilfield Investments, Ltd. ("Oilfield"),
an affiliate of O.I.L. Energy Corp. This project is currently divided into seven
separate units, as described below. Gas produced from this project will
initially flow to the central production and processing facility owned by Hudson
Pipeline & Processing Co., LLC. Information as of June 30, 2005 follows:

      o     The Hudson 34 unit is comprised of approximately 1,435 acres, and to
            date has two salt water disposal wells, 20 wells producing
            commercial quantities of gas, one well not yet in production, and
            one well that has been plugged and abandoned. An additional seven
            wells have been permitted but are not yet drilled. We hold a 46.58%
            working interest before payout and a 45.33% working interest after
            payout. Oilfield is the operator.

      o     The Hudson SW unit is comprised of approximately 1,122 acres, and to
            date has one saltwater disposal well, 13 wells producing commercial
            quantities of gas, and 1 well not yet in production. An additional
            16 wells have been permitted, but are not yet drilled. We hold a
            37.54% working interest before payout and a 36.54% working interest
            after payout. Oilfield is the operator.

      o     The Hudson NE unit is comprised of approximately 1,312 acres, and to
            date has 1 salt water disposal well, 12 wells that are producing
            commercial quantities of gas, one well that has been plugged and
            abandoned, and four gas wells that are not yet in production. Three
            additional wells have been permitted, but are not yet drilled. We
            hold a 48.54% working interest before payout and a 47.29% working
            interest after payout. We are the operator.

      o     The Hudson NW unit is comprised of approximately 1,981 acres. Five
            wells have been drilled in this unit, none of which are yet in
            production. One is a salt water disposal well. An additional 16
            wells have been permitted, but are not yet drilled. Our current
            business plan contemplates that a total of 25 wells will be drilled
            in this unit. We hold a 76.08% working interest before payout. We
            are the operator.


                                       24


      The table below demonstrates the results of operations of the above
projects from January 1, 2005 through June 30, 2005:



GROSS PROJECT PRODUCTION
- ----------------------------------------------------------------------------------------------------------------------
Production           Hudson        # of       Hudson        # of        Hudson       # of        Total       Total
Month                  34         Wells         SW          Wells         NE        Wells        MCF's       Wells
- ----------------------------------------------------------------------------------------------------------------------
                                                                                        
January-05            25,475          17            -         -              -          -         25,475        17
February-05           24,875          17        5,981         2              -          -         30,856        19
March-05              25,343          17       10,345        10              -          -         35,688        27
April-05              24,081          17       16,540        13          6,794          8         47,415        38
May-05                22,265          18       23,854        13         29,796         11         75,915        42
June-05               24,965          21       26,222        13         36,336         11         87,523        45
- ----------------------------------------------------------------------------------------------------------------------
TOTALS               147,004                   82,941                   72,926                   302,872
======================================================================================================================


NET COMPANY PRODUCTION
- ----------------------------------------------------------------------------------------------------------------------
                                    # of                     # of                     # of                   Total
Production            Hudson         Net        Hudson       Net        Hudson        Net        Total        Net
Month                   34          Wells         SW        Wells         NE         Wells       MCF's       Wells
- ----------------------------------------------------------------------------------------------------------------------
                                                                                        
January-05            10,164           7             -        -             -           -         10,164         7
February-05            9,396           7         1,826        1             -           -         11,222         8
March-05               9,706           7         3,181        3             -           -         12,887        10
April-05               9,223           7         5,085        4         2,671           3         16,979        14
May-05                 8,528           7         9,004        4        11,801           4         29,333        15
June-05                9,562           8         8,062        4        14,391           4         32,014        16
- ----------------------------------------------------------------------------------------------------------------------
TOTALS                56,579                    27,158                 28,862                    112,599
======================================================================================================================


      Three of the Hudson units are comprised of approximately 2,319 acres
calculated on a joint basis. It is too early to determine the breakout among the
three units. These three units are as follows:

      o     The Hudson 13 unit - Three wells have been permitted in this unit,
            but have not yet been drilled. Our current business plan
            contemplates that a total of 10 wells will be drilled in this unit.
            We hold a 31% working interest before payout and a 30% working
            interest after payout in this unit. We are the operator.

      o     The Hudson West unit - No wells have yet been permitted or drilled
            in this unit. Our current business plan contemplates that a total of
            15 wells will be drilled in this unit in 2005 and 2006. Oilfield is
            the operator. It is too early to determine our working interest
            percentage in this unit.

      o     The Hudson 19 unit - No wells have yet been permitted or drilled in
            this unit. Our current business plan contemplates that three wells
            will be drilled in this unit in 2005. Oilfield is the operator. It
            is too early to determine our working interest percentage in this
            unit.

Other Antrim Projects

      Information on other Michigan Antrim drilling projects as of June 30, 2005
follows:

      o     The 1500 Antrim Mio Project is located in Oscoda County, and
            consists of approximately 15,898 acres. One well has been drilled in
            the project. It is not yet in production. A salt water disposal well
            has also been drilled. Five more wells have been permitted, but have
            not yet been drilled. Our current business plan contemplates that a
            total of 18 wells will be drilled in this project. The pipeline to
            be used has not yet been determined. We hold a 50% working interest
            in this project. We are the operator.

      o     The Blue Chip Project is located in Montmorency County, Michigan,
            and consists of approximately 1,784 acres. No wells have yet been
            drilled in this project, but five wells have been permitted. Our
            current business plan contemplates that a total of eight wells will
            be drilled in this project. Gas will be sold into the MichCon Wet
            Header Pipeline. We hold a 100% working interest in this project,
            and we are the operator.


                                       25


      o     The Arrowhead Project is located in Montmorency County, Michigan,
            and consists of approximately 3,683 acres. No wells have yet been
            drilled in this project, but 19 wells have been permitted. Our
            current business plan contemplates that a total of 24 wells will be
            drilled in this project. Gas will be sold into the MichCon Wet
            Header Pipeline. We currently hold a 100% working interest in this
            project before payout and an 80% working interest after payout. We
            are the operator.

      o     The 400 Antrim Project is located in Cheboygan County, Michigan, and
            consists of approximately 2,859 acres. No wells have yet been
            drilled or scheduled to be drilled in this project. We hold a 100%
            working interest in this project, and we are the operator.

      o     Undeveloped acreage - We have acquired mineral rights for prospects
            that are being held for development in future years. As of June 30,
            2005, this involved approximately 21,524 gross acres in 20 prospects
            at varying working interest percentages.

New Albany Shale Operations

      The New Albany Shale is found in the Illinois Basin, much of which is
located in the state of Indiana. The New Albany Shale is at least 100 feet thick
throughout Indiana, with proven producing pay zones throughout. The shale is
capped by a very thick, dense, gray-green shale (Borden Shale). The play covers
6,000,000 acres.

      In the New Albany Shale, a well commonly produces water along with the
gas. It was learned in the early 1900's that a simple open-hole completion in
the very top of the shale would yield commercial gas wells that would last for
many years, even while producing some water. Vertical fractures in the shale
feed the gas flow at the top of the shale. The potential of these wells was
seldom realized in the early to mid twentieth century, as the production systems
for handling the water were limited. However, with current technology, the water
can be dealt with cost effectively. As a result, the water produced can be kept
off of the shale, allowing better rates of gas production. Utilizing the success
of simple completions and modern water production systems, long-term production
of natural gas is achieved.

      Current recoverability of gas from vertical wells to the black shale is
estimated typically at 15% to 20% of gas-in-place. On a well-to-well basis, this
recoverability varies depending on the natural fracture intensity associated
with each well bore. Production volumes from the black shale are related mostly
to the ability to desorb gas from the shale. Removing the hydrodynamic trap on
the shale is the key to producing shale gas. This is accomplished with a large
sump drilled downward from the lowest point in the well bore. Water is produced
to the surface for disposal in approved salt water disposal wells with electric
submersible pumps. As the water pressure in the fractures is removed from the
shale, the gas begins to release through open natural fractures. The lower the
producing pressure of the well bore, the greater its capacity to produce gas. We
utilize production systems that keep the pressure low from the reservoir to the
sales line. Included in development plans are drilling under balanced whenever
possible, producing gas from wells at low pressures and designing pipeline and
facility systems to operate at less than 250 pounds of pressure. This will also
be the maximum pressure maintained through our CO2 reduction units.

      Significant research and study has been conducted to evaluate the
producibility of the New Albany Shale. In cooperation with the Gas Research
Institute, we combined resources and data with 11 other industry partners in a
shale gas producibility consortium lasting almost two years (concluded in 1999).
The consortium identified critical differences and similarities of the New
Albany Shale play to other shale plays. Reserve studies were conducted on behalf
of the consortium by Schlumberger Holditch & Associates ("Schlumberger"), a
third party engineering firm, for both vertical producing wells and horizontal
wells. With the conclusions of the consortium, we have established a development
concept for the New Albany Shale, which has been confirmed by recent test wells.
Numerous interstate pipelines intersect the New Albany Shale acreage in which we
hold working interests and residual overriding royalty interests.

      We continue to actively explore opportunities in the New Albany Shale.
Although we have sold off large portions of the leases we have acquired to joint
venture partners, we continue to aggressively lease new projects, which we plan
to develop once management has an opportunity to learn from our joint venture
partners what geological work and drilling methods are most efficient in this
area. In many cases, when we have sold leases in the New Albany Shale, we have
retained a carried working interest or overriding royalty interests as described
in more detail below.


                                       26


Wiser Oil Transaction

      In a joint venture with the Wiser Oil Company ("Wiser"), we acquired
approximately 10,143 acres of leasehold in Pike County, Indiana, in the New
Albany Shale play. In 2003, we drilled three horizontal wells in the Pike
project. We have now transferred operations to Wiser, but have retained working
interests and carried working interests, as follows:

      Test Wells: 21.25% working interest First 50 Subsequent Wells:

      Before Payout - NRI 87.5% or greater: 29.125% working interest (of which
7.875% is carried by Wiser to the point of the sales meter) Before Payout - NRI
below 87.5%: 26.125% working interest (of which 4.875% is carried by Wiser to
the point of the sales meter) After Payout: 31% working interest

      After First 50 Subsequent Wells: carried working interest is reduced from
a proportionate 10% to a proportionate 7.5%

      "Payout" means the first day of the month following the point that 100% of
costs associated with the well or group of wells flowing through one sales meter
has been recouped out of net revenues.

      Since entering into this joint venture arrangement no significant new
development activity has occurred. The number of acres of leaseholds in the
project is now approximately 8,536. Wiser has recently been sold to Forest
Corporation. We are currently in negotiation with Forest Corporation to expand
the scope of the joint venture.

Quicksilver Transactions

      In February 2003, we sold two major blocks of mineral leases and related
assets to Quicksilver Resources, Inc. of Fort Worth, Texas ("Quicksilver"). We
sold our interests in the Georgetown Fault, Corydon, Organ Creek, Graben, M-J,
J-L and Orleans Projects to Quicksilver. We delivered an 80% net revenue
interest for these leases. To the extent we owned more than an 80% net revenue
interest before the assignment, we retained the balance as an overriding royalty
interest.

Wabash Joint Venture

      We entered into a joint venture with Wabash Energy Partners, L.P.
("Wabash"), to acquire and develop mineral leases for the New Albany Shale gas
play in Indiana. The joint venture is governed by a Development Agreement that
we entered into with Wabash on December 6, 2003. The Development Agreement
generally calls for us to acquire mineral leases, the working interests for
which will be owned 80% by Wabash and 20% by us and others. We currently own
17.5%. Of this amount, 11% is required to pay our allocated portion of the
development costs directly. Six and one-half percent owned by us, together with
2.5% owned by others, may borrow their portion of the development costs from
Wabash for an aggregate of up to $6,000,000. The loans will bear interest at the
rate of 6.75% per year and will be secured by a first priority lien on the
borrower's interest in the project. The borrowers will be required to dedicate
85% of any net operating cash flow from the wells in the joint venture to retire
principal and interest on the loans. The loans are to fund development costs,
not lease acquisition costs. Each participant is required to fund its portion of
lease acquisition costs.

      This joint venture currently covers approximately 69,982 acres. Phase I
had a budget of $1,250,000 for lease acquisition costs. Wabash paid us $12.50
per acre as a fee to cover our overhead and management of the leasing. One-third
of the $12.50 per acre fee ($4.125 per acre), less actual overhead and
management costs is shared with the consultant who facilitated putting the
parties together into the transaction. For Phase I, the fee totaled $650,000.
The fee terminates when the total fee paid reaches $750,000. After the fee
terminates, we will receive a monthly administrative fee not to exceed $6,000
per month. The parties have now moved into Phase II.


                                       27


      To date, the focus of the joint venture activity has been on acquiring
leaseholds. We have acquired almost 70,000 acres out of the 100,000 acres that
the parties hope to ultimately acquire. No wells have yet been drilled. The
Development Agreement does not require Wabash to proceed with development of
this acreage, but merely establishes the terms in the event that Wabash decides
to proceed. There is a provision for any party to opt in or out of drilling for
any specific well. Wabash will serve as the operator for all of the wells
drilled that it participates in.

      The Development Agreement has a provision that allows us or Wabash to
initiate a sale of the working interests in the joint venture. The initiating
party will state a value for the sale. The responding party will then choose to
either buy the initiating party's working interest at the stated price, or sell
its own working interest to the initiating party at the stated price.

El Paso Transactions

      On November 4, 2003, we entered into an Assignment Agreement with El Paso
Production Company ("El Paso") on behalf of the Company and Aurora Operating,
L.L.C., under which we agreed to assign to El Paso the mineral leases for
approximately 90,000 acres located in Dubois, Knox, Martin and Daviess Counties
in Indiana (the "Dumada AMI"). These acres fall within the potential New Albany
Shale gas development region. The Assignment Agreement also reserves to El Paso
the right to require us to exercise an option that we have with respect to the
mineral leases owned by Highway Resources, Inc., and resell them to El Paso at
our acquisition price.

      With respect to all mineral leases acquired by El Paso under the
Assignment Agreement, we have retained a 5% carried working interest in the
first 50 wells drilled, including salt water disposal wells, horizontal pilot
wells, and wells drilled for the purpose of taking core samples, in addition to
wells drilled for the purpose of taking gas production. With respect to wells
drilled for the purpose of gas production, El Paso must bear the expenses for
our 5% working interest associated with drilling, testing, completing and
connecting the well to the lease sales meter, but we must bear our expenses
associated with costs and expenses incurred after connection to the lease meter,
plus all costs associated with catastrophic events. With respect to salt water
disposal wells, El Paso must bear the expenses for our 5% working interest
associated with drilling, casing, stimulating, testing, equipping of and first
successful injection of water into the well, and we must bear our associated
costs and expenses after the first successful injection of salt water into the
well. With respect to wells drilled for the purpose of taking core samples, El
Paso must bear all of the expenses for our 5% working interest. Starting with
the 51st well, we must bear 5% of all costs and expenses.

      El Paso will own 100% of all gathering systems, flow lines, facilities,
appurtenance and equipment it installs down stream of the lease meter. We must
bear our 5% of costs associated with compression treatment, gathering and
transportation charges related to gas and water produced.

      El Paso agreed to drill three horizontal pilot wells and three salt water
disposal wells in the Dumada AMI subject to a $2,225,000 expense cap. It has
agreed to make a good faith effort to lease a minimum of 50,000 net acres within
the Dumada AMI to support this drilling commitment, subject to a $1,000,000
expense cap. In late 2004 El Paso notified us that it has now satisfied this
commitment.

      Through June 30, 2005, El Paso had drilled seven gas wells in the Dumada
AMI. These wells are waiting on pipeline installation and are not yet in
production. The total acres leased in the El Paso Dumada AMI as of June 30, 2005
is approximately 160,802.

      The Assignment Agreement provided that after drilling the pilot wells, El
Paso had until January 3, 2005 to decide whether to retain some or all of the
mineral leases in the Dumada AMI we had previously assigned to it. On December
30, 2004, El Paso notified us of its election to retain all of the leases. The
retention election was closed on January 6, 2005, at which time, El Paso paid us
$7,321,000.

      On July 9, 2004, we entered into a separate Purchase and Sale Agreement
with El Paso concerning 8,843.38 gross and net leasehold acres located in
Daviess County, Indiana. These are the leases originally owned by Highway
Resources, Inc. addressed in the original Assignment Agreement. El Paso acquired
an undivided 95% working interest in these leases, and we retained a 5% working
interest. El Paso paid us $349,829, which is the same price that we paid Highway
Resources, Inc. for the leases.


                                       28


CDX Transaction

      In 2001 and 2002, we sold leasehold acreage to CDX from the New Albany
Shale formation. That includes: approximately 33,217 acres in Breckinridge and
Meade Counties, Kentucky; approximately 13,967 acres in the Maria Creek project
located in Knox and Sullivan Counties, Indiana; approximately 1,723 acres in
Harrison County, Indiana; approximately 11,918 acres in the Loogootee project
located in Daviess, Dubois and Martin Counties, Indiana; and approximately
39,800 acres in Washington and Floyd Counties, Indiana. In each case, we
retained a 5% carried working interest before payout and an additional 15%
carried working interest after payout. As noted above, we are in the process of
effectuating an exchange with CDX, pursuant to which we will give up our entire
interest in these projects in return for receiving an assignment of all of CDX's
interest in certain Michigan Antrim Shale properties.

Knox Gas Development Project

      In February 2005, we entered into a Development Agreement with Horizontal
Systems, Inc. of Casey, Illinois ("HSI"). This agreement has since been amended
twice to expand the area of mutual interest to which it applies. It now applies
to most of Knox County, Indiana, with limited specified exceptions, and is
called the Knox Gas Development Project. Under this Development Agreement, we
will own 75% of the working interest in the project and HSI will own 25%.
Neither party will retain overriding royalties. We are responsible for acquiring
all of the leases in the project area, but will acquire them in HSI's name. HSI
will initially be the operator, though we have retained the right to assume
operations, in our discretion. For the first 25 wells drilled, we will pay 75%
of costs plus 10%. Thereafter, we will be responsible for only 75% of costs. The
Development Agreement provides that at least two horizontal wells will be
drilled in the project in 2005. As of June 30, 2005, one of these wells had been
drilled, but is not yet in production, and 12,255 acres of leasehold had been
acquired.

Other New Albany Shale Projects

      We have acquired other mineral rights in New Albany Shale projects that
are being held for development in future years. As of June 30, 2005, we have
acquired 102,603 acres of leasehold in 13 different fields in the New Albany
Shale at a 100% working interest.

Crossroads Project

      Henry County, Ohio was the site of oil and gas exploration in 1885, 1975
and 1985. Each time gas was found with some oil. Because there was no pipeline
to transport gas to market from this area, the 1985 effort was abandoned by the
operator. In 1995, Crossroads Pipeline Company converted a 20-inch oil transport
line that runs through Henry County into a natural gas transport line. This
opened the area to natural gas exploration and production.

      In 1998, we began leasing land in Henry County for what is known as the
Crossroads Project. In July 1998, three exploratory wells that had previously
been drilled were drilled out again and tested. In January 1999, we initiated
development by drilling out an additional four pre-existing wells and acquiring
four producing wells. There are currently 10 wells. They are shut-in pending
funding for further development. We have an additional leasehold targeting an
area with potential of more than 200 wells. We originally owned 76% of the
leasehold and working interests in this acreage.

      On March 31, 2004, we entered into a Development Agreement with Oil & Gas
Engineering GmbH, an Austrian Company ("OGE") with respect to the Crossroads
project. OGE purchased all of our interest in this project. OGE agreed to expend
$2,600,000 developing the project, subject to certain limitations. OGE
immediately advanced us $94,000 to be used for getting the existing wells back
in production. The remainder of the $2,600,000 will be spent only as supported
by seismic analysis to develop another seven wells. OGE's obligation to expend
funds will cease at the time the Crossroads project is producing at least 2,000
MCF per day, even if the full $2,600,000 has not yet been expended. If either
this minimum production level has not been achieved or the full $2,600,000 has
not been expended by March 1, 2006, all of the assets will be reassigned to us.


                                       29


      Although OGE will be in control of all decision making with respect to the
exploration and development of the wells in the Crossroads project, OGE is
required to subcontract to us the actual field operations, unless we decide we
do not want to continue in this role. Until OGE receives net revenue from
production from the Crossroads Project in the amount of the committed funds
actually expended by OGE, OGE will receive 90% of net revenues and we will
receive 10%. Thereafter, OGE will receive 75% of net revenues and we will
receive 25%. If the project is abandoned and shut in, OGE will pay up to
$500,000 of the associated costs, and we will pay for anything over $500,000, if
any. Since this agreement was entered into on March 31, 2004 until recently,
only minimal development activity had occurred. We have now drilled a salt water
disposal well. In June 2005, gas plant operations were started, with nominal
production to date as the 10 shut-in wells are being brought back into
production.

The Eastern Group

      In December 1997 we acquired from Jet Exploration, Inc. ("Jet") small
interests in Antrim shale wells in three projects located in Alcona County,
Michigan. We have a 2.3% working interest before payout and 3.68% after payout
in the Devil River Project where 10 wells began producing in November of 1998.
We have a 1.5% working interest in the Blue Spruce Project, which began
producing in September 1997 and has 16 producing gas wells and one salt water
disposal well. We own a 1.8% working interest before payout and 3.18% after
payout in the Timm Project that started producing in August of 1998 and has 21
wells producing. The majority interest owner and Operator of these projects is
Petroleum Development Corporation of West Virginia. These wells are producing a
positive cash flow to us.

Beregsasi Reef Feild

      The Beregsasi is a one-well field located in Sterling Heights, Michigan.
West Bay Exploration is the operator. The well is producing oil and gas from the
Niagaran formation. Production began in August 1999. We own a 9% working
interest.

Church Lake Field

      The Church Lake Field is a six-well oil field in the Richfield formation
in northern Michigan which produces an average of 32 barrels of oil per day.
Petroleum Development Corporation is the operator of this field and major
interest holder. We have a 17.5% working interest in the 3rd through the 16th
wells and a 22.5% working interest in an additional five wells.

Miscellaneous Well Interests

      We acquired small interests in numerous fields in 2000. We do not serve as
operator for any of these interests. They generate an overall positive cash flow
to us.

Drilling Funds

      We have acted as promoter and manager for three drilling funds, as
follows:

      o     Aurora Investments, LLC was formed in 2001. Membership interests
            totaling $954,000 were sold to 15 investors. Aurora Investments, LLC
            purchased a 41.63% working interest in 14 natural gas wells drilled
            in the Beyer Antrim project in Alpena County, Michigan. As a result
            of the Samson Transaction, the working interest was reduced to
            1.98%. We have accepted a distribution of our prorated share of the
            working interests in the leases owned by Aurora Investments, LLC. As
            a result, we no longer have an equity interest in Aurora
            Investments, LLC. However, we continue to serve as manager of Aurora
            Investments, LLC, and are entitled to receive a fee equal to $300
            per net well per month as compensation for overseeing operations and
            production.


                                       30


      o     Beyer Antrim Company, L.L.C. was formed in 2002. A membership
            interest totaling $650,000 was sold to one outside investor. Beyer
            Antrim Company, L.L.C. purchased a 16.14% working interest in 14
            natural gas wells drilled in the Beyer Antrim project in Alpena
            County, Michigan. As a result of the Samson Transaction, the working
            interest was reduced to .71%. We have accepted a distribution of our
            prorated share of the working interests in the leases owned by Beyer
            Antrim Company, L.L.C. As a result, we no longer have an equity
            interest in Beyer Antrim Company, L.L.C. However, we continue to
            serve as a manager of Beyer Antrim Company, L.L.C., and are entitled
            to receive a fee equal to $300 per net well per month as
            compensation for overseeing operations and production.

      o     Aurora Natural Gas Production, LLC was formed in 2002. Membership
            interests totaling $455,000 were sold to 13 investors. Aurora
            Natural Gas Production, LLC purchased a 17% working interest in 10
            natural gas wells in the Black Bean #1 Antrim project located in
            Alpena County, Michigan. As a result of the Samson Transaction, the
            working interest was reduced to 0.60%. We have accepted a
            distribution of our prorated share of the working interests in the
            leases owned by Aurora Natural Gas Production, LLC. As a result, we
            no longer have an equity interest in Aurora Natural Gas Production,
            LLC. However, we continue to serve as manager of Aurora Natural Gas
            Production, LLC, and are entitled to receive a fee equal to $300 per
            net well per month as compensation for overseeing operations and
            production.

Financing Subsidiary

      Aurora Antrim North, L.L.C. ("AAN") is a wholly-owned subsidiary of our
Aurora subsidiary. It is the borrower under the TCW Energy, et al. credit
facility, and holds those assets pledged as collateral under the credit
facility. These assets include all of our Michigan Antrim Shale properties
located in Alcona, Alpena, Charlevoix, Cheboygan, Montmorency, and Otsego
Counties, and an interest in the Hudson Pipeline & Processing Co., LLC, as
described below.

Other Subsidiaries and Affiliates

      Aurora Operating, L.L.C. ("AOC"), owns an interest in approximately 56,000
acres of New Albany Shale leasehold interests in Martin, Daviess and Dubois
Counties, Indiana. Our Aurora subsidiary originally owned a 71% membership
interest, with the balance owned by 11 unrelated limited liability company
members. On November 21, 2003, we sold a portion of our membership interest to
Wabash Energy Partners, L.P. ("Wabash"), resulting in Wabash holding a 20%
membership interest while we continue to own a 51% membership interest. We
received $100,000 from Wabash as a purchase price for the 20% membership
interest. Under the Membership Interest Purchase Agreement, Wabash is not
entitled to receive cash distributions or dividends from AOC, nor can it be
required to contribute capital to AOC, for a period of two years. Starting at
the two-year anniversary of the sale, and ending at the five-year anniversary of
the sale, we have a call option to repurchase the 20% membership interest from
Wabash at a price of $100,000, and Wabash has a put option to force us to
repurchase the 20% membership interest at a price of $100,000.

      Aurora Production, L.L.C. is the nominal owner of a number of override
interests in the New Albany Shale projects. These assets have been assigned to
Indiana Royalty Trustory, L.L.C. by letter agreement, but lease assignments have
not yet been recorded. Our Aurora subsidiary owns a 51% membership interest in
Aurora Production, L.L.C. for purposes of voting, but receive only 50% of net
revenue distributions. The balance is owned by LaVanway Capital & Trade
Corporation. All operations of Aurora Production, L.L.C. ceased as of December
31, 2003. As we acquire new interests in New Albany Shale projects, we are
acquiring them in the name of our Aurora subsidiary, and not through Aurora
Production, L.L.C.

      Indiana Royalty Trustory, L.L.C. ("IRT") owns an overriding royalty in the
amount of 2.5% on approximately 60,000 acres in the New Albany Shale in Indiana.
Certain assets are also in the process of being assigned from Aurora Production,
L.L.C., as described above. Our Aurora subsidiary owns a 50% membership interest
in IRT. The balance is owned by LaVanway Capital & Trade Corporation.

      Hudson Pipeline & Processing Co., LLC ("Hudson") owns a facility plant,
pipeline, rights-of-way and meter used by nearby Antrim wells, and processes the
gas produced from those wells. AAN owns a 48.75% membership interest in this
limited liability company. The balance is owned by O.I.L. Energy Corp. ("OIL"),
and Major Pipeline, LLC. After Hudson receives revenues equal to 125% of the
amount spent on construction of the pipeline by AAN and OIL, Major Pipeline, LLC
will receive an increased ownership percentage, and AAN's interest will drop to
47.50%.


                                       31


      Geopetra Partners. LLC ("Geopetra") is a limited liability company engaged
primarily in the identification and evaluation for acquisition of oil and gas
properties and interests in entities which hold such properties and interests,
identification and evaluation of areas to be explored and developed for the
production of oil and gas, and providing consulting services to its members in
connection with other oil and gas properties and interests, operations and
activities. Geopetra was formed on April 1, 2005. Our Aurora subsidiary owns a
30% interest in Geopetra for which we paid $14,000. To date, Geopetra's
operations have not been significant.

Oil and Gas Reserves

      The following table presents information regarding proved reserves of oil
attributable to our Cadence division's interests in producing properties in
Wilbarger County, Texas, and De Soto Parish, LA as of September 30, 2004. The
information regarding reserves is based on proved reserves reports prepared by
Ralph E. Davis Associates, Inc., Houston, Texas, independent petroleum
engineers. The following report (and table) do not include information on our
interests in gas wells located in Alpena County, MI as no engineering study has
been undertaken of these wells as of the date of this report. Ralph E. Davis's
audit was based upon review of production histories and other geological,
economic, ownership and engineering data we provided. All of the reserves
presented in the following table are proved, developed reserves.

      Estimates of our future net revenues from proved reserves are discounted
to present value using an annual discount rate of 10% (the PV-10 Value), using
oil and gas prices in effect as of the dates of such estimates, held constant
throughout of the life of the properties. Proved reserves as of September 30,
2004 were estimated based upon the spot price on September 30, 2004, of West
Texas intermediate crude oil at Cushing, Oklahoma which was $49.51 per barrel.
The unit gas price used of $5.44 per MMBTU was the spot price on September 30,
2004 at the Henry Hub in Louisiana.

      The following table contains estimates of future net revenues presented on
the basis of unescalated prices and costs and their PV-10 Value. We deducted
operating costs, development costs and certain production-related taxes to
arrive at the estimated future net revenues. We calculated future net revenues
based on an estimated 4.5 year life of these reserves. We made no provision for
income taxes. The estimates of future net revenues and their present value
differ in this respect from the standardized measure of discounted future net
cash flows contained in the supplemental information to this report which is
calculated after provision for future income taxes.



                                              Cadence Division Revenues

                              ESTIMATED NET         WEIGHTED AVERAGE
                                RESERVES                                              FUTURE NET INCOME
PROVED RESERVES               (MBBLS/MMCF)          PRICE ($BBL/MCF)         UNDISCOUNTED               PV-10
- ---------------               ------------          ----------------         ------------               -----
                                                                                         
Producing Oil                     29.9                   $49.51
Producing Gas                     585.7                  $5.44
Producing Oil & Gas                                                           $3,346,900             $2,803,100


      The following table presents information regarding proved reserves of gas
attributable to our Aurora division's Michigan Antrim Shale projects as of
December 31, 2004. This information is based on a reserve report prepared by
Data & Consulting Services, a division of Schlumberger Technology Corporation of
Pittsburgh, Pennsylvania. According to this report, over 86% of our proved
reserves are classified as either "proved developed non-producing" or "proved
undeveloped." The following reserve report (and table) do not include
information on the New Albany Shale gas reserves located in Indiana, the gas
reserves associated with the Crossroads project located in Ohio, or any oil
reserves. No reserve report has been prepared for these properties.


                                       32


      The following reserve report is prepared using the assumption that each
well will produce for 40 years. Antrim Shale wells generally produce for
extended periods of time. As noted above, the oldest Antrim Shale field in
Michigan was drilled in the 1940s and it is still in production today. Estimates
of our future net revenues from proved reserves are discounted to present value
using an annual discount rate of 10% (the PV-10 Value), using gas prices in
effect as of the date of the estimate held constant throughout the life of the
properties. For the table below, except for the Alpena Beyer Unit, the Value of
the reserves was calculated based on the spot price at which we sold our gas on
December 31, 2004, which was $6.195 per MCF. For the Alpena Beyer Unit, the
calculation was based on an existing contract price of $4.00 per MCF in 2004,
$4.37 per MCF in 2005, and $5.00 per MCF for all later years.



                                                AURORA SUBSIDIARY RESERVES

                                  Proved (1)       Proved (1)                          Total
                                 Developed (2)   Developed (2)       Proved (1)        Proved
                                  Producing      Non-Producing    Undeveloped (2)     Reserves
                                  ---------      -------------    ---------------     --------
                                                                        
Estimated remaining net              4,818.71        7,701.00         22,429.70         34,949.41
     reserves (mmscf)
Undiscounted future net          $ 21,814,860    $ 29,719,820      $ 77,015,290     $ 128,549,960
     income before taxes
Future net income before         $  8,130,430    $ 12,987,160      $ 26,890,550     $  48,008,140
     taxes with PV-10
     discount


(1) Proved reserves are those quantities of gas which, by analysis of
geological and engineering data, can be estimated with reasonable certainty to
be commercially recoverable from known reservoirs and under current economic
conditions, operating methods, and government regulations.

(2) Developed reserves are expected to be recovered from existing wells.
Undeveloped reserves are expected to be recovered: (a) from new wells on
undrilled acreage; (b) from deepening existing wells to a different reservoir;
or (c) where relatively large expenditure is required to recomplete an existing
well or install production or transportation facilities for primary or improved
recovery projects.

      The report also places an estimated net present value on our interest in
the Hudson Unit Pipelines at $2,503,490.

      For purposes of calculating collateral coverage, our loan agreement with
TCW Energy, et al., requires the use of a formula that is based in part on
historical monthly averages instead of year-end prices. The reserve report
prepared using this formula shows total proved reserves valued at $43,795,180.
Because of the inherent uncertainty in predicting future oil and gas prices, the
present value of reserve assets cannot be determined with certainty.

Production Information

      The following tables summarize sales volumes, sales prices, and production
cost information for our Cadence division's net oil and gas production for the
two-year period ended September 30, 2004. "Net" production is production that is
owned by our Cadence division directly or indirectly and is produced to our
interest after deducting royalty, and other similar interests. This table
includes information from production from the oil wells in Wilbarger County,
Texas, and from gas wells in De Soto Parish, Louisiana and from Alpena County,
Michigan.

                               Cadence Production

Oil Production                              Twelve months Ended September 30,
                                          ------------------------------------
                                              2004                     2003
                                          ------------             -----------
Total Net Revenues                        $    837,305             $   337,355
Net Sales Volume (Bbls)                         25,887                  11,447
Average Sales Price (per Bbl.)            $      36.11             $     29.47
Average Production Cost (per Bbl.)        $       2.61             $      8.26


                                       33


Gas Production                              Twelve months Ended September 30,
                                          ------------------------------------
                                              2004                     2003
                                          ------------             -----------
Total Net Revenues                        $  1,704,142             $         0
Net Sales Volume (mcf)                          37,571                       0
Average Sales Price (per mcf.)            $       5.69             $         0
Average Production Cost (per mcf.)        $       1.12             $         0

      The following tables summarize sales volumes, sales prices, and production
cost information for our Aurora division's net oil and gas production for the
two-year period ended December 31, 2004. "Net" production is production that is
owned by our Aurora division directly or indirectly and is produced to Aurora's
interest after deducting royalty and other similar burdens. This table includes
information about natural gas production from the Hudson, Treasure Island, Black
Bean, Beyer, Blue Spruce, Timm, Devil River and Paxton Quarry Antrim Shale
projects in Michigan and oil production from the Bergsasi well and the Church
Lake field in Michigan.

                                                    Aurora Production
Gas Production                            Twelve months Ended December 31,
                                          ------------------------------------
                                              2004                     2003
                                          ------------             -----------
Net Revenues
         Michigan                         $    726,333                 810,424
         Indiana                          $     7,7076             $    87,537
         Total                            $    733,409             $   897,961

Net Sales Volume (mcf)                         149,502                 192,787
         Michigan                                1,739                  21,665
         Indiana                               151,241                 214,452
         Total
Average Sales Price (per mcf)             $       4.91             $   4.27(2)
Average Production Cost (per mcf)         $    3.51(1)             $   3.00(2)

Oil Production                            Twelve months Ended December 31,
                                          ------------------------------------
                                              2004                     2003
                                          ------------             -----------
Total Net Revenues (Michigan)             $    226,600             $   196,650
Net Sales Volume (Bbls) (Michigan)        $      4,798                   6,953
Average Sales Price (per Bbl)             $     $47.22             $ $26.10(2)
Average Production Cost (per Bbl)         $  $18.65(1)             $ $12.65(2)

(1) The average gas production cost for 2004 is increased due to additional
operating expenses incurred in one particular project area which was shut-in
most of the year. If this project was removed from the calculation, the average
production cost per mcf would be $3.14. The Paxton Quarry field has higher
production costs than the average because it was acquired from another operator
and is in need of repairs. Additional wells are not expected to be added to this
field. Production costs in other fields are expected to decline on a per-mcf
basis as more wells are put on line. Accordingly, management expects the average
production costs to decline to below $3.14 per mcf over time, consistent with
the industry average from other operators who operate wells in the Michigan
Antrim.

(2) The 2003 numbers for average sales price and average production cost are
approximate, based on estimated sales volumes. The software our Aurora division
used in 2003 did not record per-unit sales volume.


                                       34


Oil and Gas Wells

      The following table sets forth the number of gross and net productive
wells owned by our Cadence division on the stated dates.

                               Oil Wells       Gas Wells       Total Wells
                             ----------------------------------------------
      September 30, 2004
             Gross(1)               6.00          10.00             16.0
             Net(2)                 3.70           2.30              6.0

      September 30, 2003
             Gross(1)               5.00           0                5.00
             Net(2)                 3.50           0                3.50

(1) Gross wells are the total wells in which a working interest is owned.

(2) Net wells are the sum of fractional working interests owned in gross wells.

      The following table sets forth the number of gross and net productive
wells owned by our Aurora division on the stated dates.

                               Oil Wells       Gas Wells       Total Wells
                             ----------------------------------------------
    December 31, 2004
             Gross(1)            8.00             192.00             200.00
             Net(2)              1.86             40.49              42.35

    December 31, 2003
            Gross(1)             8.00             105.00             113.00
            Net(2)               1.86              42.8              44.66

(1) Gross wells are the total wells in which a working interest is owned.

(2) Net wells are the sum of fractional working interests owned in gross wells.

(3) The increase in gross wells with a corresponding decrease in net wells from
2003 to 2004 was attributable largely to the sale of 80% of the leaseholds in
the Michigan Antrim to Samson during 2004, as described above.

(4) Most of the productive wells our Aurora division owned at December 31, 2004
were drilled during the third and fourth quarters of 2004, and saw little actual
production during the year. Using a weighted average approach for the time of
actual production, our Aurora division had 10.6 net wells in actual production
for the entire 2004 year.

      All of our Aurora division's productive wells are located in Michigan.


                                       35


Oil and Gas Acreage

         The following table sets forth our Cadence division's acreage position
as of September 30, 2004.



                                        Developed(1)                           Undeveloped(2)
                             -----------------------------------    ------------------------------------
                                   Gross               Net                 Gross                   Net
                             ------------------    -------------    ---------------------   ------------
                                                                                      
      Louisiana                      1280                320                2970                  1336
      Texas                           625                392                1000                   500
      Michigan                        640                144                   0                     0
      Kansas                            0                  0                2270                  2270
      Tennessee                         0                  0                   0                     0
      New Mexico                       80                 16                1200                   300
                             ------------------    -------------    ---------------------   ------------
                   Total             2625                872                7440                  4406
                             ==================    =============    =====================   ============


(1) The number of acres which are allocated or assignable to producing wells or
wells capable of production.

(2) Lease acreage on which wells have not been participated in or completed to a
point that would permit the production of commercial quantities of oil and
natural gas regardless of whether such acreage contains proved reserves.

      The following table sets forth the number of acres of oil and gas leases
owned by our Aurora division at December 31, 2004. These are rounded to whole
numbers.



                                      Developed(1)                    Undeveloped(2)
                              -----------------------------    -------------------------------
                                 Gross             Net             Gross             Net
                              -------------    ------------    --------------    -------------
      Gas
                                                                        
             Michigan            7,956            2,739           100,324           52,799
             Indiana               --              --             284,576          214,487
             Ohio                  --              --             15,350            1,044
             Illinois              --              --              1,632            1,632
             Kentucky              --              --              6,497            6,497
                              -------------    ------------    --------------    -------------
             Total               7,956            2,739           408,379          276,459

      Oil (Michigan)             280.0            47.6              --                --



(1) "Developed" refers to the number of acres which are allocated or assignable
to producing wells or wells capable of production.

(2) "Undeveloped" refers to lease acreage on which wells have not been developed
or completed to a point that would permit the production of commercial
quantities of oil or natural gas regardless of whether such acreage contains
proved reserves.


                                       36


Drilling Activities

      The following table sets forth our Cadence division's drilling results for
the twelve months ended September 30, 2004, and 2003:



 Fiscal                                            Gross Wells                                         Net Wells
  Year         Type of Well       Total   Productive(2)  Dry(3)    Abandoned(4)       Total     Productive      Dry      Abandoned
- ----------    ----------------    ------- -------------- -------- ---------------   ---------- -------------- -------- -------------
                                                                                                 
2004          Exploratory(1)         2            1          1            0             3.0          2          1.0            0
              Development(1)        11            7          2            2             4.3          2.5        0.9          0.9


2003          Exploratory(1)         2            1          1            0             1             .5         .5            0
              Development(1)        13           12          1            0             4.3          3.8         .5            0


(1) An exploratory well is a well drilled either in search of a new, as yet
undiscovered oil or gas reservoir or to greatly extend the known limits of a
previously discovered reservoir. A development well is a well drilled within the
presently proved productive area of an oil or gas reservoir, as indicated by
reasonable interpretation of available data, with the objective of completing in
that reservoir.

(2) A productive well is an exploratory or development well found to be capable
of producing either oil or gas in sufficient quantities to justify completion as
an oil or gas well.

(3) A dry well is an exploratory or development well that is not a producing
well.

(4) An abandoned well is a well that has either been plugged or has been
converted to another use. We have converted this Texas well to a salt water
disposal well. Two of the DeSoto Parish wells produced limited quantities of gas
for a time, but are no longer producing any gas and are considered abandoned for
the purposes of this table.

      The following table sets forth our Aurora division's drilling results for
the twelve months ended December 31, 2004 and 2003. The table does not include
salt water disposal wells drilled. In 2004, our Aurora division drilled 6 gross
and 2.39 net salt water disposal wells. In 2003, our Aurora division drilled
1.00 gross and 0.07 net salt water disposal wells.



Fiscal                                           Gross Wells                                        Net Wells
Year         Type of Well        Total   Productive(2)  Dry (3) Abandoned(4)       Total   Productive(2) Dry(3)   Abandoned(4)
- ---------- -----------------    -------- -------------- ------- --------------    -------- ------------- -------- ------------
                                                                                          
2004       Exploratory(1)
              Michigan            --          --          --         --             --          --         --          --
              Indiana             --          --          --         --             --          --         --          --
              Total               --          --          --         --             --          --         --          --

           Development(1)
              Michigan            87          84          3          --            26.24      25.06       1.18         --
              Indiana              4          --          --          4            0.20         --         --         0.20
              Total               91          84          3           4            26.44      25.06       1.18        0.20

2003       Exploratory(1)
              Michigan            --          --          --         --             --          --         --          --
              Indiana             --          --          --         --             --          --         --          --
              Total               --          --          --         --             --          --         --          --

           Development(1)
              Michigan            27          27          --         --            5.06        5.06        --          --
              Indiana             --          --          --         --             --          --         --          --
              Total               27          27          --         --            5.06        5.06        --          --



                                       37


(1) An exploratory well is a well drilled either in search of a new, as yet
undiscovered oil or gas reservoir or to greatly extend the known limits of a
previously discovered reservoir. A development well is a well drilled within the
presently proved productive area of an oil or gas reservoir, as indicated by
reasonable interpretation of available data, with the objective of completing in
that reservoir.

(2) A productive well is an exploratory or development well found to be capable
of producing either oil or gas in sufficient quantities to justify completion as
an oil or gas well.

(3) A dry well is an exploratory or development well that is not a producing
well.

(4) An abandoned well is a well that has either been plugged or has been
converted to another use.

Drilling Techniques and Arrangements

      For gas wells, our Aurora division uses a production system that is
designed to achieve low pressure on the wells, pipelines, facilities and
reservoir. This is done by keeping natural fractures open to the well bore, and
by using low-pressure gas processing near well sites. Using this low-pressure
production approach, our Aurora division seeks to increase the recoverability of
gas production that would otherwise be held in the reservoir.

      Our Aurora division usually uses a simple proven completion procedure.
This procedure involves drilling through several pay zones, setting and
cementing casing, and drilling a rat-hole, which is used for gas-water
separation. The use of specially designed cement around the casing helps avoid
plugging off natural fractures. Imaging logs are used to identify which zones
are best fractured and will yield commercial gas production.

      In order to contain costs, our Aurora division tries to keep facilities
for gas processing decentralized. Salt water disposal wells are drilled close to
the compression facilities, central to each field's wells. Skid mounted
separators that can be easily downsized are used at the site of the salt water
disposal wells. The localized disposal of water reduces power demand. Different
reservoirs contain different amounts of water. Aurora cannot accurately predict
the actual amount of time required for dewatering with respect to each well. The
period of time when the volume of gas that is produced is limited by the
dewatering process could be as much as two years, thereby delaying revenue
production.

      Skid mounted compressors are used by our Aurora division in a series to
maximize compression to the transportation line. Our Aurora division will also
seek to maintain low pressure in the gathering systems. Gas will be drawn at low
wellhead pressure using a five and one-half inch or seven inch production
casing.

      One strategy that our Aurora division uses to minimize costs is to
minimize the use of land surface. This is accomplished by using small well sites
in open areas near roads, and by not building central processing facilities, but
instead using localized facilities as described above. Truck mounted drilling
rigs may be used. Our Aurora division may use other drilling, completion and
operating procedures if, in management's opinion, these alternative procedures
will produce a higher rate of gas from the shale.

      Our Aurora division's gas wells will be drilled by outside drilling
companies under contracts that have not yet been finalized. Management believes
that there is currently enough capacity available in the areas in which Aurora
is working that it would not have a problem finding one or more drilling
companies available to meet its time schedule for drilling wells. However, over
time, circumstances could change as development activity in the industry picks
up.

      The availability of experienced and competent drilling, completion and
facilities installation production laborers and vendors could affect the timing
of when the wells are completed and producing revenues. If there is a shortage
of field workers, it will take longer to begin to generate revenues from new
wells. From time to time, the oil and gas industry also experiences equipment
shortages, resulting in back orders for needed equipment. If this occurs before
the wells are drilled, completed and put into production, it will take longer
for the wells to begin to generate revenues.


                                       38


      The oil and gas industry has historically experienced periods of rapidly
increasing drilling and production costs, frequently during times of increased
drilling activities. If significant cost increases occur with respect to our
development activity, we may have to reduce the number of wells we drill.

      After the wells are completed and put into production, we may decide that
additional work needs to be done beyond routine maintenance. It is frequently
the case that at some point in the life of a well additional work may be
appropriate in order to increase production, such as reworking, recompletion,
deepening or sidetracking of existing wells; or the installation of secondary
tertiary or other enhanced recovery methods. We reserve the right to engage in
production-enhancing operations of this type, even if it results in a temporary
reduction in cash flow.

Sale and Production

      We use different strategies for gas sales depending on the location of the
field and the local markets. In some locations, we use proprietary CO2 reduction
units to process its own gas and sell it to nearby local markets. In other
cases, we connect to nearby high pressure pipelines. We are not currently aware
of any problems with pipeline availability. However, because of the nature of
natural gas development, there may be periods of time when pipeline capacity is
inadequate to meet its transportation needs. It is often the case that as new
development comes on line, pipelines are close to or at capacity before new
pipelines are built.

      During periods when pipeline capacity is inadequate, if we are relying on
pipeline transportation, we may be forced to reduce production or incur
additional expense as existing production is compressed to fit into existing
pipelines. As production increases, more compression is generally required to
compress the production into the pipeline. As more compression is required,
production costs increase, primarily because more fuel is required in the
compression process. Furthermore, because compression is a mechanical process, a
breakdown may occur that will prevent the delivery of gas until repairs are
made.

      We rely heavily on the spot markets to sell our gas. As a result, there is
no assurance at what price we will be able to sell our gas. Only approximately
30% of the gas that is consumed in Michigan is produced in Michigan. As a
result, gas produced in Michigan typically receives a premium above the New York
Mercantile Exchange spot market price.

      We entered into a Base Contract for Short Term Sale and Purchase of
Natural Gas dated September 1, 2001 with CMS Marketing, Services and Trading
Company, now called CMS Energy Resource Management Company ("CMS"). Under this
agreement, in return for a fee of $0.25 per MCF, CMS agreed to act as our sales
agent for gas produced from the meter points at Ant. Paxton Quarry and W.
Sanborn 23A. These meter points service the Beyer, Black Bean #1, Paxton Quarry
and Treasure Island projects. This contract has since been assigned to Samson.
The first 500 MCF of gas sold under this CMS contract was sold to Michigan
Consolidated at a price of $4.0050 per MCF. This contract extends through
December 31, 2005. To date, this is our only long term gas sales contract. We
have ample production to meet our commitment to Michigan Consolidated under this
contract. The balance of the gas is nominated either weekly or monthly and sold
on a gas daily or monthly price, depending on the best interest of the project.

      Our Aurora division has entered into a second Base Contract for the Sale
and Purchase of Natural Gas with CMS, dated January 3, 2005. Under this
contract, in return for a fee of $0.25 per MCF, CMS has agreed to act as our
sales agent for gas produced from our various Michigan properties. Because we
are not currently selling gas from any of the properties we operate, this
contract is not being utilized though it remains in force. We anticipate that
this Base Contract will most likely be used in connection with the Black Bear,
1500 Antrim, and/or the Hudson projects, once we begin producing gas from these
properties.

      Prices for gas and oil fluctuate fairly widely based on supply and demand.
Supply and demand are influenced by weather, foreign policy and industry
practices. For example, demand for gas has increased in recent years due to a
trend in the power plant industry to move away from using oil and coal as a fuel
source, to using gas, because gas is a cleaner fuel. Nonetheless, in light of
historical fluctuations in prices, there can be no assurance at what price we
will be able to sell our gas and oil. It is possible that gas prices will be low
at the time periods in which the wells are most productive, thereby damaging
overall returns. It is possible that prices will drop so low that production
will become uneconomical. Ongoing production costs that will continue include
equipment maintenance, compression and pumping costs. If production becomes
uneconomical, we may discontinue production until prices improve.


                                       39


Unitization of Production

      The production of some or all of our wells may be unitized (connected by
agreement) with the production from wells it has already drilled or from wells
drilled by other owner/operators in the same fields. Any subsequent wells
drilled within the fields may also be unitized with existing wells, including
our wells. Typically, we only unitize a well that we have drilled or a well that
we have has purchased from other companies.

      If other companies are involved, the method used for the unitization will
be to add together all of the acquisition and development costs from each of the
participants within the field, and then calculate the working interest
percentage of each participant based on the percentage of total costs that were
contributed by that participant. Thus, working interest percentages will be
recalculated each time a well or a group of wells are put into production. All
costs are included in this calculation, including costs for infrastructure
development as well as drilling costs.

      The unitization of wells reduces the risk associated with any specific
well in which we own a working interest. In addition, the sharing of
infrastructure costs, such as the cost of the salt water disposal wells, should
result in a lower per-well operating expense for all of the wells in the field.
In fields with multiple owners where wells are being unitized, there may be
certain disadvantages to earlier investors when a field is unitized

Credit Facilities

TCW

      On August 12, 2004 our Aurora division closed on a line of credit facility
with TCW Energy, et al. ("TCW"). At closing, Aurora was given an initial credit
availability of $10,000,000. As the assets in Aurora become proved reserves the
credit availability was increased, up to a maximum of $30,000,000. On June 10,
2005 we drew an additional $10,000,000 in credit, and on September 30, 2005, we
drew the final $10,000,000 in credit. The current principal balance outstanding
is $30,000,000.

      The TCW credit facility bears interest at a fixed rate of 11.5% per annum
on the outstanding principal balance, calculated and payable in arrears.
Interest payments are due on the second to last business day of each March,
June, September and December (each a "Quarterly Payment Date"). The credit
facility matures on September 30, 2009, at which time any outstanding principal
is due and payable. Beginning on September 29, 2005, and on each Quarterly
Payment Date thereafter, AAN is required to make a principal payment equal to
75% of adjusted net cash flow from the assets serving as collateral for the
credit facility. In the event of default, this increases to 100%. So long as AAN
is not in default and is in compliance with the financial covenants, ANN is
allowed to distribute to us 25% of the adjusted net cash flow, plus $300,000
annually to fund general and administrative expenses.

      At the closing of the financing, Aurora conveyed to TCW a 4% overriding
royalty interest net to Aurora's interest, in all of Aurora's existing oil and
gas leases in the counties of Alcona, Alpena, Charlevoix, Cheboygan, Montmorency
and Otsego in the State of Michigan. Additionally, Aurora is required to convey
a 4% overriding royalty interest, net to its interest, in any new leases
acquired in these counties while the loan is outstanding. The overriding royalty
interest conveyed to TCW will not bear any operation, transportation, marketing,
compression or similar charges except for those expenses paid to parties not
affiliated with Aurora.

      The notes issued to TCW may be prepaid after August 15, 2006, but a
prepayment penalty will be imposed for prepayments made prior to August 15,
2008. TCW has been granted observer rights to the board of managers of Aurora.
Aurora is required to provide TCW with a semi-annual engineering report. Aurora
is required to pay an affiliate of TCW a 1.5% origination fee for each advance
taken. During the quarter ended June 30, 2005, we were in violation of a debt
coverage ratio under the TCW facility. The lender has granted us a waiver of
this violation. When we took the last draw on September 30, 2005, we were no
longer in violation of the debt coverage ratio.


                                       40


Northwestern Bank Line of Credit

      On October 12, 2005, our Aurora division entered into a $7,500,000 line of
credit promissory note with Northwestern Bank of Traverse City, Michigan
("Northwestern Bank"). To date, our Aurora division has made two draws on the
line of credit, one draw on October 21, 2005 in the amount of $1,000,000 and a
second draw on November 1, 2005 in the amount of $2,700,000.

      The Northwestern Bank line of credit matures on October 15, 2006. It
carries interest at Wall Street Prime, initially 6.75% per year. Interest is
payable monthly. Principal is payable at maturity, subject to the Northwestern
Bank's right to accelerate the due date in the event of default. The loan is
secured by the personal guaranties of William W. Deneau, Thomas W. Tucker and
John V. Miller, Jr. It is also secured by all of the personal property of JetX,
L.L.C., a company that is owned in equal shares by Messrs. Deneau, Tucker and
Miller. It is also secured by all of the personal property of Aurora. This may
include a junior lien on the reserves on which TCW holds a first priority lien.
We have agreed that the indebtedness to TCW will at no time exceed 55% of the
total modified NPV 10 reserves held as collateral by TCW. We are also required
to provide Northwestern Bank a revised independent reserve study every six
months during the time the loan is outstanding, with the next report due no
later than January 31, 2006. We are required to maintain a collateral coverage
ratio not to exceed 1.2, as calculated twice per year.

      This credit facility may violate covenants in the TCW credit facility by
granting to Northwestern Bank a second position on collateral held by TCW. The
terms of the Northwestern Bank financing are currently being renegotiated to
resolve this problem. We cannot be certain how this problem will be resolved or
if it will be resolved at all.

Mortgage Loan

      On September 19, 2005, our Aurora division obtained an office condominium
mortgage loan from Northwestern Bank in the amount of $2,950,000. The repayment
schedule is monthly interest only for three successive months starting on
November 1, 2005, and beginning on February 1, 2006, principal and interest in
32 monthly payments of $21,969. The loan bears interest at the rate of 6.5% per
year. The maturity date is October 1, 2008. The loan proceeds were used to
purchase the office condominium and to pay for interior improvements to the
premises. The mortgage loan is secured by the personal guaranties of William W.
Deneau, Thomas W. Tucker, and John V. Miller, Jr.

Insurance

      The oil and gas business involves operating hazards such as well blowouts,
craterings, explosions, uncontrollable flows of crude oil, natural gas or well
fluids, fires, formations with abnormal pressures, pipeline ruptures or spills,
pollution, releases of toxic gas and other environmental hazards and risks.
Personal injuries, damage to property and equipment, reservoir damage, or loss
of reserves may occur if such a catastrophe occurs, any one of which could cause
us to experience substantial losses. In addition, we may be liable for
environmental damage caused by previous owners of properties we purchase or
lease.


                                       41


      Our Aurora division maintains insurance for potential losses at the level
management deems reasonable. However, certain risks of loss are either
uninsurable or not economically insurable. An uninsured loss may hurt our
financial performance and condition. We currently have the following insurance
coverage which is effective until December 31, 2005:





                POLICY TYPE                                           LIMIT
- -------------------------------------------- -----------------------------------------------------
                                          
Worker's Compensation & Employment           Worker's Compensation; Statutory Employer's Liability
Liability                                    - $1,000,000
- -------------------------------------------- -----------------------------------------------------
General Liability                            Each occurrence - $1,000,000;
                                             Damages to Rented Premises - $100,000;
                                             Medical Exp - $10,000;
                                             Personal & Adv. Injury - $1,000,000;
                                             General Aggregate - $2,000,000;
                                             Products-Comp -$2,000,000
- -------------------------------------------- -----------------------------------------------------
Automobile                                   $1,000,000 per occurrence
- -------------------------------------------- -----------------------------------------------------
Excess/Umbrella Liability                    $5,000,000 per occurrence and aggregate
- -------------------------------------------- -----------------------------------------------------
Property/Pollution                           $1,059,600 (property coverage);
                                             $1,000,000 (pollution limit)
- -------------------------------------------- -----------------------------------------------------
Well Control                                 $2,000,000 limit
- -------------------------------------------- -----------------------------------------------------



Employees

      As of November 1, 2005, we have 31 full time employees and one part time
employee. We are not a party to any collective bargaining agreements.

Non Oil and Gas Properties

      In addition to the properties described above, our principal office is
located at 3760 North U.S. 31 South, Traverse City, Michigan, in a facility
leased from South 31, L.L.C. Our current lease is through March 31, 2007 and is
for approximately 5,000 square feet of office space. Rent is currently $8,700
per month, and includes all utilities, taxes, insurance and building
maintenance.

      On September 19, 2005, we purchased a commercial condominium unit in the
Copper Ridge Professional Center Five. This condominium project is located in
Traverse City, Michigan. Our space is approximately 14,645 square feet on the
second floor of the building, plus common areas and 15 covered parking spaces.
Interior improvements are still under way. We expect to move our offices into
this space by approximately the first week of December, 2005.

      With respect to the existing lease with South 31, L.L.C. that runs through
March 31, 2007, management expects that we will be released from that lease at
the time we are ready to move to our new offices. However, no formal release has
yet been executed.

      We also have non-oil and gas mineral rights in a number of properties,
although we do not presently consider them to be material to its business on a
going forward basis.

Service Mark

      We have been granted a service mark registration (Registration No.
2,214,144) from the United States Patent and Trademark Office for the Aurora
logo. The registration date is December 29, 1998, and the registration is valid
for 10 years. We do not own any other patents, trademarks, licenses, franchises
or concessions.


                                       42


Legal Proceedings

      There are no currently threatened or pending claims against us.


                                       43


                      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

      Cadence Resources Corporation is a Utah corporation incorporated on April
7, 1969 to explore and mine natural resources under the name Royal Resources,
Inc. In January 1983, we changed our name to Royal Minerals, Inc. In March 1994,
we changed our name to Consolidated Royal Mines, Inc. In September 1995, we
changed our name to Royal Silver Mines, Inc. On May 2, 2001 we changed our name
to Cadence Resources Corporation in connection with a corporate reorganization
to focus our operations on oil and gas exploration.

      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 our management 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
our management in non-arms' length transactions.

Recent Developments

      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 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.

      We acquired Aurora Energy, Ltd. ("Aurora") on October 31, 2005 through the
merger of our wholly-owned subsidiary with and into Aurora. As a result of that
merger, Aurora became our wholly-owned subsidiary. The acquisition of Aurora
will be accounted for as a reverse merger, with Aurora being the acquiring party
for accounting purposes. The acquisition of Aurora was pursuant to the Agreement
and Plan of Merger dated as of January 31, 2005 (the "Merger Agreement"). In
connection with the acquisition of Aurora, we issued an aggregate of 37,512,366
shares of our common stock to the former shareholders of Aurora, and have
reserved an additional 10,497,328 shares of our common stock for issuance upon
exercise of option or warrants that had been issued by Aurora prior to the
acquisition and that were previously exercisable for shares of the common stock
of Aurora. Pursuant to the terms of the Merger Agreement our board of directors
will be composed of seven individuals, three of whom were directors of Aurora
prior to the acquisition and two of whom were directors of Cadence prior to the
acquisition. As of November 10, 2005, our Board of Directors consisted of
William W. Deneau, the former Chairman and President of Aurora, Howard M. Crosby
and Kevin D. Stulp. Messrs. Crosby and Stulp were directors of the Company
immediately prior to the acquisition of Aurora. On November 10, 2005, we mailed
an information statement to our holders of record of our common stock, par value
$0.01 per share, at the close of business on October 28, 2005 pursuant to
Section 14(f) of the Securities Exchange Act of 1934 (the "Exchange Act") and
Rule 14f-1 promulgated thereunder, in connection with the change of control and
composition of our board of directors as contemplated by the Merger Agreement.
Eleven days after mailing the information statement on Form 14f-1 to our
shareholders, the following four additional directors designated by Aurora
management will become directors: Earl V. Young, Gary J. Myles, Richard Deneau
and Ronald E. Huff. See "Management."


                                       44


                                CADENCE DIVISION

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 and a company of which two 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. 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 ) 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 , $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 certain of our officers, directors, and other insiders
, 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.

      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. Historically, we have
obtained 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.


                                       45


      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 for our Cadence division 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 our Cadence division'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          21.01%     $  674,473          63.15%
- ------------------------------------------------------------------------------------------------------
Expenses from Oil and Gas Operations      $  975,186          78.99%     $  393,605          36.85%
- ------------------------------------------------------------------------------------------------------
Total Expenses                            $1,234,537          100.0%     $1,068,078          100.0%
                                          ==========          =====      ==========          =====
- ------------------------------------------------------------------------------------------------------



                                       46


      When comparing the same reporting periods on a year over year basis, our
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              1.34%          $  6,758         1.72%
- ------------------------------------------------------------------------------------------------------------------
       Depreciation, depletion and amortization     $693,152             71.08%          $189,133        48.05%
- ------------------------------------------------------------------------------------------------------------------
       Oil and gas lease expenses                   $151,811             15.57%          $103,010        26.17%
- ------------------------------------------------------------------------------------------------------------------
       Oil and gas lease operating expenses         $ 49,999              5.13%          $  4,090         1.04%
- ------------------------------------------------------------------------------------------------------------------
       Oil and gas consulting                       $ 65,000              6.66%          $ 25,500         6.48%
- ------------------------------------------------------------------------------------------------------------------
       Oil and gas production costs                 $  2,111              0.22%          $ 65,114        16.54%
- ------------------------------------------------------------------------------------------------------------------
Total Expenses from oil and gas operations          $975,186             100.0%          $393,605        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.

For the Years ended September 30, 2004 and 2003

Revenues

      During the year ended September 30, 2004, revenues from the sale of oil
and gas totaled approximately $2,541,447, primarily from production from our
Cadence division's wells in Texas, Louisiana and Michigan. This revenue came
from the sale of 25,887 net barrels of oil at an average price of $36.11 per
barrel from 's wells in Texas and 37,517 MCF of natural gas at an average price
of $5.83 per MCF from our wells in Louisiana and Michigan. Revenues from oil and
gas exploration of $337,355 were received in the comparable period of fiscal
2003. This revenue came from the sale of 11,447 net barrels of oil at an average
price of $29.47 per barrel. There was no production from our wells in Louisiana
or Michigan in fiscal 2003. We also realized a cash receipt of $50,000 in April
2003 from Bridas Energy upon transfer of drilling and production rights in our
leasehold acreage in DeSoto Parish, Louisiana that we are currently exploring
with them on a joint basis.

Expenses

      Our expenses during fiscal 2003 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.


                                       47


      The following table is a comparison of out two general categories of our
Cadence division's expenses for the years ended September 30 2004 and 2003, and
the percentages each of these categories comprise of total expenses:



                                                                    YEAR ENDED SEPTEMBER 30,
                                               -----------------------------------------------------------------
                                                           2004                                2003
                                               ---------------------------         -----------------------------
                                                                  % of 2004                           % of 2003
                                                                    Total                               Total
                                                 2004             Expenses           2003             Expenses
                                               ----------         --------         ----------         ----------
                                                                                              
Corporate and Administrative Overhead          $2,551,269             41.2%        $1,446,756             71.3%
Expenses from Oil and Gas Operations           $3,643,666             58.8%           583,393             28.7%
                                               ----------         --------         ----------         ----------
Total Expenses                                 $6,194,935            100%          $2,030,149            100.0%


      Our Cadence division's general and administrative expenses increased from
fiscal 2003 to fiscal 2004 by approximately $1,104,000, principally because of
increased legal costs paid to outside counsel in connection with the filing of
two separate SB-2 registration statements during the course of the fiscal year.
These registration statements also substantially increased the amounts paid to
outside accountants as well.

      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 2004 and 2003
These expenses increased over six-fold from the prior year, primarily as a
result of the decision to impair the carrying value of five wells drilled in
Desoto Parish during the fiscal year.



                                                                     YEAR ENDED SEPTEMBER 30,
                                               -----------------------------------------------------------------
                                                           2004                                2003
                                               ---------------------------         -----------------------------
                                                                  % of Total                          % of Total
                                                 2004             Expenses           2003             Expenses
                                               ----------         --------         ----------         ----------
                                                                                              
     Exploration and drilling                  $  134,452              3.7%        $  109,968             18.8%
     Depreciation, depletion and amortization   2,663,695             73.1%            57,310              9.8%
     Oil and gas lease expenses                   565,148             15.5%           302,204             51.8%
     Oil and gas production costs                 174,836              4.8%            34,577              6.0%
     Oil and gas lease operating expenses               0              0.0%            19,334              3.3%
     Oil and gas consulting                       105,535              2.9%            60,000             10.3%
                                               ----------         --------         ----------         ----------
Total Expenses from oil and gas operations     $3,643,666            100%          $  583,393            100.0%


      Although Cadence division's exploration and drilling expenses and oil and
gas lease expenses increased by some $24,000 from the 2003 fiscal year, by far
the largest increase in oil and gas related expenses came in the category of
depreciation, depletion and amortization, which increased by over $2,600,000
from the prior year, and as a percentage increased from 9.8% to 73.1% of the
total. This was due primarily to the decision by us to impair the carrying value
of two De Soto Parish gas wells at June 30th, and to impair the value of three
more De Soto Parish gas wells as of September 30, as well as a downward
adjustment in the total gas reserves as determined by Ralph E Davis and
Associates, the independent petroleum engineers.

                                       48


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.

                                 AURORA DIVISION

Overview

      As of June 30, 2005, most of our Aurora division's proved reserves were
natural gas produced from the Michigan Antrim Shale. Its Michigan activities
have allowed it to develop operational and technical experience in the drilling,
development and production of the Michigan Antrim Shale. In addition to the
Michigan properties, our Aurora division has an extensive leasehold position in
several New Albany Shale projects in Indiana.

      For 2005, our Aurora division's plan is to continue to focus on the
development of its existing Michigan properties by participating in the drilling
of an additional 100 new wells. In the first half of 2005, our Aurora division
participated in the drilling of 50 new wells in Michigan. The goal is to drill
150 new wells during 2005. Because of the frost laws in Michigan, drilling in
the spring is restricted. In 2005, the frost laws were lifted on April 21. Since
that date, the pace of drilling has increased, and management believes that the
150 well goal for the year 2005 continues to be achievable. Our Aurora division
also plans to participate in drilling at least three horizontal wells in the
Indiana New Albany Shale. With the infusion of additional equity received in the
first quarter of 2005, management expects that our Aurora division will be able
to implement its development plan to begin realizing production by developing
its current extensive leasehold position.

RECENT DEVELOPMENTS

      On January 31, 2005, Aurora entered into a Securities Purchase Agreement
(the "Purchase Agreement") with six accredited investors pursuant to which the
investors purchased 5,020,000 shares of common stock and warrants to purchase
1,900,000 shares of common stock at an exercise price of $2.50 per share for
$12,550,000. Of this amount, 600,000 shares and $1,500,000 had been issued in
December 2004, and were rolled into this financing under the Purchase Agreement.
The issuance of these 600,000 shares was reflected in the December 31, 2004
financial statements. In connection with this financing, for services rendered
as the placement agent, Sunrise Securities Corporation received a commission in
the form of 552,200 shares of Aurora common stock, plus warrants to purchase
502,000 shares of Aurora common stock at an exercise price of $2.50 per share.
The par value of $552 assigned to this transaction was netted against additional
paid in capital.

      On January 3, 2005 El Paso Corporation exercised an option to purchase 95%
of the working interest in certain New Albany Shale acreage in Indiana. As a
result of this transaction Aurora received gross proceeds in the amount of
$7,373,737. After deducting a distribution to subsidiary members of $805,000 and
an additional $1,000,000 set aside for the subsidiary's share of anticipated
future drilling expense, approximately $5,500,000 of net proceeds was retained
by Aurora.

      Aurora was acquired by Cadence on October 31, 2005 through the merger of
our wholly-owned subsidiary with and into Aurora. As a result of that merger,
Aurora became our wholly-owned subsidiary. The acquisition of Aurora will be
accounted for as a reverse merger, with Aurora being the acquiring party for
accounting purposes. The acquisition of Aurora was pursuant to the Agreement and
Plan of Merger dated as of January 31, 2005 (the "Merger Agreement"). In
connection with the acquisition of Aurora, Cadence issued an aggregate of
37,512,366 shares of its common stock to the former shareholders of Aurora, and
has reserved an additional 10,497,328 shares of our common stock for issuance
upon exercise of options or warrants that had been issued by Aurora prior to the
acquisition and that were previously exercisable for shares of the common stock
of Aurora.

      As of June 30, 2005, our Aurora division had paid off several of the
liabilities reflected on the December 31, 2004 balance sheet, including the
$350,000 short term bank borrowing and all but one of the related party notes
payable. Additionally, as of June 30, 2005, all remaining outstanding shares of
Aurora preferred stock were converted to Aurora common stock.


                                       49


Capital Resources and Liquidity

      To date, our Aurora division has funded its operations principally through
the private sale of equity securities, borrowings from officers, directors and
shareholders, and borrowings from third parties.

      From its inception through June 30, 2005, our Aurora division has
generated revenue from three primary sources: (1) Proceeds from the sale to
third parties of leasehold and/or working interests in various oil and gas
projects; (2) Producing natural gas and oil from the economic interests owned by
our Aurora division; and (3) management fees paid by certain joint ventures
partners to our Aurora division for lease management services provided within
certain project areas. To date, the allocation between these three categories
has been evenly distributed as our Aurora division worked to secure its acreage
position for drilling and development. Our Aurora division is now positioned to
focus its efforts on drilling and development of existing leasehold to
significantly increase its income from producing natural gas.

Cash Flow - Years Ended December 31, 2004 and 2003

      Cash flow from operations for 2004 and 2003 include net operating income
from the production and sale of oil and natural gas (production revenue less
production expense) of $345,673 and $174,173 respectively. Additional sources of
income from operations in 2004 and 2003 are summarized as follows;

Other Income Summary             2004                2003
                              ----------          ----------
Management Fees               $  883,687          $1,521,676
Operator Revenue                 309,148             311,054
Miscellaneous Income                                  88,555
                              ----------          ----------
                              $1,192,835          $1,921,285

      These sources of income were used to cover our Aurora division's 2004 and
2003 general and administrative expenses of $2,057,333 and $1,464,736; interest
expense of $392,402 and $416,690 respectively and taxes in 2004 of $75,000.

      Cash flows from investing activities for 2004 and 2003 include $1,902,537
and $8,475,080 respectively of proceeds received from various sales of working
interest and project interests.

      Cash used in investing activities for 2004 and 2003 primarily included the
purchase of leasehold and working interests, drilling and development costs,
lease fund investor payments, and purchase of office computers and other
equipment. A summary of these expenditures by category by year is as follows:



                                                             2004                 2003
                                                         -----------          -----------
                                                                        
Purchase of leasehold and working interests              $ 3,433,794          $ 1,590,025
Drilling and development costs ($3,720,227 not
    amortizable as of 12/31/04 waiting fracture
    treatments and hookup)                                 6,725,869            6,395,001

Investment in Subsidiary                                     230,396                   --
Advances on Notes Receivable                                 155,096                   --
Other property and equipment                                  74,166               20,317
                                                         -----------          -----------

                                                         $10,619,321          $ 8,005,343



                                       50


      The leasehold and working interest purchases reflect our Aurora division
investment in acreage over the last two years to execute its drilling and
development plan. The drilling and development costs in 2004 represent
expenditures for Aurora's 20% share of the drilling of approximately 50+ Antrim
wells in its joint venture project with Samson and its approximate 50% of 30+
Antrim wells in the Hudson project. The drilling and development costs in 2003
represent expenditures for the Treasure Island, Black Bean and Pike projects as
well as certain pipeline construction expenditures.

      As of December 31, 2004 and 2003, our Aurora division's total
capitalization was as follows:

                                                    2004             2003
                                                 -----------      -----------
       Short term bank borrowings                $   350,000      $        --
       Reserve base lending                                0          498,675
       Obligations under capital lease                21,486          996,789
       Related party notes payable                 3,018,531        3,241,847
       Other notes payable                                 0          307,935
       Mezzanine financing                        10,000,000        4,200,400
                                                 -----------      -----------
       Total Debt                                $13,390,017      $ 9,245,646
       Stockholders' equity                        6,246,304        4,503,648
                                                 -----------      -----------
       Total Capitalization                      $19,636,321      $13,749,294

      Cash flows provided by financing activities for 2004 primarily include the
advance of $10,000,000 from mezzanine financing, cash received in exchange for
common stock issuance of $2,920,000, short term bank borrowings of $350,000, a
$10,466 distribution from a subsidiary disposition, and advances from related
parties of $154,118.

      Cash flows provided by financing activities for 2003 primarily include the
advance of $4,200,400 from mezzanine financing sources, the advance of $498,676
from reserve base financing, $880,000 in proceeds from capital lease
obligations, $114,844 third party investor capital contribution and $307,935 in
net proceeds from other notes payable.

      Cash flows used for financing activities for 2004 and 2003 include the
following payments:

                                              2004                2003
                                           ----------          ----------

    Repayment of obligations under
        capital lease                         128,278             338,938
    Financing loan origination fee            294,544                  --
    Lease fund investor payments                   --           2,007,965
    Distributions to minority members          41,347           1,274,793
    Repayment of advances from
         related parties                      504,546                  --
    Other notes payable                       307,935           248,098
    Repayment of short term bank borrowing        --           1,250,000
                                           ----------          ----------
    Total Cash used for financing
                                           $1,276,650          $5,119,785
                                           ----------          ----------


                                       51


      Both the Wells Fargo mezzanine facility in the amount of $4,200,400 and
the reserve bank borrowings of $498,676 were paid off with the sales proceeds
received as part of the May 2004 sales transaction to a joint venture partner
for an 80% interest in certain Antrim projects.

Cash Flow - Six Months Ended June 30, 2005 and 2004

      Cash flow from operations for the six months ended June 30, 2005 and June
30, 2004, includes net operating income from the production and sale of oil and
natural gas (production revenue less production expense) of $444,949 and
$293,220, respectively. Our Aurora division also reported net revenues of
$12,397 for the period ended June 30, 2005 from a pipeline subsidiary.
Additional sources of income from operations for these periods are summarized as
follows:

       Other Income Summary                           6/30/05           6/30/04
                                                 -------------    --------------
       Management fees                               $345,252          $894,454
       Operator revenue                                 4,359            51,210
       Miscellaneous income                                              68,104
                                                 -------------    --------------

                                                     $349,611        $1,013,768
                                                 -------------    --------------

      These sources of income were used to cover our Aurora division general and
administrative expenses for those periods of $1,126,397 and $1,025,712
respectively; and interest expenses of $222,077 and $273,303 respectively.

      Cash flows from investing activities for the six months ended June 30,
2005 and June 30, 2004 include $7,373,737 and $1,551,591 respectively, of cash
proceeds received from various sales of working interest and project interests.
Additionally, in 2005 our Aurora division received $85,000 in cash in full
payment of a loan the Company had made to a shareholder.

      Cash used in investing activities for the six months ended June 30, 2005
and June 30, 2004 were $15,404,953 and $2,127,086 respectively. This investing
activity included the purchase of leasehold and working interests, drilling and
development costs, purchase of office computers and other equipment, payments
for merger costs, advances on notes receivable, and investments in two
subsidiaries, the Hudson Pipeline and Processing Company, LLC ("HPPC") and
GeoPetra Partners, LLC. A summary of these expenditures by category by period is
as follows:

                                                  June 30, 2005    June 30, 2004
                                                  -------------    -------------
Purchase of leasehold and working interests          $3,489,182       $2,062,565
Drilling and development costs                        4,267,495               --
Drilling and development costs - producing wells     $6,691,175               --
Other property and equipment                             73,958           44,521
Capital expenditures - building                          31,716               --
Payments for capitalized merger costs                   263,092               --
Advances on notes receivable                             72,379           20,000
Investments in GeoPetra Partners                         14,000               --
Investment in Hudson Pipeline                           501,956               --
                                                 --------------   --------------
Total cash used for investing                       $15,404,953       $2,127,086
                                                 --------------   --------------


                                       52


      The leasehold and working interest purchases reflect our Aurora division's
investment in acreage during the first six months of 2005 and 2004 to execute
its drilling and development plan. The drilling and development costs in the six
months ended June 30, 2005 represent expenditures primarily for our Aurora
division's share of the drilling three units in the Hudson project area. The
costs incurred in the six months ending June 30, 2004 represent expenditures for
lease acquisitions so that our Aurora division could begin its 2004 drilling
program in the last quarter of 2004.

      As of June 30, 2005, our Aurora division's total capitalization was as
follows:

                                               June 30, 2005
                                           ------------------
Short term bank borrowings                       $        --
Obligations under capital lease                       17,418
Related party notes payable                           69,833
Mezzanine financing                               20,000,000
                                           ------------------

Total Debt                                       $20,087,251
Stockholders' equity                              16,489,967
                                           ------------------
Total Capitalization                             $36,577,218

      Cash flows provided by financing activities during the six months ended
June 30, 2005 included cash received in the amount of $11,025,000 in exchange
for common stock issuance, net advances from the Mezzanine credit facility of
$9,850,000, and miscellaneous refunds from lease investors in the amount of
$20,177. Cash flows provided by financing activities during the six months ended
June 30, 2004 include the advance of $241,000 from Mezzanine financing, $22,500
in cash received in exchange for common stock issuance, $86,650 net proceeds
received from a related party note, and $10,783 cash proceeds received from
disposition of a subsidiary.

      Cash flows used for financing activities for the six months ended June 30,
2005 and June 30, 2004 include the following payments.

                                           6/30/05               6/30/04
                                        ---------------      --------------
Payments on short-term bank borrowings      $  350,000            $     --
Obligations under capital lease                  4,068              80,498
Related party notes payable (net)            2,948,698              11,333
Payments to lease fund owners                       --             132,950
Other notes payable                                 --             307,935
Dividends paid on Preferred Stock               44,340                  --
Distributions to minority members              805,000              65,080
                                        ---------------      --------------
                                            $4,152,106            $597,796
                                        ---------------      -------------

Capital Resources

      Our Aurora division's credit facility with the Trust Company of the West
("TCW") is described above. It is subject to semi-annual re-determination and
certain other re-determinations based upon several factors. The borrowing base
is impacted by, among other factors, the fair value of our Aurora division's oil
and gas reserves that are pledged to TCW. Changes in the fair value of our
Aurora division's oil and gas reserves are caused by changes in prices for
natural gas and crude oil, operating expenses and the results of drilling
activity. A significant decline in the fair value of these reserves could reduce
its borrowing base. A borrowing base reduction could limit our Aurora division's
ability to carry out its capital expenditure programs and possibly require the
repayment of a portion of its current credit facility. During the quarter ended
June 30, 2005, our Aurora division was in violation of a debt coverage ratio
under the TCW facility. The lender has granted our Aurora division a waiver of
this violation.


                                       53


      Our Aurora division's management believes that its capital resources are
adequate to meet the requirements of our Aurora division's business. Our Aurora
division management that our Aurora division's 2005 capital expenditure budget
of approximately $55,000,000 will be funded by cash flow from operations, credit
facility utilization and the issuance of common stock. In January 2005, our
Aurora division received two significant cash infusions, which will be available
for current year budgeted expenditures, including an infusion of over $5,500,000
from the net proceeds received from El Paso upon the exercise of its option for
certain New Albany Shale properties and $11,050,000 from the issuance of common
stock to private investors. In June 2005, our Aurora division received a net
advance on its Mezzanine credit facility of $9,850,000. As new business
opportunities arise, management may decide to seek additional equity investment
or debt financing.

      There is no assurance that any desired increase in available credit will
be realized. If capital resources are inadequate or unavailable, our Aurora
division may curtail its acquisition, development and other activities or in
severe cases, be forced to sell some of its assets on an untimely or unfavorable
basis.

Results of Operation

Revenues

      Our Aurora division generates revenue primarily from the following
sources: sale of oil and gas; providing lease project management services;
providing administrative overhead services for certain producing properties; and
the sale of certain leasehold projects.

Revenues - Years Ended December 31, 2004 and 2003

      A comparative summary of the composition of our Aurora divisions revenue
by source for the years ended December 2004, and 2003 is as follows:



                                                            2004                               2003
                                                 ---------------------------       -----------------------
                                                                     % of                            % of
                                                   Amount            Total          Amount           Total
                                                 ----------       ----------       ----------     --------
                                                                                          
Oil and gas sales                                $  960,011               44%      $1,094,612         19%
Lease management fee                                883,687               40%       1,521,676         26%
Administrative fee for producing properties         309,148               14%         311,054          5%
Gain on sale of properties                               --               --        2,814,222         48%
Interest income                                      47,678                2%           8,478          --
Miscellaneous income                                     --               --           88,555          2%
                                                 ----------       ----------       ----------      -------
                                                 $2,200,524              100%      $5,838,597         100%
                                                 ==========       ==========       ==========      =======


      Total revenues in 2004 were $2,200,524 a decrease of $3,638,073 due
primarily to the following: A one time sale and disposition of a subsidiary's
assets in 2003 which resulted in a gain of $2,814,222, a decrease in management
fees of $637,989 and a one time miscellaneous income of $88,555. The decrease in
management fees is due to our Aurora division 's shift from leasehold
acquisitions through various joint ventures to the development of these leased
properties to produce natural gas.

Gas, Oil and Related Product Sales

      During the year ended December 31, 2004, revenues from the sale of oil and
gas totaled approximately $960,000 primarily from the production from Michigan
oil and gas properties. This revenue was generated from the sale of 149,502 net
MCF of natural gas at an average price of $4.91 per MCF from wells in the
Michigan Antrim and 4,798 net barrels of oil at an average price of $47.22 per
barrel from wells also located in Michigan.


                                       54


      The total revenues in 2004 from gas, oil and related product sales
decreased about 12%. This net decrease is the result of the sale of certain
Indiana projects in 2003 which decreased 2004 production revenues. Additionally
the sale of 80% of our Aurora division 's reserves in certain Michigan Antrim
Properties as of March 1, 2004 further reduced production revenues. The
properties sold included leases in the Beyer, Paxton Quarry, Black Bean and
Treasure Island projects. This resulted in a decrease of 80% of production
revenues from these projects from March 2004 to December 2004. However this
decrease was offset by higher prices in 2004, and approximately $300,000 of
additional production revenues from the Treasure Island project which included
an entire 12 months of revenues and $63,000 production revenue from the Hudson
project drilled in 2004. A summary of oil and gas revenue sources by project
area in 2004 and 2003 is as follows:

                              2004            2003
                          ----------      ----------
Michigan Antrim           $  960,011      $1,007,081
New Albany Shale                  --          87,530
Ohio Trenton Project              --              --
                          ----------      ----------
                          $  960,011      $1,094,611

      In 2004 most of the revenue generated from gas and oil sales came from our
Aurora division 's interest in the Beyer, Black Bean, Paxton Quarry, Treasure
Island, Hudson, Eastern Group, and Church Lake Field projects. There were also
minor overriding royalties received from certain New Albany Shale projects.

Other Revenues

      In addition to the oil and gas production revenue, in prior years our
Aurora division has received revenue and cash flow from three other sources:

      management fees from the administration of certain lease projects;
overhead fees charged for the administration of certain producing properties;
and the sale of interests in certain oil and gas projects.

      A summary of these other sources of revenue for 2004 and 2003 is as
follows:


                                                         2004          2003
                                                     ----------    ----------
      Lease Management fee                           $  883,687    $1,521,676
      Administrative fee for producing properties       309,148       311,054
      Gain on sale of properties                             --     2,814,222
                                                     ----------    ----------
                                                     $1,192,835    $4,646,952

      As noted above, a significant decrease in management fees occurred from
2003 to 2004 resulting in a net reduction totaling $637,989. This trend is
expected to continue as our Aurora division shifts from the management of
leasehold acquisition projects through various joint ventures to the development
of these leased properties to produce natural gas.

      Revenues from the administration of producing properties remained steady
from 2003 to 2004. This revenue source is expected to increase steadily as our
Aurora division begins to operate the new wells it will drill. Of the 150+ wells
currently slated for drilling in 2005, our Aurora division expects to provide
the operations for at least 50%.


                                       55


      Generally, the proceeds from the sale of oil and gas properties results in
additional cash flow to our Aurora division. It does not, however, necessarily
increase our Aurora division 's revenue. This is because our Aurora division
employs the full cost method of accounting for its oil and gas properties. The
proceeds received from the sale of certain properties in 2003 resulted in the
one time recording of net income because it was the result of a complete
disposition of all the assets of one of our Aurora division's subsidiaries. In
2004 our Aurora division received in excess of $7,000,000 from three separate
sales of interest in oil and gas properties to third parties that were credited
to the cost pool and not reflected in our Aurora division's revenues.

Revenues - Three Months Ended June 30, 2005 and 2004.

      A comparative summary of the composition of our Aurora division's revenue
by source for the three months ended June 30, 2005 and 2004 is as follows:



                                             June 30, 2005                  June 30, 2004
                                       ---------------------------    ---------------------------
                                                         % of                            % of
                                          Amount          Total          Amount          Total
                                       -------------     --------     --------------    ---------
                                                                                 
Oil and gas sales                          $719,285           77%          $247,675          31%
Other income                                118,285           13%           550,326          69%
Equity income of non-consolidated
    investee                                 26,806            3%                --           --
Interest income                              71,245            7%             1,345           --
                                       -------------    ----------    --------------    ---------
                                           $935,621          100%          $799,346         100%


      Total revenues for the second quarters of 2005 were $935,621, an increase
of $136,275 or a 17% net increase from the prior year second quarters due to the
following. Production revenues increased by approximately $470,000 or 190%. This
was due to increased drilling activity in early 2005, which resulted in an
increased number of wells that were generating additional production revenue. A
decrease in other income between the two periods was due largely to the
reduction in management fees received by our Aurora division. The decrease in
management fees is due to our Aurora division's shift from leasehold
acquisitions through various joint ventures to the development of these leased
properties to produce natural gas. This decrease was offset in part by an
increase in interest income of $69,900 generated on the funds raised in the
private equity transaction described above, and by revenues generated from the
HPPC subsidiary.

Gas, Oil and Related Product Sales

      During the three months ended June 30, 2005, revenues from the sale of oil
and gas totaled approximately $719,285 primarily from production from Michigan
oil and gas properties. This revenue was generated from the sale of 94,531.33
net MCF of natural gas at an average price of $6.96 per MCF from wells in the
Michigan Antrim and 1,312.00 net barrels of oil at an average price of $16.80
per barrel from wells also located primarily in Michigan.

      A summary of oil and gas revenue sources by project area for the three
months ended June 30, 2005 and 2004 is as follows:

                           6/30/05            6/30/04
                      ---------------    ---------------
Michigan Antrim             $696,750           $247,675
New Albany Shale              22,535                 --
                      ---------------    ---------------
                            $719,285           $247,675
                      ---------------    ---------------

                                       56


      For the quarter ended June 30, 2005, nearly 75% of our Aurora division's
revenues were generated from the Hudson 34, Hudson SW and Hudson NE units of the
Hudson project, which went on line in December 2004, February 2005 and late
April 2005, respectively. The remaining production revenue generated from gas
sales came from our Aurora division 's interest in the Beyer, Black Bean, Paxton
Quarry, Treasure Island, Eastern Group, and Church Lake Field projects. There
were also minor overriding royalties received from certain New Albany Shale
projects.

      For the quarter ended June 30, 2004, production revenue generated from gas
sales came from our Aurora division's interest in the Beyer, Black Bean, Paxton
Quarry, Treasure Island, Eastern Group, and Church Lake Field projects.

Other Revenues

      In addition to oil and gas production revenue, our Aurora division also
generates revenue primarily from three other sources: management fees from the
administration of certain lease projects; overhead fees charged for the
administration of certain producing properties; and the sale of interests in
certain oil and gas projects.

      A summary of these other sources of revenue for the three months ended
June 30, 2005 and June 30, 2004 are as follows:

Other Income Summary                           6/30/05           6/30/04
                                            --------------    --------------
Lease Management fees                            $117,926          $489,611
Administrative fee for producing properties           359            21,126
Miscellaneous income                                   --            39,589
                                            --------------    --------------
                                                 $118,285          $550,326
                                            --------------    --------------

      The decrease in lease management fees is the result of our Aurora division
shifting its efforts from joint venture leasing activity, which generated these
fees, to development of its leasehold interests for its own account. This trend
is expected to continue with our Aurora division replacing these lease
management fee revenues with gas production revenue as the drilling projects are
completed. The decrease in well administration overhead from last year's second
quarter is due to the 2004 sale to Samson which resulted in Samson taking over
operations of certain producing wells. Some of this administrative revenue will
be replaced in late 2005 from new wells our Aurora division will operate in
2005. The miscellaneous income has not been significant.

      In the first quarter of 2005, our Aurora division also received
approximately $5,500,000 in net proceeds from the sale of certain New Albany
Shale acreage in Indiana to El Paso Corporation. These proceeds were credited to
the cost pool, and are not reflected in our Aurora division 's revenues.

Revenues - Six Months Ended June 30, 2005 and 2004.

      A comparative summary of the composition of our Aurora division's revenue
by source for the six months ended June 30, 2005 and 2004 is as follows:



                                             June 30, 2005                   June 30, 2004
                                       --------------------------     ---------------------------
                                                        % of                            % of
                                          Amount          Total          Amount           Total
                                       -------------    ----------    -------------     ----------
                                                                                  
Oil and gas sales                        $1,097,906           68%          $676,798           40%
Other income                                349,611           22%         1,013,768           60%
Equity income of subsidiary                  12,397            --                --            --
Interest income                             165,910           10%             2,649            --
                                       -------------    ----------    --------------    ----------
                                         $1,625,824          100%        $1,693,215          100%



                                       57


      Total revenues for the six months ended June 30, 2005 were $1,625,824, a
decrease of approximately $67,000 or a 4% net reduction from the prior year six
months ended June 30, 2004 due to the following. Production revenues increased
by approximately $420,000, representing a 62% increase from the prior year. This
was due to increased drilling activity in early 2005, which resulted in an
increased number of wells generating natural gas production revenue. A decrease
in other income between the two periods was due largely to the reduction in
management fees received by our Aurora division. The decrease in management fees
is due to our Aurora division's shift from leasehold acquisitions through
various joint ventures to the development of these leased properties to produce
natural gas. This decrease was offset in part by the increase in interest income
of $163,261 generated on the funds raised in the private equity transaction
described above, and by $12,397 in revenues generated from the HPPC subsidiary.

Gas Oil and Related Product Sales

      During the six months ended June 30, 2005, revenues from the sale of oil
and gas totaled approximately $1,097,906 primarily from production from Michigan
oil and gas properties. This revenue was generated from the sale of 147,899.06
net MCF of natural gas at an average price of $6.55 per MCF from wells in the
Michigan Antrim and 2,763.95 net barrels of oil at an average price of $46.60
per barrel from wells also located primarily in Michigan.

      A summary of oil and gas revenue sources by project area for the six
months ended June 30, 2005 and 2004 is as follows:

                        6/30/05            6/30/04
                     ---------------    ---------------
Michigan Antrim          $1,075,371           $675,697
New Albany Shale             22,535              1,101
                     ---------------    ---------------
                         $1,097,906           $676,798
                     ---------------    ---------------

      For the six months ended June 30, 2005, nearly 69% of our Aurora
division's revenues were generated from the Hudson 34, Hudson SW and Hudson NE
units of the Hudson project, which went on line in December 2004, February 2005
and late April 2005, respectively. The remaining production revenue generated
from gas sales came from our Aurora division 's interest in the Beyer, Black
Bean, Paxton Quarry, Treasure Island, Eastern Group, and Church Lake Field
projects. There were also minor overriding royalties and working interest
revenues received from certain New Albany Shale projects.

      For the six months ended June 30, 2004, production revenue generated from
gas sales came from our Aurora division's interest in the Beyer, Black Bean,
Paxton Quarry, Treasure Island, Eastern Group, and Church Lake Field projects.

Other Revenues

      In addition to oil and gas production revenue, our Aurora division also
generates revenue primarily from three other sources: management fees from the
administration of certain lease projects; overhead fees charged for the
administration of certain producing properties; and the sale of interests in
certain oil and gas projects.


                                       58


      A summary of these other sources of revenue for the six months ended June
30, 2005 and June 30, 2004 is as follows:

Other Income Summary                              6/30/05        6/30/04
                                               --------------  -------------
Lease Management fees                               $345,252       $894,454
Administrative fee for producing properties            4,359         51,210
Miscellaneous income                                      --         68,104
                                               --------------  -------------
                                                    $349,611     $1,013,768
                                               --------------  -------------

      The decrease in lease management fees is the result of our Aurora division
shifting its efforts from joint venture leasing activity, which generated these
fees, to development of its leasehold interests for its own account. This trend
is expected to continue with our Aurora division replacing these lease
management fee revenues with gas production revenue as the drilling projects are
completed. The decrease in well administration overhead from last year's first
six months is due to the 2004 sale to Samson which resulted in Samson taking
over operations of certain producing wells. Some of the administrative revenue
will be replaced in late 2005 from new wells our Aurora division will operate in
2005. The miscellaneous income has not been significant.

      In the first six months of 2005, our Aurora division also received
approximately $5,500,000 in net proceeds from the sale of certain New Albany
Shale acreage in Indiana to El Paso Corporation. These proceeds were credited to
the cost pool, and are not reflected in our Aurora division's revenues.

Expenses

      Our Aurora division's expenses break into five general categories:

      General and Administrative; Production and Lease Operating; Depreciation
and Amortization; Interest; and Taxes.

      Our Aurora division's general and administrative expenses include officer
and employee compensation, rent, travel, audit, tax and legal fees, office
supplies, utilities, insurance, other consulting fees and office related
expense. Expenses from oil and gas operations include services related to
producing oil and gas, such as severance taxes, post production costs (including
transportation), and lease operating expenses.

Expenses - Years Ended December 31, 2004 and 2003

      The following table is a comparison of our Aurora division 's general
categories of expenses for the years ended December 31, 2004 and 2003, and the
percentages each of these categories comprise of the total expenses:



                                                       Years Ended December 31,
                                    ----------------------------------------------------------
                                                   % of 2004                        % of 2003
                                                     Total                            Total
                                       2004         Expenses           2003          Expenses
                                    ----------      ----------       ----------      ----------
                                                                               
General and Administrative          $2,057,333              62%      $1,464,736            49%
Production and lease operating         614,338              18%         920,439            31%
Depreciation and amortization          203,249               6%         188,623             6%
Interest                               392,402              12%         416,690            14%
Taxes                                   75,000               2%             --            --
                                    ----------      ----------       ----------      ----------
Total Expenses                      $3,342,322             100%      $2,990,488           100%



                                       59


      Our Aurora division's general and administrative expenses increased from
2003 to 2004 by approximately $592,000. This was due to increased compensation
expense with the addition of new staff, commissions paid for the sale of common
stock, and legal costs paid to outside counsel in connection with the Private
Placement Memorandum dated May 2004, the sale of properties to Samson and
certain land related issues that arose in obtaining the TCW mezzanine financing.

      Production and lease operating expenses were $614,338 in 2004 compared to
$920,439 in 2003. The decrease was the result of a reduction in monitoring and
operating costs in the Crossroads Project of $150,000. Additionally the sale of
80% of certain proved reserves to Samson effective March 1, 2004 reduced the
operating expenses proportionately for the year.

      Interest expense from 2004 to 2003 remained steady despite the increase in
the year end outstanding mezzanine financing ($10,000,000 versus $4,200,400). In
2004 the $4,000,000 balance from the prior year end was paid off in May 2004 and
additional funds from the new mezzanine facility were not used until late
September 2004. As a result, our Aurora division went over 4 months in 2004
without paying any interest. Our Aurora division Management does not expect such
a hiatus in interest expense in 2005.

      Depreciation and amortization expense remained steady from 2003 to 2004 as
the long term nature of the Antrim shale reserves generates a steady decline
over the life of the well (38+ years). Additionally, much of the development
costs in 2004 were not yet amortizable due to the fact that over 70 wells that
were drilled in 2004 await infrastructure and will not produce gas until 2005.

Expenses - Three months ended June 30, 2005 and 2004

      The following table is a comparison of our Aurora division's general
categories of expenses for the three-month periods ended June 30, 2005 and 2004,
and the percentages each of these categories comprise of the total expenses:



                                                                Quarters Ended June
                                       --------------------------------------------------------------
                                                        % of Total                       % of Total
                                          6/30/05         Expenses         6/30/04        Expenses
                                       -------------    ------------    -------------    ------------
                                                                                     
General and Administrative                 $627,348             50%         $585,108             71%
Production and lease operating              378,200             30%          131,069             16%
Depreciation and amortization                59,027              5%            9,431              1%
Interest                                    189,067             15%          100,262             12%
                                       -------------    ------------    -------------    ------------
Total Expenses                           $1,253,642            100%         $875,870           $100%


      Our Aurora division's general and administrative expenses increased from
the three months ended June 30, 2004 to the three months ended June 30, 2005 by
approximately $42,000. The increase in general and administrative expenses is
due to the increase in personnel added to accommodate Aurora's continued growth
as it hires additional personnel to oversee the drilling program and additional
accounting staff to meet SEC filing requirements.

      Production and lease operating expenses were $378,200 for the three months
ended June 30, 2005 compared to $131,069 for the three months ended June 30,
2004. This increase was due to additional producing wells on line at the end of
the quarter ended June 30, 2005. The increase of approximately 189% in
production costs is closely approximate to the 190% increase in related
revenues.

      Depreciation and amortization expenses were higher for the three months
ended June 30, 2005 compared to the three months ended June 30, 2004, due to the
increased capitalized costs subject to depletion. Additionally, there were no
drilling or completion related costs in the first six months of 2004 subject to
amortization.

      The increase in interest expense in the second quarter of 2005 compared to
the second quarter of 2004, is due to increased drilling activity in 2005, which
resulted in an increased amount of outstanding Mezzanine debt from approximately
$4,200,000 outstanding until May 2004, to $20,000 at June 30, 2005. Interest in
the first quarter of 2005 was capitalized. As wells were put into production
during the second quarter of 2005, this interest was expensed. Limited drilling
activity in the first quarter of 2004 resulted in all interest being recorded as
an expense.


                                       60


      Expenses - Six months ended June 30, 2005 and 2004

      The following table is a comparison of our Aurora division's general
categories of expenses for the six-month periods ended June 30, 2005 and 2004,
and the percentages each of these categories comprise of the total expenses:



                                                               Six Months Ended June
                                       --------------------------------------------------------------
                                                        % of Total                        % of Total
                                         6/30/05         Expenses         6/30/04          Expenses
                                       -------------   ------------     --------------   ------------
                                                                                     
General and Administrative               $1,126,396             48%        $1,025,712            60%
Production and lease operating              652,957             28%           383,578            23%
Depreciation and amortization               117,504              5%            18,862             1%
Interest                                    222,077              9%           273,303            16%
Taxes                                       237,697             10%                --             --
                                       -------------    ------------    --------------   ------------
Total Expenses                           $2,356,631            100%        $1,701,455           100%


      Our Aurora division's general and administrative expenses increased from
the six months ended June 30, 2004 to the six months ended June 30, 2005 by
approximately $100,000. The increase in general and administrative expenses is
due to the increase in personnel added to accommodate our Aurora division 's
continued growth as it hires additional personnel to oversee the drilling
program and additional accounting staff as it prepares to meet SEC filing
requirements.

      Production and lease operating expenses were $652,957 for the six months
ended June 30, 2005 compared to $383,578 for the six months ended June 30, 2004,
resulting in an increase of 70%. This increase was due to additional producing
wells in 2005, and is not proportionate to the increase in revenue (62%) due to
additional costs incurred in the first six months of 2005 on a non-operated well
for site cleanup which added approximately $30,000 to the total lease operating
costs. Tubing repairs of approximately $9,000 were also incurred on a separate
non-operated well.

      Depreciation and amortization expense increased from the six months ended
June 30, 2004 to the six months ended June 30, 2005 due to the increased
capitalized costs subject to depletion. Additionally, there were no drilling or
completion related costs in the first six months of 2004 subject to
amortization. The reduction in interest expense in the six months ending June
30, 2005 compared to the six months ending June 30, 2004 is due to capitalizing
of interest costs in 2005 during the drilling and development phase. Limited
drilling activity in the first two quarters of 2004 resulted in all interest
being recorded as an expense.

Critical Accounting Policies

      Aurora's financial statements were prepared in accordance with accounting
principles generally accepted in the United States of America. The reported
financial results and disclosures were determined using significant accounting
policies, practices and estimates described in the Notes to Consolidated
Financial Statements. Our Aurora division's management believes that the
reported financial results are reliable and the ultimate actual results will not
differ materially from those reported. Uncertainties associated with the
methods, assumptions and estimates underlying our Aurora division 's critical
accounting measurements are discussed below.

Oil and Gas

      As stated above, our Aurora division employs the full cost method of
accounting for its oil and gas production assets. Under the full cost method,
all costs associated with the acquisition, exploration and development of oil
and gas properties are capitalized. The sum of net capitalized costs and
estimated future development and dismantlement costs is depleted on the
equivalent unit-of-production basis using proved oil and gas reserves as
determined by independent petroleum engineers.


                                       61


      With respect to the cost ceiling test, net capitalized costs are limited
to the lower of unamortized cost net of related deferred tax or the cost center
ceiling. The cost center ceiling is defined as the sum of (i) estimated future
net revenues, discounted at 10% per annum, from proved reserves, based on
unescalated year-end prices and costs; (ii) the cost of properties not being
amortized; (iii) the lower of cost or market value of unproved properties
included in the costs being amortized; less (iv) income tax effects related to
differences between the book and tax basis of the oil and gas properties.

      The cost ceiling test is affected by a decrease in net cash flow from
reserves due to higher operating or finding costs or reduction in market prices
for natural gas and crude oil. These changes can reduce the amount of
economically producible reserves. If the ceiling falls below the capitalized
cost for the cost pool, our Aurora division would be required to report an
impairment of the cost center's oil and gas assets at the reporting date.

      Investments in unproven properties and major development projects are not
amortized until proven reserves associated with the projects can be determined
or until impairment occurs. If the results of an assessment indicate that one or
more of the properties are impaired, the amount of the impairment is added to
the capitalized costs to be amortized. Because our Aurora division accounts for
its oil and gas production assets on the full cost method, the fair value of the
assets recorded on our Aurora division's balance sheet may vary significantly
from amounts reported on the balance sheets.

Income Taxes

      Our Aurora division and its wholly owned subsidiaries used to file a
combined tax return prior to the merger. The remaining subsidiaries each file
separate tax returns. Taxable income and losses of subsidiaries not included in
the combined tax return are passed directly to the shareholders or members.
Consequently, in the consolidated financial statements, income taxes are not
provided for on taxable income or losses allocated to interests in subsidiaries
that are not wholly owned by our Aurora division.

      Deferred income tax assets and liabilities are computed annually for
differences between the consolidated financial statements and federal income tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future, based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income. Deferred
income taxes arise from temporary basis differences principally related to
intangible drilling costs incurred in connection with the development of oil and
gas properties, depreciation and net operating losses. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.

      Due primarily to the deductibility of intangible drilling costs, allowable
under current federal income tax law, as of December 31, 2004 our Aurora
division had net operating loss carry-forwards of approximately $4,241,000,
which expire beginning in 2018 through 2023. These may offset future federal
taxable income, if any. However, due to the uncertainty of our Aurora divisions
ability to utilize these net operating losses, no asset has been recorded in the
consolidated financial statements.

Recent Accounting Pronouncements

      In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123R, "Share-Based Payment" (SFAS 123R), which is a revision of SFAS
123 and supersedes APB Opinion No. 25. SFAS 123R requires all share-based
payments to employees, including grants to employee stock options, to be valued
at fair value on the date of grant, and to be expensed over the applicable
vesting period. Pro forma disclosure of the income statement effects of
share-based payments is no longer an alternative. SFAS 123R is effective for all
share-based awards granted on or after July 1, 2005. In addition, companies must
also recognize compensation expense related to any awards that are not fully
vested as of the effective date. Compensation expense for the unvested awards
will be measured based on the fair value of the awards previously calculated in
developing the pro forma disclosures in accordance with the provision of SFAS
123. our Aurora division is currently assessing the impact of adopting SFAS 123R
on its consolidated financial statements.


                                       62


Controls and Procedures

      There has been no change in our Aurora division's internal control over
financial reporting during the six months ended June 30, 2005 that has
materially affected or is likely to materially affect our Aurora division's
internal control over financial reporting.

Off Balance Sheet Arrangements

      Our Aurora division has no off-balance sheet arrangements, special purpose
entities, financing partnerships or guarantees.


                                       63


                                   MANAGEMENT

      The following table sets forth the name, age and position of each of our
executive officers and directors as of November 1, 2005

Name                    Age       Position(s) with the Company
- ----                    ---       ----------------------------
William W. Deneau        61       President, Chairman of Board of Directors
Howard M. Crosby         53       Vice Chairman of Board of Directors
Lorraine M. King         40       Chief Financial Officer
John V. Miller, Jr.      47       Vice President of Exploration and Production
Thomas W. Tucker         63       Vice President of Land and Development
John P. Ryan             43       Secretary
Kevin D. Stulp           49       Director
Ronald E. Huff           50       Director (1), Treasurer
Richard Deneau           59       Director (1)
Gary J. Myles            60       Director (1)
Earl V. Young            64       Director (1)

(1)   Incoming director, effective November 21, 2005 (eleven days after mailing
      the information statement on Form 14f-1 to our shareholders).

      To the best of our knowledge, except as set forth below, none of the
incoming directors is currently a director or, or holds any position with us or
has been involved in any transactions with us or any of our directors, executive
officers, affiliates or associates which are required to be disclosed pursuant
to the rules and regulations of the SEC. To the best of our knowledge, none of
the designees has been convicted in a criminal proceeding, excluding traffic
violations or similar misdemeanors, or has been a party to any judicial or
administrative proceeding during the past five years, except for matters that
were dismissed without sanction or settlement, that resulted in a judgment,
decree or final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.

      William W. Deneau has served as Cadence's President and Chairman of the
Board of Directors since October 2005. Mr. Deneau became an employee of Aurora
at the time he sold his interest in Jet/LaVanway Exploration, L.L.C. to Aurora
in exchange for Aurora's stock on April 22, 1997. From April 1997 to October
2005, Mr. Deneau was responsible for managing Aurora's affairs and officially
became a Director of Aurora on June 25, 1997 and the President of Aurora on July
17, 1997. Since 1987, Mr. Deneau has also been the President, a Director, and
the sole owner of White Pine Land Services, Inc. of Traverse City, Michigan.
Prior to March 1, 1997, White Pine Land Services, Inc. was a 35-member company
engaged in the business of providing real estate services to oil and gas
companies. On March 1, 1997, White Pine Land Services, Inc. sold its business to
a newly formed corporation, White Pine Land Company. White Pine Land Services,
Inc. continues to exist for the purpose of managing its investments.

      Howard Crosby has served as Cadence's Vice Chairman of the Board of
Directors since October 2005 and as a Director since February 1994. From
February 1994 to October 2005 Mr. Crosby served as Cadence's President and from
January 1998 until October 2005 he served as Cadence's Treasurer. Since 1989,
Mr. Crosby has been president of Crosby Enterprises, Inc., a family-owned
business advisory and public relations firm. Mr. Crosby received a B.A. degree
from the University of Idaho. Mr. Crosby is also an officer and director of
White Mountain Titanium Corporation., a publicly traded mining exploration
company, High Plains Uranium, Inc., Sundance Diamonds Corporation, Dotson
Exploration Company and Nevada-Comstock Mining Company (formerly Caledonia
Silver-Lead Mines Company), all of the latter being privately held companies.

      Lorraine M. King has served as Cadence's Chief Financial Officer since
October 2005. Ms. King became an employee of Aurora on May 29, 2001 and from
March 2003 to October 2005 served as Chief Financial Officer of Aurora. From
November 1, 1992 through May 4, 2001, Ms. King served as Chief Financial Officer
of Wepco Energy, LLC, another independent gas producer based in Traverse City,
Michigan. Ms. King began her career in public accounting with BDO Seidman, where
she spent four years as a tax manager working primarily with oil and gas
clients.


                                       64


      John V. Miller has served as Cadence's Vice President of Exploration and
Production since October 2005. Mr. Miller became an employee of Aurora at the
time he sold his interest in Jet/LaVanway Exploration, L.L.C. to Aurora in
exchange for Aurora's stock on April 22, 1997. From April 1997 to October 2005,
he was responsible for overseeing exploration and development activities for
Aurora. From June 1997 to October 2005 he served as a Director of Aurora and
from July 1997 to October 2005 he served as Vice President of Exploration and
Production of Aurora. In 1994, Mr. Miller joined Jet Exploration, Inc. of
Traverse City, Michigan as a Vice President with responsibility for getting Jet
Exploration, Inc. into the shale gas play in Michigan and Indiana. He was the
driving force behind the establishment of Jet/LaVanway Exploration, L.L.C. and
its effort in southern Indiana. Mr. Miller left the position with Jet
Exploration, Inc. to join Aurora. From 1988 to 1994, Mr. Miller worked for White
Pine Land Services, Inc. of Traverse City, Michigan, as a land manager.

      Thomas W. Tucker, has served as Cadence's Vice President of Land and
Development since October 2005. Mr. Tucker became an employee of Aurora at the
time he sold his interest in Jet/LaVanway Exploration, L.L.C. to Aurora in
exchange for Aurora's stock on April 22, 1997. From April 1997 to October 2005
he has been responsible for overseeing land development activities for Aurora.
From June 1997 to October 2005 he served as a Director of Aurora and from July
1997 to October 2005 he served as Vice President of Land and Development of
Aurora. Mr. Tucker founded Jet Oil Corporation with his father in 1982. After
his father's death, Mr. Tucker founded Jet Exploration, Inc. in 1987. Mr. Tucker
has been the President of Jet Exploration, Inc. since its inception. Jet
Exploration, Inc. no longer takes on any new projects, and its existing projects
are being allowed to run out their course.

      John P. Ryan, served as a Director of Cadence from April 1997 to October
2005 and has served as Cadence's Secretary since 1998. From September 1996 to
October 2005 he served as Cadence's Vice President of Corporate Development. Mr.
Ryan is a degreed mining engineer. From August, 2000 to the present, he has
served as a Director and the Chief Financial Officer of Trend Mining Company, a
publicly traded mineral exploration and development company and since February
2004 he has served as an officer and director of White Mountain Titanium
Corporation, a publicly traded mining exploration company. Other companies with
which Mr. Ryan holds an officer and/or director position include Bio-Quant,
Inc., Nevada-Comstock Mining Company, High Plains Uranium, Inc., GreatWall Gold
Corporation, Sundance Diamonds Corporation, TN Oil Co., and Dotson Exploration
Company. Many of these companies have only minimal activity and require only a
small amount of Mr. Ryan's time. Mr. Ryan is a former U.S. Naval Officer and
obtained a B.S. in Mining Engineering from the University of Idaho and a Juris
Doctor from Boston College Law School.

      Kevin D. Stulp, has served as a Director of Cadence since March 1997.
Since August 1995, Mr. Stulp has variously worked as consultant with Forte
Group, on the board of the Bible League, and is active with various other
non-profit organizations. From December 1983 to July 1995, Mr. Stulp held
various positions with Compaq Computer Corporation, including industrial
engineer, new products planner, manufacturing manager, director of manufacturing
and director of worldwide manufacturing reengineering. Mr. Stulp holds a
B.S.M.E. in Mechanical Engineering, from the University of Michigan, and a
B.S.L.E. from Calvin College, Grand Rapids, Michigan.

      Ronald E. Huff, CPA, has served as Cadence's Treasurer since October 2005
and has been appointed as a Director of Cadence effective November 21, 2005. Mr.
Huff is currently the Chief Financial Officer and Vice President of Finance for
Visual Edge Technology, Inc., a position he has held since 2004. Visual Edge
Technology, Inc. is a California holding company engaged in acquiring imaging
companies. From 1999 to 2004, Mr. Huff was a Principal and Founder of
TriMillennium Ventures, LLC, a private equity investment company located in the
Columbus, Canton, Akron, Cleveland, Ohio corridor. Mr. Huff worked for Belden &
Blake Corporation from 1986 to 1999 as its Chief Financial Officer and was also
its President from 1997 to 1999. Belden & Blake Corporation acquires properties,
explores for and develops oil and gas reserves and markets natural gas,
primarily in the Appalachian and Michigan Basins. It went through a successful
initial public offering in 1992, and was acquired by Texas Pacific Group in
1997. From 1983 to 1986 Mr. Huff was the Chief Accounting Officer of Zilkha
Petroleum, from 1980 to 1983 he was a financial analyst for Southern Natural
Resources, a natural gas marketing company, and from 1977 to 1980 he was a
corporate accountant with Transco Companies Incorporated. Mr. Huff has agreed to
chair Cadence's Audit Committee.


                                       65


      Richard Deneau, has been appointed as a Director of Cadence effective
November 21, 2005. Mr. Deneau retired from Anchor Glass Container Corporation
("Anchor") in 2004, where he served as a Director and President from 1997 to
2004. He was also the Chief Operating Officer from 1997 to 2002, and the Chief
Executive Officer from 2002 until his retirement. Anchor, which is publicly
traded and listed on NASDAQ, is the third largest glass container manufacturer
in the United States, with annual revenues of about $750 million. When Richard
Deneau joined Anchor, it was a financially troubled company. He designed and
implemented strategies to turn its financial performance around. One of the
strategies involved a Chapter 11 bankruptcy filing in April, 2002. The purpose
of this filing was to provide assurance to a new investor that all prior claims
had been extinguished. At Anchor's request, the court issued an order allowing
Anchor to continue to pay its creditors in normal course, all creditors were
paid in full, and Anchor came out of bankruptcy in August, 2002. Prior to
working for Anchor, Richard Deneau served in management at Ball Foster Glass
Container Corp., American National Can, Foster Forbes Glass and First National
Bank of Lapeer. He served as an auditor with Ernst & Ernst after graduating from
Michigan State University in 1968. Richard Deneau is the brother of William
Deneau, who is the President, CEO and a Director of Aurora.

      Gary J. Myles, has been appointed as a Director of Cadence effective
November 21, 2005. From June 1997 to October 2005 Mr. Myles served as a Director
of Aurora. He is currently Vice President of the northern Michigan region of
Fifth Third Mortgage Company (previously Old Kent Mortgage Company), a wholly
owned subsidiary of Fifth Third Bank (previously Old Kent Financial
Corporation). He is the Affiliate Consumer Manager of Fifth Third Mortgage
Company for the northern region of Michigan, and is based in Traverse City,
Michigan. Mr. Myles has been with Fifth Third Mortgage Company and its
predecessor, Old Kent Mortgage Company, since July 1988. Mr. Myles also owns
Foster Care, Ltd., a closely held company for which he serves as a Director,
President and Treasurer.

      Earl V. Young, has been appointed as a Director of Cadence effective
November 21, 2005. From March 2001 to October 2005 Mr. Young served as Director
of Aurora. He is currently President of Earl Young & Associates of Dallas,
Texas, which he founded in 1999. From 1996 to 1999, Mr. Young was the Senior
Vice President of Corporate Development for American Mineral Fields, Inc. of
Dallas, Texas. From 1993 to 1996, Mr. Young was a principal in Young & Lowe,
which offered business consulting services to small capitalization companies.
Prior to 1993, Mr. Young was involved in the investment banking business. He is
President of the US/Madagascar Business Council headquartered in Washington,
D.C. and a Director of the Corporate Council on Africa in Washington D.C. Mr.
Young was a gold medalist in the Summer Olympic Games in 1960 in track, has
served as President of the Southwest Chapter of Olympians, and was the founding
chairman of the Olympians for Olympians Relief Committee.

      To our knowledge, no director, officer or affiliate of the Company, and no
owner of record or beneficial owner of more than five percent (5%) of our
securities, or any associate of any such director, officer or security holder is
a party adverse to us or has a material interest adverse to us in reference to
pending litigation.

Indemnification

      Our bylaws provide that our directors and officers will be indemnified to
the fullest extent permitted by the Utah Corporation Code. However, such
indemnification does not apply to acts of intentional misconduct, a knowing
violation of law, or any transaction where an officer or director personally
received a benefit in money, property, or services to which the director was not
legally entitled.

      Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

Board of Directors' Meetings and Committees

      During the fiscal year ended September 30, 2005, our audit and
compensation committees consisted of Messrs. Christian, DeHekker and Stulp. As a
result of the resignations of Messrs. Christian and DeHekker from the our Board
of Directors, Mr. Stulp is the sole remaining member of these committees. We
intend to establish new audit, compensation and nominating committees promptly.
It is anticipated that these new committees will consist of the following
directors: Audit Committee: Ronald E. Huff (Chair), Gary J. Myles and Earl V.
Young; Compensation Committee: Howard Crosby, Kevin Stulp and Earl V. Young;
Nominating and Governance Committee: Gary J. Myles, Howard Crosby and Kevin
Stulp.


                                       66


Nominations for Directors

      Upon the establishment of a Nominating and Governance, our Board will
adopt a formal policy regarding qualifications of director candidates.
Currently, in evaluating director nominees, our Board considers a variety of
factors, including the appropriate size of our Board of Directors; the needs of
our company with respect to the particular talents and experience of our
directors; the knowledge, skills and experience of nominees, including
experience in the oil and gas industry, finance, administration or public
service, in light of prevailing business conditions and the knowledge, skills
and experience already possessed by other members of our Board; experience with
accounting rules and practices; and the desire to balance the benefit of
continuity with the periodic injection of the fresh perspective provided by new
Board members.

      To date, we have not engaged third parties to identify or evaluate or
assist in identifying potential nominees, although we reserve the right in the
future to retain a third party search firm, if necessary.

      During the fiscal year ended September 30, 2005, our Board of Directors
met six times, and our Audit and Nominating Committees each met twice. No
director attended fewer than 75% of the meetings of our Board or of each
committee of which he was a member.

      Our Board of Directors does not currently provide a process for
securityholders to send communications to our Board of Directors as our
management believes that until this point it has been premature given the
limited liquidity of our common stock to develop such processes.

                             EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

      Prior to the date of the merger of Cadence and Aurora, the Company's
executive officers functioned as executive officers of, and were compensated by,
Cadence or Aurora, as the case may be. The following sets forth the annual and
long-term compensation for services in all capacities to Cadence for the fiscal
years ended September 30, 2005, 2004 and 2003 paid to our Chief Executive
Officer ("CEO") and the other executive officer who was serving as an executive
officer at the end of the last completed fiscal year. Messrs. Crosby and Ryan
served as President and Treasurer, Vice President and Secretary, respectively,
of Cadence prior to the merger of Cadence and Aurora. This compensation
information relates to compensation received by the named executive officer
while employed by Cadence prior to the merger of Cadence and Aurora.


                                       67


                                                SUMMARY COMPENSATION TABLE



                                                                                    Long-Term Compensation
                                                                                 ---------------------------
                                                                                            Awards
                                                                                 ---------------------------
                                                Annual Compensation                               Securities
                                         ---------------------------------       Restricted       Underlying
Name and Principal Position              Year       Salary ($)       Bonus         Stock         Options/SARs
- ---------------------------              ----       ----------       -----         -----         ------------
                                                                                     
Howard M. Crosby
Chief Executive Officer                  2005         133,775         --           30,000           50,000
                                         2004          61,500         --             --               --
                                         2003          62,500(1)      --           80,000             --


John P. Ryan
Vice President and Secretary             2005         142,425         --           30,000           50,000
                                         2004          70,336         --             --               --
                                         2003          62,500 (2)     --           80,000             --


(1)   The cash portion of Mr. Crosby's salary for fiscal 2003 was $62,500, of
      which he received $18,000 in fiscal 2003, payment of the remaining $44,500
      having been deferred until after the end of fiscal 2003. In addition, he
      received 80,000 shares of Cadence common stock, 20,000 per quarter. These
      were valued at 50% of the closing price at the end of the quarter for
      which the shares were awarded: $17,000 for the first quarter, $14,500 for
      the second quarter, $17,000 for the third quarter and $32,500 for the
      fourth quarter, for a total of $80,500 in stock compensation and $143,500
      in total compensation.

(2)   The cash portion of Mr. Ryan's salary for fiscal 2003 was $62,500. In
      addition, he received 80,000 shares of Cadence common stock, 20,000 per
      quarter. These were valued at 50% of the closing price at the end of the
      quarter for which the shares were awarded: $17,000 for the first quarter,
      $14,500 for the second quarter, $16,500 for the third quarter and $32,500
      for the fourth quarter, for a total of $80,500 in stock compensation and
      $143,500 in total compensation.

    OPTION GRANTS IN LAST FISCAL YEAR (OCTOBER 1, 2004 - SEPTEMBER 30, 2005)



                             Number Of       % Of Total                                       Potential Realizable
                             Securities        Options                                          Value at Assumed
                             Underlying      Granted To                                       Annual Rate of Stock
                              Options       Employees In      Exercise       Expiration      Price Appreciation For
NAME                        Granted (1)    The Fiscal Year     Price            Date               Option Term
- ----                        -----------    ---------------     -----            ----         -----------------------
                                                                                                 5%          10%
                                                                                             ---------      --------
                                                                                          
Howard M. Crosby                  50,000                50     $1.21      January 7, 2008     $110,259      $144,896
John P. Ryan                      50,000                50     $1.21      January 7, 2008     $110,259      $144,896



                                       68


               AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR-END
                     AND FISCAL YEAR-END OPTION VALUES TABLE

      The following table contains information concerning the number of shares
acquired and value realized from the exercise of options by the named executive
officers during fiscal 2004 and the number of unexercised options held by the
named executive officers at September 30, 2005.



                             NUMBER OF SHARES OF COMMON STOCK
                              UNDERLYING UNEXERCISED OPTIONS
                                       AT YEAR END                 VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS
                                   (SEPTEMBER 30 2005)                 AT YEAR END (SEPTEMBER 30 2005) (1)
                            ----------------------------------          ----------------------------------
         NAME               EXERCISABLE          UNEXERCISABLE          EXERCISABLE          UNEXERCISABLE
         ----               -----------          -------------          -----------          -------------
                                                                                      
Howard M. Crosby             50,000                   --                 $107,000                 --

John P. Ryan                 50,000                   --                 $107,000                 --


(1)   Options are "in-the-money" if the market price of a share of common stock
      exceeds the exercise price of the option.

      We have no retirement, pension or profit sharing program for the benefit
of its directors, officers or other employees, but our Board of Directors may
recommend one or more such programs for adoption in the future.

Compensation of Directors

      All directors are reimbursed for out-of-pocket expenses in connection with
attendance at meetings of the Board of Directors. We have in the past
compensated our directors in cash and in shares of our common stock, and have
generally in the past granted options to Directors upon joining the Board.
During the fiscal year ended September 30, 2005, each non-employee director
received (1) $5,000 per quarter of completed service, (2) 4,000 restricted
shares of common stock for each year of service on any committee of the Board of
Directors, (3) $2,500 for any committee of which they chair; and each Director
(employee or non employee) was entitled to an option to purchase 50,000 shares
of Company Common Stock on the anniversary of his appointment to the Board.
Board members may be granted additional stock options pursuant to Board
recommendation and approval. We also have in the past paid our non-employee
directors $1,600 for each board meeting they attend in person and $750 for each
telephonic meeting and employee directors $600 for each board meeting they
attend in person.

      During the fiscal year ended September 30, 2005, Messrs. Christian,
DeHekker and Stulp, the three non-employee directors, each received options to
purchase 50,000 shares of our common stock at an exercise price of $1.42 per
share, and Messrs. Crosby and Ryan, the employee directors, each received
options to purchase 50,000 shares of our common stock at an exercise price of
$1.21 per share. Also for the 2005 fiscal year, Messrs. Christian, Crosby,
DeHekker, Ryan and Stulp each received 15,000 shares of our common stock per
quarter for the first three quarters of 2005 as compensation for the service on
the board of directors. Messrs. DeHekker and Stulp received an additional 4,000
shares of our common stock for their service on a committee of the board of
directors.

      In addition, subsequent to September 30, 2005, each of Messrs. Christian,
DeHekker and Ryan, the resigning directors, received warrants to purchase an
aggregate of 37,500 shares of our common stock, consisting of a warrant to
purchase 12,500 shares of our common stock for a purchase price of $2.53 per
share, a warrant to purchase 12,500 shares of our common stock for a purchase
price of $2.23 per share, a warrant to purchase 12,500 shares of our common
stock for a purchase price of $3.28 per share.

      There are no contractual arrangements with any member of our Board of
Directors.


                                       69


Bonuses and Deferred Compensation

      We do not have any bonus, deferred compensation or retirement plan.

Stock Options

      In February, 2004 the Board adopted the 2004 Stock Option and Stock Award
Plan which was approved by the shareholders in May, 2004 and under which up to
1,000,000 shares of Company Common Stock could be awarded as share awards or
options and based upon merit of work performed as well as a retention tool. As
of September 30, 2005, 625,500 shares or options have been awarded under this
plan, of which 400,000 options are currently outstanding and exercisable.

      Prior to the 2004 Stock Option and Stock Award Plan, our Board of
Directors chose to make option or warrant awards to select officers, directors,
consultants, or shareholder/investors in order to induce them to assist it in
implementing its business plan and to provide long term additional incentive.
These options or warrants, as awarded, were not awarded pursuant to a plan but
were specific individual awards with varying terms and conditions. In some
instances, the Board of Directors reserved the right to cancel these awards for
non-performance or other reasons, or established a vesting schedule pursuant to
which the award is earned.

Employment Contracts, Termination of Employment and Change of Control
Arrangements

      There are no compensatory plans or arrangements, including payments to be
received from us, with respect to any person named in the Summary Compensation
Table above, that would in any way result in payments to any such person because
of his resignation, retirement, or other termination of such person's employment
with the us or our subsidiaries, or any change in control of us, or a change in
the person's responsibilities following a change of control.

Compensation Committee

      Compensation Philosophy. The philosophy of our Compensation Committee for
the fiscal year ended September 30, 2005 was to provide competitive levels of
compensation that are appropriate given the performance and commitment of our
executive officers compared with similarly situated executives in the oil and
gas industry; link management's pay to the achievement of our annual and
long-term performance goals; and assist us in attracting and retaining qualified
management. However, because of the limited number of companies that can be
compared to us in terms of stage of resource development, net income, and
similar items, a significant amount of subjectivity was involved in the
decisions of the Compensation Committee.

      Base Salaries. Base salaries for management employees are determined
initially by evaluating the responsibilities of the position held and the
experience of the individual, and by reference to the competitive marketplace
for management services, including a comparison of base salaries for comparable
positions at comparable companies within the oil and gas industry. Annual salary
adjustments are determined by evaluating the competitive marketplace, our
performance of, the performance of the executive, and any increased
responsibilities assumed by the executive. The Committee believes the base
salaries of executive officers are at or below those of similarly situated
executives in the oil and gas industry.

      Bonus Arrangement. To encourage and reward outstanding corporate and
individual performance, we from time to time considers awarding merit bonuses to
its executive officers, based on our operating results and the achievement of
certain defined major business objectives.

      Compensation of Chief Executive Officer. The amount of the Chief Executive
Officer's compensation for the fiscal year ended September 30, 2005 was
determined in accordance with the principles discussed in the foregoing
paragraphs and was based upon a subjective evaluation by the Committee of the
leadership demonstrated by Mr. Crosby during the fiscal year.


                                       70


Audit Committee

      The audit committee: (i) appoints the Company's independent auditors and
monitors the independence of our independent auditors; (ii) reviews our policies
and procedures on maintaining its accounting records and the adequacy of its
internal controls; (iii) reviews management's implementation of recommendations
made by the independent auditors and internal auditors; (iv) considers and
pre-approves the range of audit and non-audit services performed by independent
auditors and fees for such services; and (v) reviews and votes on all
transactions between the Company and any of its officers, directors or other
affiliates.


                                       71


                             PRINCIPAL SHAREHOLDERS

      The following table sets forth, as of November 1, 2005, certain
information regarding the ownership of voting securities of Cadence by each
stockholder known to our management to be (i) the beneficial owner of more than
5% of our outstanding Common Stock, (ii) our directors, (iii) our current
executive officers and (iv) all executive officers and directors as a group. We
believe that, except as otherwise indicated, the beneficial owners of the Common
Stock listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares.

      Unless otherwise specified, the address of each of the persons set forth
below is in care of Cadence Resources Corporation, 3760 North US 31 South, P.O.
Box 961, Traverse City, Michigan, 49685-0961.



          Name and Address               Amount and Nature of       Percent of Outstanding
       of Beneficial Owner (1)          Beneficial Ownership              Shares
       -----------------------          --------------------              ------
                                                                  
Howard M. Crosby                           1,477,808 (2)                  2.49%

John P. Ryan                               1,006,124 (3)                  1.69%

Kevin D. Stulp                               527,500 (4)                  0.89%

Nathan A. Low Roth IRA and affiliates      5,052,142 (5)                  8.47%
641 Lexington Avenue
New York, New York 10022

Thomas Kaplan                              3,090,992 (6)                  5.14%
154 West 18th Street
New York, New York 10011

Rubicon Master Fund (7)                    8,000,000 (8)                 13.47%
c/o Rubicon Fund Management LLP
P103 Mount Street
London W1K 2TJ, UK

Crestview Capital Master, LLC              4,000,000(9)                   6.50%
95 Revere Drive, Suite A
Northbrook, Illinois, 60062

William W. Deneau                          4,212,500 (10)                 7.02%

Gary J. Myles                                259,998 (11)                 0.44%

Earl V. Young                                386,204 (12)                 0.65%

Richard Deneau                                 --                          --

Ronald E. Huff                                 --                          --

John V. Miller, Jr.                        3,289,762 (13)                 5.49%

Thomas W. Tucker                           2,240,620 (14)                 3.74%

Lorraine M. King                             360,000 (15)                 0.60%

All executive officers and directors      13,754,816 (16)                23.00%
as a group (11 persons)


(1)   Addresses are only given for holders of more than 5% of the outstanding
      common stock of Cadence.


                                       72


(2)   Includes 270,000 shares of our common stock held by Crosby Enterprises,
      Inc., 40,000 shares of our common stock owned by the Crosby Family Living
      Trust, 130,000 shares of our common stock owned by CORK Investments, Inc.
      and options to purchase 50,000 shares of our common stock.

(3)   Includes options currently exercisable for 50,000 shares of our common
      stock and warrants currently exercisable for 37,500 shares of our common
      stock; 172,875 shares of our common stock owned by Nancy Martin-Ryan;
      45,000 shares of our common stock owned by John Ryan as custodian for
      Karen Ryan; 45,000 shares of our common stock owned by John Ryan as
      custodian for Patrick Ryan; 150,000 shares of our common stock owned by
      J.P. Ryan Company, Inc.; and 87,500 shares of our common stock owned by
      Andover Capital Corporation.

(4)   Includes options currently exercisable for 50,000 shares of our common
      stock and warrants currently exercisable for 100,000 shares of our common
      stock, 2,750 shares of our common stock owned by the Kevin Dale Stulp IRA
      and 1,750 shares of our common stock owned by the Kevin and Marie Stulp
      Charitable Remainder Unitrust of which Mr. Stulp is a co-trustee.

(5)   Based on information included in an amendment to Schedule 13D/A filed with
      the SEC on November 10, 2005, Nathan A. Low has the sole power to vote or
      direct the vote of, and the sole power to direct the disposition of, the
      shares held by the Nathan A. Low Roth IRAs and the shares held by him
      individually, which total 4,034,767 shares of our common stock, which
      includes 108,375 shares of our common stock issuable upon exercise of
      warrants. Although Nathan A. Low has no direct voting or dispositive power
      over an aggregate 1,017,375 shares of our common stock held by Lisa Low as
      trustee for the Nathan A. Low Family Trust and as custodian for the
      Neufeld minor children, he may be deemed to beneficially own those shares
      because his wife, Lisa Low, is the trustee of the Family Trust and
      custodian for the Neufeld children. Similarly, Nathan A. Low may be deemed
      to beneficially own those shares of our common stock underlying options
      and warrants (a total of 157,375 shares of our common stock) held for the
      benefit of his children, because his wife has sole voting and dispositive
      power over such shares. Therefore, Nathan A. Low reports shared voting and
      dispositive power over 5,052,142 shares of our common stock. . Does not
      include warrants to purchase 1,714,000 shares of our common stock, which
      warrants were acquired January 31, 2005

(6)   Consists of 480,811 shares of our common stock owned by LCM Holdings LDC;
      480,811 shares of our common stock owned by Electrum Resources, LLC; and
      1,329,370 shares of our common stock owned by Electrum Capital, LLC. Does
      not include warrants to purchase 800,000 shares of our common stock, which
      warrants were acquired January 31, 2005.

(7)   Pursuant to investment agreements, each of Rubicon Fund Management Ltd., a
      company organized under the laws of the Cayman Islands, which we refer to
      in this footnote as Rubicon Fund Management Ltd., and Rubicon Fund
      Management LLP, a limited liability partnership organized under the laws
      of the United Kingdom, which we refer to in this footnote as Rubicon Fund
      Management LLP, Mr. Paul Anthony Brewer, Mr. Jeffrey Eugene Brummette, Mr.
      William Francis Callanan, Mr. Vilas Gadkari, Mr. Robert Michael
      Greenshields and Mr. Horace Joseph Leitch III, share all investment and
      voting power with respect to the securities held by Rubicon Master Fund.
      Mr. Brewer, Mr. Brummette, Mr. Callanan, Mr. Gadkari, Mr. Greenshields and
      Mr. Leitch control both Rubicon Fund Management Ltd. and Rubicon Fund
      Management LLP. Each of Rubicon Fund Management Ltd., Rubicon Fund
      Management LLP, Mr. Brewer, Mr. Brummette, Mr. Callanan, Mr. Gadkari, Mr.
      Greenshields and Mr. Leitch disclaim beneficial ownership of these
      securities.

(8)   Based on Form 3 - Initial Statement of Beneficial Ownership of Securities
      filed with the SEC by Rubicon Master Fund on April 13, 2005. Does not
      include warrants to purchase 8,000,000 shares of our common stock, which
      warrants were acquired January 31, 2005.

(9)   Does not include warrants to purchase 2,160,000 shares of our common
      stock, which warrants were acquired January 31, 2005.

(10)  Includes options currently exercisable for 600,000 shares of our common
      stock.


                                       73


(11)  Includes options currently exercisable for 199,998 shares of our common
      stock.

(12)  Includes options currently exercisable for 199,998 shares of our common
      stock.

(13)  Includes options currently exercisable for 600,000 shares of our common
      stock.

(14)  Includes options currently exercisable for 600,000 shares of our common
      stock.

(15)  Includes options currently exercisable for 160,000 shares of our common
      stock.

(16)  Includes options and warrants currently exercisable for an aggregate of
      2,597,497 shares of our common stock.

                              SELLING SHAREHOLDERS

      We issued to the selling shareholders the common stock and the warrants to
purchase common stock that are covered by this prospectus pursuant to a private
placement in January 2005. This prospectus relates to the resale from time to
time of up to a total of 21,860,000 shares of our common stock acquired by the
certain selling stockholders identified in this prospectus either directly in
the January private placement or pursuant to the exercise of warrants purchased
in the January private placement. We filed a registration statement, of which
this prospectus constitutes a part, in order to permit the selling shareholders
to resell to the public the shares of our common stock in connection with the
January private placement.

      The following table sets forth the names of the selling shareholders, the
number of shares of common stock beneficially owned by the selling shareholders
as of November 1, 2005, the number of shares of common stock being offered by
the selling shareholders, the number of shares of common stock each selling
shareholder will beneficially own if the shareholder sells all of the shares
being registered and the selling shareholder's percentage ownership of our
common stock if all the shares in the offering are sold. The shares being
offered hereby are being registered to permit public secondary trading, and the
selling shareholders may offer all or part of the shares for resale from time to
time. However, the selling shareholders are under no obligation to sell all or
any portion of such shares nor are the selling shareholders obligated to sell
any shares immediately under this prospectus. To prevent dilution to the selling
security holders, the following numbers may change because of adjustments to
reflect stock splits, stock dividends or similar events involving our common
stock.

      None of the selling shareholders have, nor within the past three years
have had, any position, office or other material relationship with us or any of
our predecessors or affiliates, except that Nathan A. Low, a 5% shareholder of
Cadence, is the son of Ruth Low, formed the Nathan Low Family Trust for the
benefit of his family and is the beneficiary of the Nathan A Low Roth IRA.



                                                                                                               Percent of
                                                      Shares of Common                                         Class Owned
                                                           Stock            Shares of         Beneficial          After
                                                        Beneficially          Connon       Ownership After     Offering if
                                                       Owned Prior to         Stock        Offering if All     All Shares
               Selling Shareholders                       Offering         to be Sold      Shares are Sold      are Sold
               --------------------                       --------         ----------      ---------------      --------
                                                                                                        
Rubicon Master Fund (1)                                8,000,000(2)      10,800,000(3)       5,200,000              8.76%
Crestview Capital Master, LLC                          4,000,000(4)       3,680,000(5)       2,160,000              3.64%
Union Spring Fund Ltd.                                 2,160,000(6)       2,160,000(6)               0             --
Nathan Low Family Trust, DTD 4/12/96                   6,766,142(7)         720,000(8)       5,646,142              9.51%
Bear Stearns as Custodian For Nathan A. Low
Roth IRA                                               6,766,142 (9)        400,000(10)      5,646,142              9.51%
Ruth Low                                                 538,259(11)        480,000(12)         58,250(13)          *
Zinc Partners LP                                         640,000(14)        176,512(14)              0             --
Zinc Partners Offshore, Ltd.                             640,000(15)        463,488(15)              0             --



                                       74




                                                                                                               Percent of
                                                      Shares of Common                                         Class Owned
                                                           Stock            Shares of         Beneficial          After
                                                        Beneficially          Connon       Ownership After     Offering if
                                                       Owned Prior to         Stock        Offering if All     All Shares
               Selling Shareholders                       Offering         to be Sold      Shares are Sold      are Sold
               --------------------                       --------         ----------      ---------------      --------
                                                                                                        
Cordillera Fund L.P.                                     800,000(16)        800,000(16)              0             --
Enable Growth Partners LP                                480,000(17)        480,000(17)              0             --
Michael Weiss                                            180,000(18)        100,000(18)         80,000              *
Don Sanders                                              320,000(19)        320,000(19)              0             --
Sanders Opportunity Fund (Inst) LP                       493,646(20)        493,646(20)              0             --
Sanders Opportunity Fund LP                              154,354(21)        154,354(21)              0             --
Sanders 1998 Children's Trust                            120,000(22)        240,000(22)              0             --
Don Weir and Julie E. Weir                               160,000(23)        160,000(23)              0             --
Ben T. Morris                                             40,000(24)         40,000(24)              0             --
Fredrick Saalwachter                                      40,000(25)         40,000(25)              0             --
George L. Ball                                            40,000(26)         40,000(26)              0             --
John Malanga and Jodi Malanga                             32,000(27)         32,000(27)              0             --
Bruce McMaken                                             40,000(28)         40,000(28)              0             --
Mike Chadwick                                             40,000(29)         40,000(29)              0             --
          Totals                                     ------------------  ---------------  ------------------  -------------
                                                         25,044,401         21,860,000      13,144,392            21.91%

- ---------------
*     Less than 1%.

(1)   Pursuant to investment agreements, each of Rubicon Fund Management Ltd., a
      company organized under the laws of the Cayman Islands, which we refer to
      in this footnote as Rubicon Fund Management Ltd., and Rubicon Fund
      Management LLP, a limited liability partnership organized under the laws
      of the United Kingdom, which we refer to in this footnote as Rubicon Fund
      Management LLP, Mr. Paul Anthony Brewer, Mr. Jeffrey Eugene Brummette, Mr.
      William Francis Callanan, Mr. Vilas Gadkari, Mr. Robert Michael
      Greenshields and Mr. Horace Joseph Leitch III, share all investment and
      voting power with respect to the securities held by Rubicon Master Fund.
      Mr. Brewer, Mr. Brummette, Mr. Callanan, Mr. Gadkari, Mr. Greenshields and
      Mr. Leitch control both Rubicon Fund Management Ltd. and Rubicon Fund
      Management LLP. Each of Rubicon Fund Management Ltd., Rubicon Fund
      Management LLP, Mr. Brewer, Mr. Brummette, Mr. Callanan, Mr. Gadkari, Mr.
      Greenshields and Mr. Leitch disclaim beneficial ownership of these
      securities.

(2)   Based on Form 3 - Initial Statement of Beneficial Ownership of Securities
      filed with the SEC by Rubicon Master Fund on April 13, 2005. Does not
      include warrants to purchase 8,000,000 shares of our common stock.

(3)   Shares of common stock to be sold includes warrants to purchase 8,000,000
      shares of our common stock.

(4)   Does not include warrants to purchase 2,160,000 shares of our common
      stock.

(5)   Shares of common stock to be sold includes warrants to purchase 2,160,000
      shares of our common stock.

(6)   Shares of common stock beneficially and to be sold includes warrants to
      purchase 1,600,000 shares of our common stock.

(7)   Includes 2,387,742 shares of common stock beneficially owned by Nathan A.
      Low Roth IRA, Nathan A. Low, and Lisa Low as custodian for Daniel Low,
      Michael Low, Gabriel Low and Chantal Low. We have been advised by the
      selling shareholder that its controlling person is Nathan A. Low.

(8)   Shares of common stock to be sold includes warrants to purchase 360,000
      shares of our common stock.

(9)   Based upon information included in amendment number 6 to a Schedule 13D
      filed with the SEC on November 9, 2005. We have been advised by the
      selling shareholder that its controlling person is Nathan A. Low.

(10)  Shares of common stock to be sold includes warrants to purchase 200,000
      shares of our common stock.

(11)  Shares of common stock beneficially includes warrants to purchase an
      aggregate of 278,250 shares of our common stock.

(12)  Shares of common stock to be sold includes warrants to purchase 240,000
      shares of our common stock.

(13)  Shares of common stock beneficially includes warrants to purchase 38,250
      shares of our common stock.

(14)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 88,256 shares of our common stock.

(15)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 231,744 shares of our common stock.


                                       75


(16)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 400,000 shares of our common stock.

(17)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 240,000 shares of our common stock.

(18)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 50,000 shares of our common stock.

(19)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 160,000 shares of our common stock.

(20)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 246,823 shares of our common stock.

(21)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 77,177 shares of our common stock.

(22)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 120,000 shares of our common stock.

(23)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 80,000 shares of our common stock.

(24)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 20,000 shares of our common stock.

(25)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 20,000 shares of our common stock.

(26)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 20,000 shares of our common stock.

(27)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 16,000 shares of our common stock.

(28)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 20,000 shares of our common stock.

(29)  Shares of common stock beneficially and to be sold includes warrants to
      purchase 20,000 shares of our common stock.

                              PLAN OF DISTRIBUTION

      The selling securityholders may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling securityholders may use any one or more
of the following methods when selling shares:

      o     ordinary brokerage transactions and transactions in which the
            broker-dealer solicits purchasers;

      o     block trades in which the broker-dealer will attempt to sell the
            shares as agent but may position and resell a portion of the block
            as principal to facilitate the transaction;

      o     purchases by a broker-dealer as principal and resale by the
            broker-dealer for its account;

      o     an exchange distribution in accordance with the rules of the
            applicable exchange;

      o     privately negotiated transactions;

      o     short sales;

      o     broker-dealers may agree with the selling securityholders to sell a
            specified number of such shares at a stipulated price per share;

      o     a combination of any such methods of sale; and

      o     any other method permitted pursuant to applicable law.

      The selling securityholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.

      The selling securityholders may also engage in short sales against the
box, puts and calls and other transactions in our securities or derivatives of
our securities and may sell or deliver shares in connection with these trades.

      Broker-dealers engaged by the selling securityholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling securityholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated. The selling securityholders do not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved. Any profits on the resale of shares of common stock by a
broker-dealer acting as principal might be deemed to be underwriting discounts
or commissions under the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, attributable to the sale of shares will be
borne by a selling securityholder. The selling securityholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the shares if liabilities are imposed on that person under
the Securities Act.


                                       76


      The selling securityholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus after we have filed an amendment to this
prospectus under Rule 424(b)(3) or other applicable provision of the Securities
Act of 1933 amending the list of selling securityholders to include the pledgee,
transferee or other successors in interest as selling securityholders under this
prospectus.

      The selling securityholders also may transfer the shares of common stock
in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus and may sell the shares of common stock from time to time under
this prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of selling securityholders to include the pledgee, transferee or other
successors in interest as selling securityholders under this prospectus.

      The selling securityholders and any broker-dealers or agents that are
involved in selling the shares of common stock may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the shares of common stock purchased by them may
be deemed to be underwriting commissions or discounts under the Securities Act.
The selling securityholders have advised us that they have acquired their
securities in the ordinary course of business and they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale
of shares of common stock by any selling securityholder. If we are notified by
any selling securityholder that any material arrangement has been entered into
with a broker-dealer for the sale of shares of common stock, if required, we
will file a supplement to this prospectus. If the selling securityholders use
this prospectus for any sale of the shares of common stock, they will be subject
to the prospectus delivery requirements of the Securities Act.

      We are required to pay all fees and expenses incident to the registration
of the shares of common stock. We have agreed to indemnify the selling
securityholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.

      The anti-manipulation rules of Regulation M under the Securities Exchange
Act of 1934 may apply to sales of our common stock and activities of the selling
securityholders.

                           RELATED PARTY TRANSACTIONS

      Messrs. Crosby and Ryan collectively own in excess of 40% of the stock of
Dotson Exploration Company and they are the sole officers and directors of
Dotson. Dotson owns 109,000 shares of Cadence's shares of common stock. During
fiscal year 2002 and the first quarter of fiscal year 2003, Cadence repaid
Dotson a loan in the amount of $10,000 and Cadence made two loans to Dotson, one
for $35,000 and one for $20,000, each at an interest rate of 10% per annum.
Dotson transferred to Cadence marketable securities of the common stock of two
unaffiliated companies, Enerphaze Corporation and The Williams Companies, valued
by our Board of Directors at $33,380 as partial payment of the amount loaned.
During the nine months ended June 30, 2003, Dotson repaid the $20,000 loan in
cash and in November 2005 Dotson repaid the remaining balance of $3,720.

      In 2002, Nathan Low, a Cadence Resources major shareholder, and Cadence
decided to form a limited partnership to acquire and develop oil and natural gas
properties. Low planned to seek investors to invest as limited partners in the
partnership. On August 8, 2002, Cadence formed Cadence Resources Limited
Partnership, with Cadence as the sole general partner. Low had not brought any
investors to the partnership by the time the partnership was ready to acquire
oil and gas interests. Therefore, Low elected to provide the initial funding,
$250,000, for the first prospect, in the form of the purchase of a limited
partnership interest in the partnership. Cadence paid Sunrise Securities
Corporation, an entity controlled by Low, a finders' fee on this funding. Also,
on August 1, 2002, Sunrise Securities Corporation, together with Low and his
assigns, the limited partnership and Cadence entered into the Side Letter
Agreement of Certain Terms of Limited Partnership Drawdown Facility, a $20
million funding agreement. This was intended to provide further equity
investments in the partnership. It was structured so that the Low parties had
the option, but not the obligation, to provide capital contributions to the
partnership. In partial consideration for entering into the drawdown facility,
the Low parties were given a right of first refusal to provide funding for any
drilling project contemplated by the partnership.


                                       77


      Cadence and Low have agreed in principal as to the termination of the
drawdown facility, the repurchase of Low's limited partnership interest for
$250,000, dissolution of the partnership and related matters and in October
2003, Low received $250,000 from Cadence for the repurchase. The following
description of the transactions with regard to the partnership should be read in
light of the foregoing disclosure.

      In the formation of the partnership, Cadence contributed $12,500 to the
partnership and Low, the limited partner, contributed $250,000 in cash. A
portion of the $250,000 was used to advance the drilling on the West Electra
Lake #1 well. For example, $24,552 was spent on seismic acquisition and
processing which covered the Virginia Reef #2B well and also the West Electra
Lake #1 well acreage. Also $26,105 of the limited partnership funds was spent on
the leasing of the West Electra Lake Prospect as well as $16,077 on preparatory
costs for the West Electra Lake #1 well. Prior to the limited partner's request
for repayment of the limited partner's contribution (see below), Cadence had
granted the limited partner a 5% working interest in the #1 West Electra Lake
well. However, the limited partner has agreed to convey his working interest in
the West Electra Lake #1 well to Cadence as part of the buyout of his limited
partnership interest by Cadence.

      Low also advanced $300,000 to the partnership to explore natural gas
interests in Michigan in the Black Bean Unit. As an inducement for this advance,
Cadence issued Low 120,000 shares of common stock valued at $210,000. As an
additional inducement to making the $300,000 advance, Low was granted a 2.25%
working interest in each well in the Black Bean Unit in Michigan that was
drilled using the $300,000 until "unitized well payout," the point at which the
partnership receives 100% of its contribution back in the form of revenues from
the well unit. After unitized well payout, Low's working interest in these wells
will be reduced to a 2.00% working interest. Cadence has repaid the $300,000
loan.

      Cadence issued approximately 1,721,400 shares of its common stock in
September and October 2003 in a brokered private placement. It paid sales
commissions of $376,565 in cash and options to purchase 162,140 shares for $2.50
per share to a broker, Sunrise Securities Corporation, a company owned by Nathan
Low. It also issued 11,000 shares of Cadence common stock valued at $2.90 per
share to Nathan Low in connection with the private placement.

      On March 31, 2004, Cadence borrowed $250,000 from Howard Crosby, $70,000
from Glenn DeHekker, a former director of Cadence, $50,000 from Dotson
Exploration Company and $20,000 from Kevin Stulp, a director of Cadence, at an
interest rate of 12%. Such amounts were repaid by Cadence in April 2004.

      On April 2, 2004, Cadence sold 120 units consisting of a note in the
principal amount of $50,000 and a warrant to purchase 6,375 shares of Common
Stock, exercisable at $4.00 per share and expiring on April 2, 2007, for an
aggregate sales price of $6,000,000. As compensation for his services in
connection with this private placement, Cadence paid Nathan A. Low, a 5%
beneficial owner of Cadence's common stock, $300,000 and issued him a warrant to
purchase 76,500 shares of Common Stock, exercisable at $4.00 per share, and
expiring on April 2, 2007. In addition, Lisa Low, as custodian for Gabriel S.
Low, purchased nine units in the offering and Bear Stearns as Custodian for
Nathan A. Low Roth IRA purchased five units in the offering. Lisa Low is Mr.
Low's spouse, Gabriel S. Low is Mr. Low's child, and Mr. Low is the controlling
person of the Nathan A. Low Roth IRA.

      In August, 2004 Cadence purchased 500,000 shares of the common stock of TN
Oil Co., a Delaware corporation for $50,000. Mr. Ryan is an officer and director
of TN Oil Co. TN Oil Co. has obtained oil and gas leases in the State of
Tennessee, one of which was assigned to Cadence in November, 2004 in exchange
for a commitment to drill a test well on the subject leased property. The test
well was drilled in December, 2004 and was unsuccessful.


                                       78


      On January 31, 2005, Cadence entered into a purchase agreement (the
"Purchase Agreement") with twenty two accredited investors 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 $976,250 and a warrant to purchase
2,186,000 shares of Cadence's common stock for services rendered as the
placement agent in the transaction.

      On January 31, 2005, Cadence entered into an agreement with the seven
accredited investors 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.
$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 pursuant to the Purchase
Agreement. Nathan Low, a greater than 10% holder of Cadence's common stock, and
Lisa Low, Nathan Low's wife, as Custodian for Gabriel S. Low UNYGMA were two of
the eight accredited investors involved in this transaction. In connection with
this transaction, the exercise price of the warrants to purchase 76,500 shares
of common stock held by Nathan A. Low, who acted as a finder in the April 2004
private placement, were also reduced to $1.25 per share.

      Our Aurora subsidiary leases its office and storage space from South 31,
L.L.C. William W. Deneau and Thomas W. Tucker each own one-third of South 31,
L.L.C. The storage building contains four other storage units that are leased to
unrelated third parties at the same rate that our Aurora subsidiary pays.

      Messrs. Deneau, Tucker and Miller, who are officers and directors of our
Aurora subsidiary, are all involved as equity owners in numerous corporations
and limited liability companies that are active in the oil and gas business.
Existing affiliations involving co-ownership of projects in which our Aurora
subsidiary is active, are itemized below.

      Messrs. Deneau, Tucker and Miller own equal shares in JetX, LLC, an
exploration company that owns a 10% working interest in the Treasure Island
project.

      Mr. Miller has an ownership interest in Miller Resources, Inc., Miller
Resources 1994-1, and Miller Resources 1996-1, which own working interests of
1%, 0.5% and 1% respectively, in the Beyer project. Mr. Miller also has an
ownership interest in Energy Ventures, LLC, which owns a .75% working interest
in the Black Bean project.

      Messrs. Deneau, Tucker and Miller own Jet Exploration, Inc. which owns an
approximate 1% working interest in the Beregasi well.

      It is probable that on occasion, we will find it necessary or appropriate
to deal with other entities in which Messrs. Deneau, Tucker and Miller have an
interest.

      On September 7, 2004, the Patricia A. Deneau Trust, DTD 10/12/95, borrowed
$100,000 from our Aurora subsidiary to purchase shares of Aurora common stock
from an Aurora stockholder. This trust is controlled by William W. Deneau. The
loan was evidenced by an unsecured demand promissory note bearing interest at
the rate of 4.5% per year. The promissory note has been repaid in full. The
shares purchased by the trust were subsequently sold by the trust to Ms. King.

                            DESCRIPTION OF SECURITIES

      Our authorized capital stock consists of 100,000,000 shares of common
stock, par value $0.01 per share, and 20,000,000 shares of preferred stock, par
value $0.01 per share. As of November 1, 2005 we had 59,373,693 shares of common
stock issued and outstanding. Only one class of preferred stock is issued and
outstanding. Included below is a summary description of only those warrants held
by selling shareholders and we have not described any of our other outstanding
warrants.


                                       79


Common Stock

      The holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders. Accordingly,
holders of a majority of the shares of our common stock entitled to vote in any
election of directors may elect all of the directors standing for election.
Holders of common stock are entitled to receive ratably such dividends as may be
declared by the Board out of funds legally available therefor. In the event of
our liquidation, dissolution or winding up, holders of common stock are entitled
to share ratably in the assets remaining after payment of liabilities. Holders
of our common stock have no preemptive, conversion or redemption rights. All of
the outstanding shares of common stock are fully-paid and nonassessable.

Preferred Stock

      Our Board of Directors may, without shareholder approval, establish and
issue shares of one or more classes or series of preferred stock having the
designations, number of shares, dividend rates, liquidation preferences,
redemption provisions, sinking fund provisions, conversion rights, voting rights
and other rights, preferences and limitations that our Board may determine. Our
Board may authorize the issuance of preferred stock with voting, conversion and
economic rights senior to the common stock so that the issuance of preferred
stock could adversely affect the market value of the common stock. The creation
of one or more series of preferred stock may adversely affect the voting power
or other rights of the holders of common stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things and under some circumstances, have
the effect of delaying, deferring or preventing a change in control without any
action by shareholders.

      Our Board of Directors has authorized the issuance of 2,500,000 shares of
Class A Preferred Shares. As of October o, 2005, there were 34,950 shares of our
Class A Preferred Shares outstanding. Our Class A Preferred Shares are entitled
to a 15% annual dividend, paid quarterly, the right to convert each share of our
Class A Preferred Stock into one share of our common stock at a price of $1.50
per share, provided that certain conditions are met. Our Class A Preferred
Shares mature seven years from the date of issuance. At maturity, our Class
Preferred Shares will be redeemed for cash or common stock at our 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

      No other classes of preferred stock are outstanding.

Warrants

      The warrants being registered in connection with the Janaury Private
Placement are exercisable at $1.75 per share and expire on January 31, 2009. The
warrants may be exercised in whole or in part, subject to the limitations
provided in the warrants. Any warrant holders who do not exercise their warrants
prior to the conclusion of the exercise period will forfeit the right to
purchase the shares of common stock underlying the warrants and any outstanding
warrants will become void and be of no further force or effect. If at any time
while any of the warrants are outstanding, Cadence issues common stock, or
securities convertible into common stock to any person at a price per share of
common stock less than the exercise price of the warrants, the exercise price of
the warrants will be reduced pursuant to a formula as provided in the warrant.
In addition, in the event of a merger, consolidation, or sale of all or
substantially all the assets of Cadence, the holder of the warrant has the right
to receive a warrant substantially similar to the warrant or, at the option of
the holder of the warrant, an amount in cash equal to the value of the warrant.
If a dividend is declared on our common stock, the exercise price of the warrant
will be reduced in accordance with the terms of the warrant and the number of
shares of common stock the warrant is exercisable for will be proportionately
increased. If we were to offer any securities to its holders of common stock as
a class, the holder of the warrant would be entitled purchase such number of
securities as if the warrant holder were a holder of common stock.


                                       80


      Holders of the warrants have no voting rights of a shareholder, no
liquidation preference and no dividends will be declared on the warrants.

Election and Removal of Directors

      Each of our directors serves for a term of one year or until his successor
is elected and qualified if there is no annual meeting. At each annual meeting
of shareholders, the successors to the then current directors whose terms are
expiring are elected to serve for one-year terms. Directors may be removed at
any special meeting of our shareholders upon a vote of two-thirds of the
outstanding shares of stock entitled to vote for directors. Holders of our
common stock and preferred stock vote together for directors, with each share of
preferred stock having a number of votes equal to the number of shares of common
stock into which it could then be converted.

Shareholder Meetings

      Our bylaws provide that special meetings of shareholders may be called by
our board of directors. In addition, upon the request of shareholders holding
one-fifth of the voting power of all shareholders, the Secretary of our company
is required to call a meeting of the shareholders. Finally, if no annual meeting
of shareholders has taken place for a period of more than eighteen months, any
shareholder may call a meeting of the shareholders of our company.

                          TRANSFER AGENT AND REGISTRAR

      The transfer agent and registrar for our common stock is OTC Stock
Transfer, 231 E. 2100 South, Suite #3, Salt Lake City, Utah 84115. Its telephone
number is (801) 485-5555 and facsimile is (801) 486-0562.

                                  LEGAL MATTERS

      The validity of the shares of common stock offered in this prospectus has
been passed upon for us by Troutman Sanders LLP, The Chrysler Building, 405
Lexington Avenue, New York, New York 10174.

                                     EXPERTS

      Cadence's financial statements for the years ending September 30, 2004,
2003 and 2002 appearing in this prospectus have been audited by the accounting
firm of Williams & Webster, P.S., independent registered public accounting firm,
601 West Riverside, Suite 1970, Spokane, Washington 99201. The Cadence financial
statements are included in this Prospectus in reliance upon the said report,
given upon such firm's authority as an expert in auditing and accounting.
Aurora's financial statements for the years ending December 31, 2004 and 2003
appearing in this prospectus have been audited by the accounting firm of Rachlin
Cohen & Holtz LLP, independent registered public accounting firm, Suntrust
International Center, One SE Third Ave, Tenth Floor, Miami, Florida 33131. The
Aurora financial statements are included in this Prospectus in reliance upon the
said report, given upon such firm's authority as an expert in auditing and
accounting.

      The reference to the report of Ralph E. Davis Associates, Inc. Consultants
- - Petroleum and Natural Gas, located in Houston, Texas, contained herein with
respect to the proved reserves of Cadence's oil wells in Texas, the estimated
net revenue from such proved reserves, and the discounted present values of such
estimated future net revenue, is made in reliance upon the authority of such
firms as experts with the respect to such matters. Similarly, the reference to
the report of Data & Consulting Services, a division of Schlumberger Technology
Corporation of Pittsburgh, Pennsylvania, with respect to the Aurora reserves in
the Michigan Antrim Shale, the estimated net revenues from the reserves and the
discounted present values of the estimated future net revenue, is made in
reliance upon the authority of this firm as an expert with respect to these
matters.


                                       81


                       WHERE YOU CAN FIND MORE INFORMATION

      We have filed a registration statement on Form SB-2 with the SEC. This
prospectus, which forms a part of that registration statement, does not contain
all of the information included in the registration statement and the exhibits
and schedules thereto as permitted by the rules and regulations of the SEC. For
further information with respect to Cadence Resources Corporation and the shares
of common stock offered hereby, please refer to the registration statement,
including its exhibits and schedules. Statements contained in this prospectus as
to the contents of any contract or other document referred to herein are not
necessarily complete and, where the contract or other document is an exhibit to
the registration statement, each such statement is qualified in all respects by
the provisions of such exhibit, to which reference is hereby made. You may
review a copy of the registration statement at the SEC's public reference room
158, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. The registration statement can also be reviewed by accessing the SEC's
Internet site at http://www.sec.gov. We are subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, file periodic reports, proxy statements or information statements,
and other information with the SEC. These reports can also be reviewed by
accessing the SEC's Internet site.

      You should rely only on the information provided in this prospectus, any
prospectus supplement or as part of the registration statement Filed on Form
SB-2 of which this prospective is a part, as such registration statement is
amended and in effect with the SEC. We have not authorized anyone else to
provide you with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus, any prospectus supplement or any
document incorporated by reference is accurate as of any date other than the
date of those documents.


                                       82

                          Index to Financial Statements

                                                                                                        
Cadence Financial Statements for the fiscal year ended September 30, 2004
   Report of Independent Registered Public Accounting Firm                                                 F-2
   Balance Sheets as of September 30, 2004, 2003 and 2002                                                  F-3
   Statements of Operations and Comprehensive Loss for the years ended
     September 30, 2004, 2003 and 2002                                                                     F-5
   Statement of Stockholders' Equity for the years ended September 30, 2004, 2003 and 2002                 F-6
   Statements of Cash Flows for the years ended September 30, 2004, 2003 and 2002                          F-9
   Notes to the Financial Statements                                                                       F-11
Cadence Financial Statements for the nine months ended June 30, 2005
   Balance Sheets as of June 30, 2005 and June 30, 2004 and 2003                                           F-38
   Statements of Operations and Comprehensive Loss for the
    nine month period ended June 30, 2005, 2004 and 2003                                                   F-40
   Statements of Cash Flows for the nine month period ended June 30, 2005, 2004 and 2003                   F-41
   Notes to the Financial Statements                                                                       F-43
Pro Forma Financial Statements
   Balance Sheets as of June 30, 2005                                                                      F-47
   Statement of Operations for the six month period ended June 30, 2005                                    F-48
   Statements of Operations for the year ended December 31, 2004                                           F-49
Aurora Financial Statements for the fiscal year ended December 31, 2004
   Report of Independent Registered Public Accounting Firm F-53 Balance Sheets
   as of December 31, 2004 and 2003 F-54 Statements of Operations for the years
   ended
    December 31, 2004 and 2003                                                                             F-55
   Statement of Stockholders' Equity and Minority Interest for the years ended December 31, 2004           F-56
   Statements of Cash Flows for the years ended December 31, 2004 and 2003.F-57
   Notes to the Financial Statements                                                                       F-58
Aurora Financial Statements for the six months ended June 30, 2005
   Balance Sheets as of June 30, 2005                                                                      F-86
   Statements of Operations for the
    six month period ended June 30, 2005 and 2004                                                          F-87
   Statements of Cash Flows for the six month period ended June 30, 2005 and 2004                          F-88
   Notes to the Financial Statements                                                                       F-89




                                      F-1


The Board of Directors
Cadence Resources Corporation
Walla Walla, Washington

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

      We have audited the accompanying balance sheets of Cadence Resources
Corporation as of September 30, 2004, 2003 and 2002, and the related statements
of operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

      We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cadence Resources
Corporation as of September 30, 2004, 2003 and 2002, and the results of its
operations, stockholders equity and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.

Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
January 4, 2005


                                      F-2


                          CADENCE RESOURCES CORPORATION
                                 BALANCE SHEETS



                                                                September 30,
                                                 --------------------------------------------
                                                     2004            2003            2002
                                                 ------------    ------------    ------------
ASSETS
CURRENT ASSETS
                                                                        
    Cash                                         $  1,922,993    $  3,619,345    $     40,011
    Oil & gas revenue receivable                      335,407          84,575          26,123
    Receivable from working interest owners                --          12,873          16,037
    Notes receivable                                    8,720           3,720          13,078
    Prepaid expenses                                   39,410           5,925          27,500
    Other current assets                                  425             425             431
                                                 ------------    ------------    ------------
        TOTAL CURRENT ASSETS                        2,306,955       3,726,863         123,180
                                                 ------------    ------------    ------------

OIL AND GAS PROPERTIES, USING
SUCCESSFUL EFFORTS ACCOUNTING
    Proved properties                               5,731,108         590,747          48,694
    Unproved properties                               505,501         833,836          78,997
    Wells and related equipment and facilities        855,562         202,886          67,374
    Support equipment and facilities                  506,427         151,963         105,108
    Prepaid oil and gas leases                        456,219         395,973         177,177
    Less accumulated depreciation, depletion,
    amortization and impairment                    (3,911,939)        (61,611)         (4,312)
                                                 ------------    ------------    ------------
        TOTAL OIL AND GAS PROPERTIES                4,142,878       2,113,794         473,038
                                                 ------------    ------------    ------------

PROPERTY AND EQUIPMENT
    Furniture and equipment                             4,785           1,660           1,440
    Less accumulated depreciation                      (1,949)         (1,451)         (1,440)
                                                 ------------    ------------    ------------
        TOTAL PROPERTY AND EQUIPMENT                    2,836             209              --
                                                 ------------    ------------    ------------

OTHER ASSETS
    Investments                                       238,088         394,454         448,793
    Mineral properties available for sale             197,406         246,757         246,757
                                                 ------------    ------------    ------------
        TOTAL OTHER ASSETS                            435,494         641,211         695,550
                                                 ------------    ------------    ------------

TOTAL ASSETS                                     $  6,888,163    $  6,482,077    $  1,291,768
                                                 ============    ============    ============



   The accompanying notes are an integral part of these financial statements.


                                      F-3


                          CADENCE RESOURCES CORPORATION
                                 BALANCE SHEETS



                                                                           September 30,
                                                               2004            2003            2002
                                                           ------------    ------------    ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
                                                                                  
    Accounts payable                                       $    358,588    $    584,866    $    119,923
    Revenue distribution payable                                 32,387          68,929          14,835
    Payable to related party                                    300,000         550,000           2,500
    Deferred working interest                                        --              --          22,184
    Accrued compensation                                             --          94,920          66,261
    Accrued interest - related party                              3,548          15,752              --
    Interest payable - secured notes                              1,233              --              --
    Notes payable - related party                                    --         460,000              --
                                                           ------------    ------------    ------------
        TOTAL CURRENT LIABILITIES                               695,756       1,774,467         225,703
                                                           ------------    ------------    ------------

LONG-TERM DEBT
    Secured notes, net of discount                            5,071,147              --              --
                                                           ------------    ------------    ------------

COMMITMENTS AND CONTINGENCIES                                        --              --              --
                                                           ------------    ------------    ------------

REDEEMABLE PREFERRED STOCK                                       59,925          59,925              --
                                                           ------------    ------------    ------------

STOCKHOLDERS' EQUITY
    Common stock, $0.01 par value; 100,000,000 shares
       authorized, 12,892,327, 12,512,827, and 6,866,210
       shares issued and outstanding, respectively              128,923         125,128          68,662
    Additional paid-in capital                               18,995,458      18,343,422      13,291,965
    Stock options                                             1,642,614       1,210,704         626,790
    Stock warrants                                              794,512          51,375         233,334
    Accumulated deficit                                     (20,035,605)    (14,863,687)    (12,906,132)
    Accumulated other comprehensive loss                       (464,567)       (219,257)       (248,554)
                                                           ------------    ------------    ------------
        TOTAL STOCKHOLDERS' EQUITY                            1,061,335       4,647,685       1,066,065
                                                           ------------    ------------    ------------

TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY                                                     $  6,888,163    $  6,482,077    $  1,291,768
                                                           ============    ============    ============



   The accompanying notes are an integral part of these financial statements.


                                      F-4


                          CADENCE RESOURCES CORPORATION
                 STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS



                                                            Years Ended September 30,
                                                   --------------------------------------------
                                                       2004            2003            2002
                                                   ------------    ------------    ------------
REVENUES
                                                                          
    Oil and gas sales                              $  2,541,447    $    337,355    $     56,608
    Sale of drilling and production rights                   --          50,000              --
                                                   ------------    ------------    ------------
       Total Revenues                                 2,541,447         387,355          56,608
                                                   ------------    ------------    ------------
OPERATING AND ADMINISTRATIVE EXPENSES
    Depreciation, depletion and amortization          2,663,695          57,310           4,312
    Officers' and directors' compensation               725,485         528,727         152,510
    Consulting                                          319,338         531,137         934,254
    Oil and gas lease expenses                          565,148         302,204         131,812
    Oil and gas consulting                              105,535          60,000              --
    Exploration and drilling                            134,452         109,968         128,974
    Oil and gas production costs                        174,836          34,577           5,305
    Lease operating expenses                                 --          19,334          12,279
    Other general and administrative                  1,506,446         386,892         144,192
                                                   ------------    ------------    ------------
       Total Expenses                                 6,194,935       2,030,149       1,513,638
                                                   ------------    ------------    ------------
LOSS FROM OPERATIONS                                 (3,653,488)     (1,642,794)     (1,457,030)
                                                   ------------    ------------    ------------
OTHER INCOME (EXPENSE)
    Interest income                                      18,874             136           1,034
    Interest expense and loan fees                     (302,955)       (227,978)         (5,872)
    Partnership income (loss)                                --         (15,200)         10,000
    Gain (loss) on debt forgiveness                          --          (4,699)          6,109
    Other income                                         11,172              --              --
    Loss on sale of investment                           (9,156)             --              --
    Loss on disposition and impairment of assets     (1,236,365)        (67,020)        (29,890)
                                                   ------------    ------------    ------------
       Total Other Income (Expense)                  (1,518,430)       (314,761)        (18,619)
                                                   ------------    ------------    ------------
LOSS BEFORE TAXES                                    (5,171,918)     (1,957,555)     (1,475,649)
INCOME TAXES BENEFIT                                         --              --          66,040
                                                   ------------    ------------    ------------
LOSS FROM CONTINUING OPERATIONS                      (5,171,918)     (1,957,555)     (1,409,609)
GAIN (LOSS) FROM DISCONTINUED OPERATIONS
    Gain (loss) from mining operations (net of
    income taxes)                                            --              --         264,158
                                                   ------------    ------------    ------------
NET LOSS                                             (5,171,918)     (1,957,555)     (1,145,451)
OTHER COMPREHENSIVE INCOME (LOSS)
    Unrealized gain (loss) in market value of
    investments                                        (245,311)         29,297         (98,392)
                                                   ------------    ------------    ------------
COMPREHENSIVE LOSS                                 $ (5,417,228)   $ (1,928,258)   $ (1,243,843)
                                                   ============    ============    ============
LOSS PER COMMON SHARE BASIC AND DILUTED:
    Net loss from continuing operations            $      (0.41)   $      (0.21)   $      (0.28)
    Net gain (loss) from discontinued operations             --              --            0.05
                                                   ------------    ------------    ------------
NET LOSS PER COMMON SHARE                          $      (0.41)   $      (0.21)   $      (0.23)
                                                   ============    ============    ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED                                    12,715,619       9,348,374       4,965,179
                                                   ============    ============    ============



   The accompanying notes are an integral part of these financial statements.


                                      F-5


                          CADENCE RESOURCES CORPORATION
                        STATEMENT OF STOCKHOLDERS' EQUITY



                                                                                                         Accumulated
                                         Common Stock     Additional                                        Other        Total
                                       Number              Paid-in      Stock     Stock    Accumulated  Comprehensive Stockholders'
                                      of Shares  Amount    Capital     Options   Warrants    Deficit         Loss        Equity
                                      ---------  -------  -----------  --------  --------  ------------   ---------   -----------
                                                                                              
Balance,
    September 30, 2001                2,453,890  $24,539  $12,198,855  $     --  $     --  $(11,760,681)  $(150,162)  $   312,551
Shares issued for cash at $0.24
    to $0.50 per share                  783,000    7,830      234,070        --        --            --          --       241,900
Shares issued to officer for debt
    at $0.30 per share                  300,000    3,000       87,000        --        --            --          --        90,000
Shares  issued  to  officers,
    consultants and others for
    services, accrued compensation
    and prepaid expenses at $0.30
    to $0.38 per share                  589,184    5,892      205,775        --        --            --          --       211,667
Shares issued for cash with warrants
    attached at $0.30 per share       2,333,336   23,333      443,333        --   233,334            --          --       700,000
Shares issued to officer for
    reimbursement of expenses
    paid for Company at $1.03
    per share                             6,800       68        6,932        --        --            --          --         7,000
Shares issued for investment at
    $0.30 per share                     400,000    4,000      116,000        --        --            --          --       120,000
Options issued to directors and
    consultants for services                 --       --           --   626,790        --            --          --       626,790
Net loss for the year ended
    September 30, 2002                       --       --           --        --        --    (1,145,451)         --    (1,145,451)
Unrealized loss on market value
    of investments                           --       --           --        --        --            --     (98,392)      (98,392)
                                      ---------  -------  -----------  --------  --------  ------------   ---------   -----------
Balance
    September 30, 2002                6,866,210  $68,662  $13,291,965  $626,790  $233,334  $(12,906,132)  $(248,554)  $ 1,066,065



   The accompanying notes are an integral part of these financial statements.


                                      F-6


                          CADENCE RESOURCES CORPORATION
                        STATEMENT OF STOCKHOLDERS' EQUITY



                                                Common Stock
                                          ------------------------   Additional
                                            Number                     Paid-in        Stock          Stock        Accumulated
                                           of Shares      Amount       Capital       Options        Warrants        Deficit
                                          ----------   -----------  ------------   ------------   -------------   -------------
                                                                                                
Balance
     September 30, 2002                    6,866,210   $    68,662  $ 13,291,965   $    626,790   $    233,334    $(12,906,132)

Shares issued for cash with warrants
     attached at an average of $0.52
     per unit                                212,500         2,125        56,500             --         51,375              --

Shares issued to officers, directors
     and others for services at $0.78
     to $1.80                                496,500         4,965       535,710             --             --              --

Shares issued for loan consideration
     at $1.08 per share                      220,000         2,200       204,800             --             --              --

Shares issued for exercise of options
     at $0.75 per share                      100,000         1,000       142,100        (68,100)            --              --

Shares issued from exercise of
     warrants                              1,956,984        19,569       213,765             --       (233,334)             --

Shares issued for cash at $0.80 to
     $2.50 per share, net of
     financing fee of $347,850             2,525,183        25,252     4,216,347             --             --              --

Options issued for financing                      --            --      (429,671)       429,671             --              --

Shares issued for related party loan
     fee at $1.00 per share                  120,000         1,200       118,800             --             --              --

Conversion of shares of Celebration
     for shares of Cadence
     common stock                             14,250           143          (143)            --             --              --

Options issued to consultants for
     services                                     --            --            --        222,343             --              --

Miscellaneous adjustment                       1,200            12           (12)            --             --              --

Dividends paid on preferred stock                 --            --        (6,739)            --             --              --

Net loss for the year ended
     September 30, 2003                           --            --            --             --             --      (1,957,555)

Unrealized gain on market value of
     investments (unaudited)                      --            --            --             --             --              --
                                          ----------   -----------  ------------   ------------   ------------    ------------

     Balance, September 30, 2003          12,512,827   $   125,128  $ 18,343,422   $  1,210,704   $     51,375    $(14,863,687)
                                          ==========   ===========  ============   ============   ============    ============



                                      F-7




                                          Accumulated
                                             Other           Total
                                          Comprehensive    Stockholders'
                                             Loss            Equity
                                         --------------  --------------
                                                      
Balance
     September 30, 2002                     $   (248,554)   $  1,066,065

Shares issued for cash with warrants
     attached at an average of $0.52
     per unit                                         --         110,000

Shares issued to officers, directors
     and others for services at $0.78
     to $1.80                                         --         540,675

Shares issued for loan consideration
     at $1.08 per share                               --         207,000

Shares issued for exercise of options
     at $0.75 per share                               --          75,000

Shares issued from exercise of
     warrants                                         --              --

Shares issued for cash at $0.80 to
     $2.50 per share, net of
     financing fee of $347,850                        --       4,241,599

Options issued for financing                          --              --

Shares issued for related party loan
     fee at $1.00 per share                           --         120,000

Conversion of shares of Celebration
     for shares of Cadence
     common stock                                     --              --

Options issued to consultants for
     services                                         --         222,343

Miscellaneous adjustment                              --              --

Dividends paid on preferred stock                     --          (6,739)

Net loss for the year ended
     September 30, 2003                               --      (1,957,555)

Unrealized gain on market value of
     investments (unaudited)                      29,297          29,297
                                            ------------    ------------

     Balance, September 30, 2003            $   (219,257)   $  4,647,685
                                            ============    ============



   The accompanying notes are an integral part of these financial statements.


                                      F-8


                          CADENCE RESOURCES CORPORATION
                        STATEMENT OF STOCKHOLDERS' EQUITY



                                              Common Stock
                                       ---------------------------   Additional
                                          Number                       Paid-in          Stock          Stock         Accumulated
                                         of Shares       Amount        Capital         Options        Warrants         Deficit
                                       ------------   ------------   -------------  ------------   -------------   -------------
                                                                                                 
Balance
     September 30, 2003                  12,512,827   $    125,128   $ 18,343,422   $  1,210,704   $     51,375    $(14,863,687)

        273,900             --
     at $2.50 per share                     110,000          1,100        273,900             --             --              --

Shares issued for services at
     $0.88 to $2.50 per share                99,500            995        143,960             --             --              --

Shares issued for officer and
     director fees at $0.76 to $2.23
     per share                              120,000          1,200        183,200             --             --              --

Share issued for exercise of
     warrants @ $1.35 per share              10,000            100         15,500             --         (2,100)             --

Shares issued for financing expense
     at $0.76 per share                      15,000            150         11,475             --             --              --

Shares issued for repayment of
     related party loan at $1.00 per
     share                                   25,000            250         24,750             --             --              --

Options issued for financing fees                --             --             --         71,910             --              --

Options issued to officers and
     directors for services                      --             --             --        360,000             --              --

Dividends paid                                   --             --           (749)            --             --              --

Deferred financing cost                          --             --             --             --        745,237              --

Net loss for the year ended
     September 30, 2004                          --             --             --             --             --      (5,171,918)

Unrealized loss on market value
     of investments                              --             --             --             --             --              --

                                       ------------   ------------   ------------   ------------   ------------    ------------
     Balance September  30, 2004         12,892,327   $    128,923   $ 18,995,458   $  1,642,614   $    794,512    $(20,035,605)
                                       ============   ============   ============   ============   ============    ============



                                      F-9


                                          Accumulated
                                             Other           Total
                                          Comprehensive   Stockholders'
                                              Loss           Equity
                                         --------------  --------------
Balance
     September 30, 2003                  $   (219,257)   $  4,647,685

Issuance of common stock for cash
     at $2.50 per share                            --         275,000

Shares issued for services at
     $0.88 to $2.50 per share                      --         144,955

Shares issued for officer and
     director fees at $0.76 to $2.23
     per share                                     --         184,400

Share issued for exercise of
     warrants @ $1.35 per share                    --          13,500

Shares issued for financing expense
     at $0.76 per share                            --          11,625

Shares issued for repayment of
     related party loan at $1.00 per
     share                                         --          25,000

Options issued for financing fees                  --          71,910

Options issued to officers and
     directors for services                        --         360,000

Dividends paid                                     --            (749)

Deferred financing cost                            --         745,237

Net loss for the year ended
     September 30, 2004                            --      (5,171,918)

Unrealized loss on market value
     of investments                          (245,310)       (245,310)

                                         ------------    ------------
     Balance September  30, 2004         $   (464,567)   $  1,061,335
                                         ============    ============


   The accompanying notes are an integral part of these financial statements.


                                      F-10


                      CADENCE RESOURCES CORPORATION
                        STATEMENTS OF CASH FLOWS



                                                                         Year Ended
                                                                        September 30,
                                                       ----------------------------------------------
                                                            2004              2003           2002
                                                       -------------     -------------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES
                                                                                
     Net loss                                          $  (5,171,918)    $ (1,957,555)   $ (1,145,451)
     Adjustments to reconcile net loss to net cash
         used by operating activities:
             Loss (gain) on sale of investments                9,156           67,020         (29,890)
             Impairment of long-lived assets               1,236,365               --              --
             Partnership loss                                     --           15,200              --
             Loss (gain) from mining operations                   --               --        (330,198)
             Gain (loss) on debt forgiveness                      --            4,699              --
             Depreciation, depletion and amortization      2,663,695           57,310           4,312
             Issuance of common stock for services           144,955          540,675         211,667
             Issuance of common stock for
                   expenses                                  196,025               --           7,000
             Amortization of deferred financing fees         279,919               --              --
             Issuance of common stock for  loan
                  repayment                                   25,000               --              --
             Issuance of common stock for loan
                   consideration                                  --          327,000              --
             Issuance of stock options for
                  services                                   360,000          222,343         626,790
             Issuance of stock options for
                  financing fees                              71,910               --              --
             Investment given for services                        --           14,700              --
     Changes in assets and liabilities:
             Oil & gas revenue receivable                   (250,832)         (58,452)        (26,123)
             Receivable from working interest owners          12,873            3,164         (16,037)
             Notes receivable                                 (5,000)           6,058         (30,000)
             Prepaid expenses                                (33,485)          21,575         (26,225)
             Deposit                                              --                6              (6)
             Prepaid mineral leases                               --         (218,796)        (95,022)
             Accounts payable                               (226,278)           1,082         (38,934)
             Revenue distribution payable                    (36,542)          54,094          14,835
             Deferred working interest                       (22,184)          22,184
             Accrued expenses                                (94,920)          28,659          50,261
             Interest payable                                (12,204)          15,752              --
             Interest payable-secured notes                    1,233               --              --
             Payable to related parties                     (550,000)          (2,500)             --
                                                       -------------     ------------    ------------
         Net cash provided (used) by
            operating activities                          (1,380,048)        (880,150)       (800,837)
                                                       -------------     ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of investments                                (112,360)         (32,795)        (33,889)
     Purchase and development of proved and
         unproved properties                              (4,542,760)        (629,383)       (127,691)
     Purchase of fixed assets                               (981,660)        (182,587)       (172,482)
     Sale of investments                                      14,420           16,614          86,326
                                                       -------------     ------------    ------------
         Net cash provided (used) by
            investing activities                          (5,622,360)        (828,151)       (247,736)
                                                       -------------     ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES
     Issuance of common stock for cash                       288,500        4,728,324         708,566
     Issuance of redeemable preferred stock                       --           59,925              --
     Issuance of warrants for cash                                --           46,125         233,334
     Payments of preferred stock dividends                      (749)          (6,739)             --
     Proceeds from secured notes payable                   5,920,000               --              --
     Proceeds from notes payable and loans payable           115,000          600,000              --
     Payments of notes payable                            (1,016,695)        (140,000)        (45,000)
                                                       -------------     ------------    ------------
         Net cash provided by
            financing activities                           5,306,056        5,287,635         896,900
                                                       -------------     ------------    ------------
         Net increase (decrease) in cash               $  (1,696,352)    $  3,579,334    $   (151,673)
                                                       -------------     ------------    ------------



   The accompanying notes are an integral part of these financial statements.


                                      F-11

                          CADENCE RESOURCES CORPORATION
                            STATEMENTS OF CASH FLOWS



                                                                          Year Ended
                                                                         September 30,
                                                         ------------------------------------------
                                                             2004            2003           2002
                                                         -----------     -----------    -----------
                                                                               
Net increase (decrease) in cash (balance forward)        $(1,696,352)    $ 3,579,334    $  (151,673)

Cash, beginning of period                                  3,619,345          40,011        191,684

                                                         -----------     -----------    -----------
Cash, end of period                                      $ 1,922,993     $ 3,619,345    $    40,011
                                                         ===========     ===========    ===========

SUPPLEMENTAL CASH FLOW DISCLOSURE:

      Income taxes paid                                  $        --     $        --    $        --
      Interest paid                                      $        --     $        --    $        --

NON-CASH INVESTING AND FINANCING
      ACTIVITIES:

      Common stock issued for services rendered,
           accrued compensation and prepaid expenses     $   144,955     $   540,675    $   211,667
      Common stock issued for exchange of debt           $    25,000     $        --    $    90,000
      Common stock issued in exchange for investments    $        --     $        --    $   120,000
      Common stock issued for reimbursement
           of expenses paid                              $   196,025     $        --    $     7,000
      Common stock issued for loan consideration         $        --     $   327,000    $        --
      Investment received for mining claims              $        --     $        --    $   350,000
      Investment received for note receivable            $        --     $        --    $    15,000
      Investment given for related party receivable      $        --     $        --    $     8,231
      Investment given for consulting services           $        --     $    14,700    $        --
      Stock options issued for services                  $   360,000     $   222,343    $   626,790
      Stock options issued for financing fees            $    71,910     $   429,671    $        --
      Exchange of unproved property leases for
           interest in limited partnership               $        --     $        --    $     2,700
      Stock issued for exercise of warrants              $        --     $   233,334    $        --
      Issuance of accounts payable to related party
           for financing fees                            $   300,000     $        --    $        --



   The accompanying notes are an integral part of these financial statements.


                                      F-12


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Cadence Resources Corporation (formerly Royal Silver Mines, Inc.) hereinafter
("Cadence" or "the Company") was incorporated in April of 1969 under the laws of
the State of Utah primarily for the purpose of acquiring and developing mineral
properties. The Company changed its name from Royal Silver Mines, Inc. to
Cadence Resources Corporation on May 2, 2001 upon obtaining approval from its
shareholders and filing an amendment to its articles of incorporation. The
Company shall be referred to as "Cadence" or "Cadence Resources Corporation"
even though the events described may have occurred while the Company's name was
"Royal Silver Mines, Inc." The Company has elected a September 30 fiscal
year-end.

On July 1, 2001, Cadence developed a plan for acquisition, exploration and
development of oil and gas properties and accordingly began a new exploration
stage as an energy project development company. Prior to this, Cadence conducted
its business as a "junior" mineral resource company, meaning that it intended to
receive income from property sales or joint ventures of its mineral projects
with larger companies. The Company continues to hold several mineral properties,
which are described in Note 3.

Celebration Mining Company ("Celebration"), a wholly owned subsidiary of
Cadence, was incorporated for the purpose of identifying, acquiring, exploring
and developing mining properties. Celebration was organized on February 17, 1994
as a Washington corporation. Celebration has not yet realized any revenues from
its operations.

On August 8, 1995, Cadence and Celebration completed an agreement and plan of
reorganization whereby the Company issued 207,188 shares of its common stock and
72,750 warrants in exchange for all of the outstanding common stock of
Celebration. Pursuant to the reorganization, the name of the Company was changed
to Royal Silver Mines, Inc. Immediately prior to the agreement and plan of
reorganization, the Company had 118,773 common shares issued and outstanding.

The acquisition was accounted for as a purchase by Celebration of Cadence,
because the shareholders of Celebration controlled the Company after the
acquisition. Therefore, Celebration is treated as the acquiring entity. There
was no adjustment to the carrying value of the assets or liabilities of Cadence
in the exchange as the market value approximated the net carrying value. Cadence
is the acquiring entity for legal purposes and Celebration is the surviving
entity for accounting purposes.

As a result of the Company's entering a new exploration stage on July 1, 2001,
the Company elected to dispose of its mineral properties and has accordingly
reclassified those remaining properties, which total $197,406 at September 30,
2004, as other assets. The Company has not determined whether these mineral
exploration properties contain ore reserves that are economically recoverable,
and is in the process of disposing of these properties. The ultimate realization
of the Company's investment in these properties cannot be determined at this
time and, accordingly, no provision for any asset impairment that may result in
the event the Company is not successful in selling these properties has been
made in the accompanying financial statements. See Note 3.


                                      F-13


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)

The costs of prepaid oil and gas leases ($456,219 and $395,973, respectively)
included in the accompanying balance sheets as of September 30, 2004 and
September 30, 2003 are principally related to natural gas properties. The
Company has not determined whether the properties in Kansas or New Mexico
contain economically recoverable gas reserves. The ultimate realization of the
Company's investment in oil and gas properties in these locations is dependent
upon finding and developing economically recoverable reserves, the ability of
the Company to obtain financing or make other arrangements for development and
upon future profitable production. The ultimate realization of the Company's
investment in these oil and gas properties cannot be determined at this time
and, accordingly, no provision for any asset impairment that may result in the
event the Company is not successful in developing these properties, has been
made in the accompanying financial statements. The Company has completed reserve
studies on its properties located in Texas and Louisiana.

The Company was in the exploration stage through most of the year ending
September 30, 2002. During the fourth quarter of the year ended September 30,
2002, the Company entered a very brief development stage and has since been
considered an operating company. For the years ending September 30, 2002, the
Company's auditors expressed a going concern qualification on the Company's
audited financial statements.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Cadence Resources Corporation
is presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to accounting principles generally accepted in the United
States of America and have been consistently applied in the preparation of the
financial statements.

Accounting Method

The Company's financial statements are prepared using the accrual method of
accounting in accordance with accounting principles generally accepted in the
United States of America.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

Derivative Instruments

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB No.
133", and SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" and SFAS No. 149, "Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities." These standards establish
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
They require that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.

If certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.


                                      F-14


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Historically, the Company has not entered into derivatives contracts to hedge
existing risks or for speculative purposes.

At September 30, 2004 and for the periods covered in these statements, the
Company has not engaged in any transactions that would be considered derivative
instruments or hedging activities.

Environmental Remediation and Compliance Expenditures for ongoing compliance
with environmental regulations that relate to current operations are expensed or
capitalized as appropriate. Expenditures resulting from the remediation of
existing conditions caused by past operations that do not contribute to future
revenue generations are expensed. Liabilities are recognized when environmental
assessments indicate that remediation efforts are probable and the costs can be
reasonably estimated.

Estimates of such liabilities are based upon currently available facts, existing
technology and presently enacted laws and regulations taking into consideration
the likely effects of inflation and other societal and economic factors, and
include estimates of associated legal costs. These amounts also reflect prior
experience in remediating contaminated sites, other companies' clean-up
experience and data released by The Environmental Protection Agency or other
organizations. Such estimates are by their nature imprecise and can be expected
to be revised over time because of changes in government regulations,
operations, technology and inflation. Recoveries are evaluated separately from
the liability and, when recovery is assured, the Company records and reports an
asset separately from the associated liability. At September 30, 2004, the
Company had no accrued liabilities for compliance with environmental
regulations.

Estimates

The process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.

Fair Value of Financial Instruments

The carrying amounts for cash, receivables, deposits, payables, and advances
from related parties approximate their fair value.

Fair Value Standards

The Company has adopted the fair value accounting rules to record all
transactions in equity instruments for goods or services.

Impaired Asset Policy

The Company adopted Statement of Financial Accounting Standards No. 144 titled
"Accounting for Impairment of Disposal of Long-Lived Assets." In complying with
this standard, the Company reviews its long-lived assets quarterly to determine
if any events or changes in circumstances have transpired which indicate that
the carrying value of its assets may not be recoverable. The Company determines
impairment by comparing the undiscounted future cash flows estimated to be
generated by its assets to their respective carrying amount whenever events or
changes in circumstances indicate that an asset may not be recoverable. Because
of write-downs and write-offs taken in 2004 and in prior years, the Company does
not believe any further adjustments are needed to the carrying value of its
assets at September 30, 2004. See Note 3.

Investments

Investments, principally consisting of equity securities of private and small
public companies, are stated at current market value.


                                      F-15


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loss Per Share

Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the year. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time they were outstanding. Outstanding warrants were not
included in the computation of diluted loss per share because their inclusion
would be antidilutive.

Mineral Properties

Costs of acquiring, exploring and developing mineral properties are capitalized
by project area. Costs to maintain the mineral rights and leases are expensed as
incurred. When a property reaches the production stage, the related capitalized
costs will be amortized, using the units of production method on the basis of
periodic estimates of ore reserves. At September 30, 2004, 2003, and 2002 the
cost of the Company's mineral properties are included in other assets in the
accompanying financial statements, as the Company has changed its focus from
minerals exploration to oil and gas.

Mineral properties are periodically assessed for impairment of value and any
losses are charged to operations at the time of impairment.

Should a property be abandoned, its capitalized costs are charged to operations.
The Company charges to operations the allocable portion of capitalized costs
attributable to properties sold. Capitalized costs are allocated to properties
sold based on the proportion of claims sold to the claims remaining within the
project area.

Oil and Gas Properties

The Company uses the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves, and
to drill and equip development wells are capitalized. Costs to drill exploratory
wells that do not find proved reserves, geological and geophysical costs, and
costs of carrying and retaining unproved properties are expensed.

Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the Company's experience of successful
drilling and average holding period. Capitalized costs of producing oil and gas
properties, after considering estimated dismantlement and abandonment costs and
estimated salvage values, are depreciated and depleted by the unit-of-production
method. Support equipment and other property and equipment are depreciated over
their estimated useful lives.

On the sale or retirement of a complete unit of a proven property, the cost and
related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On the
retirement or sale of a partial unit of proven property, the cost is charged to
accumulated depreciation, depletion, and amortization with a resulting gain or
loss recognized in income.

On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any unrecorded impairment if the property had been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.


                                      F-16


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Principles of Consolidation

The financial statements include those of the Cadence Resources Corporation and
Celebration Mining Company. All significant inter-company accounts and
transactions have been eliminated. The financial statements are not considered
consolidated statements since Cadence Resources Corporation was the successor by
merger to Celebration Mining Company.

Provision For Taxes

Income taxes are provided based upon the liability method of accounting pursuant
to Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes." Under this approach, deferred income taxes are recorded to reflect the
tax consequences in future years of differences between the tax basis of assets
and liabilities and their financial reporting amounts at each year-end. A
valuation allowance is recorded against deferred tax assets if management does
not believe the Company has met the "more likely than not" standard imposed by
SFAS No. 109 to allow recognition of such an asset.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued a revision to
Statement of Financial Accounting Standards No. 123R, "Accounting for Stock
Based Compensation." This statement supersedes APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and its related implementation guidance. This
statement establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments. This statement
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. This statement does not
change the accounting guidance for share based payment transactions with parties
other than employees provided in Statement of Financial Accounting Standards No.

123 (SFAS 123). This statement does not address the accounting for employee
share ownership plans, which are subject to AICPA Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans." The Company has
determined that there would be no impact to its financial statements from the
adoption of this statement, as it presently reports under the standards of SFAS
123.

In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 153. This statement addresses the measurement
of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29,
"Accounting for Nonmonetary Transactions," is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that opinion; however, included certain
exceptions to that principle. This statement amends Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. This statement is effective for financial statements for fiscal
years beginning after June 15, 2005. Earlier application is permitted for
nonmonetary asset exchanges incurred during fiscal years beginning after the
date of this statement is issued. Management believes the adoption of this
statement will have no impact on the financial statements of the Company.


                                      F-17


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (continued)

In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 151, Inventory Costs-- an amendment of ARB No. 43, Chapter 4. This Statement
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that ". . . under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs may
be so abnormal as to require treatment as current period charges. . . ." This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition,
this Statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Management does not believe the
adoption of this Statement will have any immediate material impact on the
Company as the Company maintains no inventory.

In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" (hereinafter
"SFAS No. 150"). SFAS No. 150 establishes standards for classifying and
measuring certain financial instruments with characteristics of both liabilities
and equity and requires that those instruments be classified as liabilities in
statements of financial position. Previously, many of those instruments were
classified as equity. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The Company
has determined that there was no impact on the Company's financial statements
from the adoption of this statement.

In April 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (hereinafter "SFAS No. 149").
SFAS No. 149 amends and clarifies the

Recent Accounting Pronouncements (continued) accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of SFAS No. 149 did
not have a material impact on the financial position or results of operations of
the Company.

In December 2002, the Financial Accounting Standards Board, issued Statement of
Financial Accounting Standards, No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS No. 148"). SFAS No. 148 amends
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, the statement
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosure in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The provisions of the statement are effective for
financial statements for fiscal years ending after December 15, 2002. The
Company currently reports stock issued to employees under the rules of SFAS No.
123. Accordingly there is no change in disclosure requirements due to SFAS No.
148.


                                      F-18


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (continued)

In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51" (hereinafter "FIN 46"). FIN 46 requires certain
variable interest entities to be consolidated by the primary beneficiary of the
entity if the equity investors in the entity do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective for all new variable interest
entities created or acquired after January 31, 2003. The provisions of FIN 46
must be applied for the first interim or annual period beginning after June 15,
2003. The Company does not have any entities that require disclosure or new
consolidation as a result of adopting the provisions of FIN 46.

In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for
Guarantees, including Indirect Guarantees of Indebtedness of Others"
(hereinafter "FIN 45"). FIN 45 requires a company, at the time it issues a
guarantee, to recognize an initial liability for the fair value of obligations
assumed under the guarantee and elaborates on existing disclosure requirements
related to guarantees and warranties. The initial recognition requirements of
FIN 45 are effective for guarantees issued or modified after December 31, 2002
and do not have an impact on the financial statements of the Company. The
Company does not anticipate issuing any guarantees which would be required to be
recognized as a liability under the provisions of FIN 45 and thus does not
expect the adoption of this interpretation to have an impact on its results of
operations or financial position.

Reclassifications

Certain amounts from prior periods have been reclassified to conform with the
current period presentation. These reclassifications have resulted in no changes
to the Company's accumulated deficit and net losses presented.

Revenue Recognition

Cadence began producing revenues during July 2002. Oil and gas revenues are
recorded using the sales method. Under this method, the Company recognizes
revenues based on actual volumes of oil and gas sold to purchasers.

NOTE 3 - MINERAL PROPERTIES

Over the last three years, the Company's mineral properties have for the most
part been disposed of or written off as the Company's focus and direction have
shifted to oil and gas production.

Utah Property
The Company has elected to retain its 25% undivided interest in the Vipont Mine
located in northwest Utah. This interest was carried on the Company's books at
$246,757 at September 30, 2003 and 2002. During the year ended September 30,
2004, the Company elected to reduce the interest's carrying value to $197,406 in
order to better reflect its market value. This asset is included in "other
assets" on the Company's balance sheet.

Mineral Properties in North Idaho

At September 30, 2004, the Company, directly and through its subsidiary,
Celebration Mining Company, held unpatented mining claims in the Coeur d'Alene
Mining District in distinct groups called the South Galena Group, Moe Group,
Rock Creek Group and Palisades Group. The Company has undertaken only minimal
exploration and development work on these properties, such as general geological
reconnaissance and claim-staking activities. All of these claims have been
written off as permanently impaired.


                                      F-19


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 3 - MINERAL PROPERTIES (Continued)

Mineral Properties in North Idaho (continued)

In September 2000, the Company, through its wholly owned subsidiary Celebration
Mining Company, entered into a five-year lease agreement with an affiliated
company, Oxford Metallurgical, Inc.("Oxford") on its eight-claim Palisades Group
property. The lease called for a semi-annual payment of $3,000, or
alternatively, the semi-annual payment of 10,000 shares of the common stock of
Oxford. Oxford had the right to explore and potentially develop the property
under certain conditions. This lease was rescinded during the year ended
September 30, 2002.

Other Domestic Properties

In the fourth quarter of the year ended September 30, 2001, the Company elected
to write off all of its interests in mineral properties except for the ViPont
Mine, Kil Group Claims and West Mullan Group Claims. The net effect of this
write down was to record a loss on asset impairment of $432,090 during the year
ended September 30, 2001.

On October 31, 2001, the Company sold its Kil Group and West Mullan Group claims
to Caledonia Silver-Lead Mines, Inc., an affiliated company. The combined sale
price for these claims was 3,501,980 shares of the common stock of Caledonia,
having an estimated market value of $0.10 per share and valued at $350,198. The
net effect of the transaction was a gain of $330,198. See Note 5.

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Major additions and improvements
are capitalized. Minor replacements, maintenance and repairs that do not
increase the useful life of the assets are expensed as incurred. Depreciation of
property and equipment is determined using the straight-line method over the
expected useful lives of the assets of five to ten years. Depreciation expense
for the years ended September 30, 2004, 2003, and 2002 was $92,158, $21,222 and
$4,303, respectively.


                                      F-20


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 5 - INVESTMENTS

The Company's investment securities are classified as available for sale
securities which are recorded at fair value on the balance sheet as investments.
The change in fair value during the period is excluded from earnings and
recorded net of tax as a component of other comprehensive income. The Company
has no investments which are classified as trading securities.

At September 30, 2004, 2003, and 2002, the market values of stock investments
were as follows:


                                            2004        2003        2002
                                          --------    --------    --------
Elite Logistics, Inc.                     $    204    $    656    $  2,950
Ashington Mining Company                     5,709       5,709       5,709
Cadence Resources Corp. LP                      --          --      15,200
Enerphaze Corporation                          655       5,400       5,400
Exhaust Technology                              --          --       2,244
Integrated Pharmaceuticals, Inc.            27,984       9,406          --
Metalline Mining Company                     1,605         925          --
Nevada-Comstock (formerly Caledonia
  Silver-Lead Mines, Inc.)                  12,000           0     350,198
Rigid Airship Tech                             310         310          --
Sterling Mining Co.                             --          --       4,859
The Williams Companies, Inc.                    --          --       6,800
Trend Mining Company                        27,083      24,483      54,567
Western Goldfields, Inc.                   102,148     351,373         866
TN Oil Co                                   50,000          --          --
White Mtn Titanium                           9,940          --          --
Other investments                              450         610          --
                                          --------    --------    --------
Total                                     $238,088    $394,454    $448,793
                                          ========    ========    ========

The carrying value of these shares are reevaluated at each reporting period and
adjustments, if appropriate, are made to the carrying value of these securities.
Of all the aforementioned investments owned by the Company at September 30,
2004, only Trend Mining Company, Metalline Mining Company, Western Goldfields,
Inc., White Mtn Titanium, and Integrated Pharmaceuticals are public companies
with a trading market.

Other information regarding the Company's investments follows:

Enerphaze Corporation
In October 2001, the Company received 8,000 shares of Enerphaze Corporation
common stock in payment of a $15,000 note receivable. In January and February
2002, the Company received 65,000 shares of Enerphaze Corporation common stock
in exchange for 400,000 shares of the Company's common stock. No gain or loss
was recognized on these transactions.

Nevada-Comstock Mining Company (formerly Caledonia Silver-Lead Mines, Inc.) The
Company on October 31, 2001 received 3,501,980 shares of the $0.10 par value
common stock of Caledonia Silver-Lead Mines, Inc. (an affiliated company) in
exchange for its Kil Group and West Mullan Group claims. The stock received was
recorded at its par value of $350,198 which, in the opinion of management,
approximates its fair value. At September 30, 2003, this investment was written
off to reflect the mining company's dormancy. In the year ended September 30,
2004, the Company's investment in the mining company increased to $12,000 as
funds were advanced to cover annual filing fees on patented mining claims.


                                      F-21


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 5 - INVESTMENTS

TN Oil Company

In August 2004, the Company acquired a 25% equity ownership in TN Oil Company,
which owns oil leases in central and north central Tennessee.

Western Goldfields, Inc.
In 2002, the Company exchanged fully depreciated mining equipment for shares of
a privately held business, Calumet Mining Company, which was eventually acquired
by Western Goldfields, Inc. Upon completion of the acquisition, the Company
received 160,000 shares of Western's common stock. During 2003, the Company
acquired an additional 21,200 shares of Western stock for $24,730. At September
30, 2004, the fair market value of the Company's holdings in Western was
$102,148.

Cadence Resources Corporation Limited Partnership On August 8, 2002, the Company
formed a limited partnership in the State of Washington whereby the Company
became the managing general partner and an outside individual investor became
the initial limited partner. In connection with the formation of the
Partnership, the Company agreed to contribute $12,500 and its leasehold interest
in an oil well ("2B", which ultimately was a dry hold) in Wilbarger County,
Texas and the limited partner contributed $250,000 in cash. The entity, Cadence
Resources Corporation Limited Partnership (hereinafter "CRCLP" or "the
Partnership") was formed to invest in oil and gas properties in Texas and
Louisiana. The limited partner's interest was purchased by the Company in a
transaction with an effective date of September 30, 2003, at which time the
Company held all of the general partner interests and limited partner interests
in the Partnership. See Note 13.

NOTE 6 - COMMON STOCK

During the year ended September 30, 2004, the Company issued 219,500 shares of
its common stock to officers, directors and consultants for services valued at
$329,355, 25,000 shares in repayment of a related party loan of $25,000, 15,000
shares for financing expense valued at $11,625, 110,000 shares for cash proceeds
of $275,000. Warrants previously issued were exercised for 10,000 shares at
$1.35 per share.

During the year ended September 30, 2003, the Company sold 212,500 "units" to
investors at prices ranging from $0.50 to $0.80 per unit in a private placement.
Each unit consists of one share of common stock and one warrant exercisable at
$1.35 per common share for three years. Sales of these units generated cash
proceeds of $110,000. Warrants previously issued (2,320,175) were exercised for
1,956,984 shares of common stock in "cashless" redemptions. (See Note 9.) During
this same period the Company sold 2,625,183 shares of its common stock for
$4,316,599 net of expenses of $347,850. The Company also issued 496,500 shares
of its common stock to officers, directors and consultants for services valued
at $540,675 and 220,000 shares for loan consideration valued at $207,000. In
addition, the Company issued to a related party an additional 120,000 shares
valued at $120,000 as an inducement for a loan. The value of this inducement was
used to reduce the payable to related party.

During the year ended September 30, 2002, the Company issued 589,184 shares of
its common stock to officers, consultants and others for services and prepaid
expenses valued at $211,667, 400,000 shares of its common stock for an
investment, 6,800 shares of its common stock to an officer for reimbursement of
expenses valued at $7,000 and 300,000 shares of its common stock to an officer
in payment of a note payable. These transactions were valued in accordance with
a plan for stock issuance previously approved by the board of directors. The
Company also sold 783,000 shares of its common stock for $241,900.

During the year ended September 30, 2002, the Company also sold 2,333,336
"units" to investors, two officers of the Company and another entity under
common control at $0.30 per unit in a private placement. Each unit consists of
one share of common stock and one warrant exercisable at $0.30 per common share
for five years. Sales of these units generated cash proceeds of $700,000. Two
officers of the Company and another entity under common control invested $50,000
in these common stock units. (See Note 9.)


                                      F-22


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 7 - REDEEMABLE PREFERRED STOCK

On April 23, 2001, the Company's board of directors authorized 20,000,000 shares
of preferred stock with a par value of $0.01 per share and rights and
preferences to be determined. No shares were issued and outstanding as of
September 30, 2002. During the year ended September 30, 2003, the Company issued
34,950 shares of its preferred stock to investors at prices ranging from $1.50
to $2.00 per share for aggregate proceeds of $59,925. The shares 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. During the year ended September 30, 2004, the dividend feature
was discontinued because certain conditions, which required the payment of
dividends, were considered satisfied.

The Class A shares mature seven years from the date of issuance. At maturity,
the Class A shares will be redeemed for cash or common stock at Cadence's option
in an amount equal to the amount paid by the investors for the shares plus any
accrued and unpaid dividends. If shares of common stock are to be issued at
maturity, the conversion price shall be determined by the average closing bid
price for the 20 trading days prior to the maturity date.

At September 30, 2004, the Company had no accrued dividends payable to preferred
shareholders.

NOTE 8 - COMMON STOCK OPTION AND AWARD PLAN

In January 1992, the shareholders of Cadence approved a 1992 Stock Option and
Stock Award Plan under which up to ten percent of the issued and outstanding
shares of the Company's common stock could be awarded based on merit or work
performed. As of September 30, 2004, only 638 shares of common stock had been
awarded under the Plan.

The Company has a stock-based compensation plan whereby the Company's board of
directors may grant common stock to its employees and directors. Over the years,
a total of 72,750 options have been granted under the plan. These options have
been forfeited and none have been exercised through the year ending September
30, 2004. The old existing options are attributed to the merger of Celebration
Mining Company with Royal in August 1995.

The Company's board of directors has made option awards to select officers,
directors, consultants and shareholder/investors. These common stock options
were not awarded pursuant to a qualified plan and carry various terms and
conditions. The Company granted a total of 750,000 common stock options at an
average exercise price of $1.08 per share during the year ended September 30,
2002 and granted 287,140 common stock options at an average exercise price of
$2.23 during the year ended September 30, 2003.

During the year ended September 30, 2004, the Company issued 400,000 stock
options to two directors and one officer with an exercise price of $3.73. These
options were granted upon the acceptance by the individual of the position of
officer and/or director and the approval of the Company's qualified stock option
plan at its April 2004 annual shareholders meeting. The Company also granted
during the year ended September 30, 2004 an option to purchase 76,500 shares of
stock to a shareholder valued at $71,910 as a fee for his services in relation
to finding investors for the senior secured notes. See Note 9 and Note 12.

All options granted were exercisable immediately. The Company's board of
directors has reserved the right to cancel these awards for non-performance or
other reasons.


                                      F-23


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 8 - COMMON STOCK OPTION AND AWARD PLAN (Continued)

The fair value of each option granted during the year ended September 30, 2002
was estimated on the grant date using the Black-Scholes Option Price
Calculation. The following assumptions were made in estimating fair value during
fiscal 2002: risk-free interest rate of 5%, volatility of 100%, expected life of
3 to 5 years, and no expected dividends. The value of these options in the
amount of $626,790 was included in operating expense in the financial
statements. The following assumptions were made in estimating fair value during
the year ended September 30, 2003: risk-free interest rate of 3% to 4%,
volatility of 106% to 337%, expected life of 4 to 5 years and no expected
dividends. The value of these options in the amount of $222,343 was included in
the Company's statement of operations for 2003. The following assumptions were
made in estimating fair value during the year ended September 30, 2004: risk
free interest rate of 4%, volatility of 39%, expected life of three years and no
expected dividends. The value of these options, in the aggregate amount of
$431,910, was included in the Company's statement of operations for 2004.

The value of options issued in 2003 for financing fees in the amount of $429,671
was deducted against additional paid-in capital, as a cost of selling common
stock.


                                      F-24


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 8 - COMMON STOCK OPTION AND AWARD PLAN (Continued)

Following is a summary of the stock options during the years ended September 30,
2004, 2003, and 2002:



                                                                         Weighted
                                                            Number       Average
                                                             of          Exercise
                                                           Options        Price
                                                         -----------    -----------
                                                                  
Outstanding at 10/1/2001                                     60,000     $    18.60
Granted                                                     750,000           1.08
Exercised                                                        --             --
                                                         ----------     ----------
Expired or forfeited                                        (60,000)         18.60
                                                         ----------     ----------
Outstanding at 9/30/2002                                    750,000     $     1.08
                                                         ==========     ==========
Options exercisable at 9/30/2002                            750,000     $     1.08
                                                         ==========     ==========
Weighted average fair value of options granted during
   the year ended 9/30/2002                              $     0.84
                                                         ==========

Outstanding at 10/1/2002                                    750,000     $     1.08
Granted                                                     287,140           2.23
Exercised                                                  (100,000)         (0.68)
Expired or forfeited                                             --             --
                                                         ----------     ----------
Outstanding at 9/30/2003                                    937,140     $     1.47
                                                         ==========     ==========
Options exercisable at 9/30/2003                            937,140     $     1.47
                                                         ==========     ==========

Weighted average fair value of options granted
   during the year ended 9/30/2003                       $     2.27

                                                            937,140     $     1.47
Granted                                                     476,500           3.77
Exercised                                                        --             --
Expired or forfeited                                             --             --
                                                         ----------     ----------
Outstanding at 9/30/2004                                  1,413,640     $     2.25
                                                         ==========     ==========
Options exercisable at 9/30/2004                          1,413,640     $     2.25
                                                         ==========     ==========
Weighted average fair value of options granted
   during the year ended 9/30/2004                       $     0.91
                                                         ==========



                                      F-25


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 8 - COMMON STOCK OPTION AND AWARD PLAN (Continued)


                                                         Weighted Average
Exercise Date                        Number of Shares    Price per Share
- -------------                        ----------------    ---------------
On or before June 21, 2005              200,000                $1.50
On of before August 1, 2005              50,000                $1.50
On or before March 1, 2007              700,000                $2.45
On or before April 2, 2007               76,500                $4.00
On or before July 8, 2007               100,000                $1.35
On or before June 18, 2007               50,000                $1.70
On or before June 1, 2007                75,000                $2.00
On or before September 30, 2008         162,140                $2.50



In July 2003, 100,000 of the outstanding options were exercised for the purchase
of 100,000 shares of the Company's common stock.

Prior to April 2001, a total of 72,750 options were granted by the board to
officers, directors and other consultants. As shown above, the 60,000 options
remaining were forfeited during the fiscal year ending September 30, 2002.

The following table gives information about the Company's common stock that may
be issued upon the exercise of options under all of the Company existing stock
option plans as of September 30, 2004.



                                                Remaining
 Exercise    Number of    Weighted Average   Contractual Life      Number      Weighted Average
  Prices      Options     Exercise Price        (in years)       Exercisable   Exercise Price
- ---------   ----------    ----------------   ----------------   -----------    --------------
                                                                
   $0.75      300,000      $ 0.75                2.42              300,000       $0.75
    1.35      100,000        1.35                2.75              100,000        1.35
    1.50      200,000        1.50                0.75              200,000        1.50
    1.50       50,000        1.50                0.83               50,000        1.50
    1.70       50,000        1.70                2.75               50,000        1.70
    2.00       75,000        2.00                2.67               75,000        2.00
    2.50      162,140        2.50                4.00              162,140        2.50
3.73-4.00     476,500        3.77                2.50              476,500        3.77
            ---------      ------               ------           ---------      -------
            1,413,640      $ 2.25                                1,413,640       $2.25
            =========      ======                                =========      =======


Stock Award Plan

During the year ended September 30, 2001, the Company's board of directors
approved the issuance of 15,000 shares of the Company's common stock per quarter
to each entitled director as compensation for service to the Company and 5,000
shares of the Company's common stock per quarter to officers in addition to
their salaried compensation for services.


                                      F-26


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 9 - WARRANTS

During the year ended September 30, 2002, the Company issued 2,333,336 shares of
stock with 2,333,336 warrants attached. These warrants were valued at $233,334
using the Black-Scholes Option Price Calculation. The following assumptions were
made in estimating fair value: risk free interest rate is 5%, volatility is 100%
and expected life is 5 years. These warrants may be used in a cashless exercise
to purchase 2,333,336 shares of the Company's common stock at $0.30 per share.
The warrants remain exercisable through April 15, 2007. During the year ended
September 30, 2003, all of these warrants were exercised in cashless exercises
in accordance with the terms of the warrants and 1,956,984 shares of the
Company's common stock were then issued to the warrant holders. As of the date
of these financial statements, none of these warrants remain outstanding and
exercisable.

During the year ended September 30, 2003, the Company issued 212,500 shares of
stock with 212,500 warrants attached, and 25,000 warrants related to a July 2002
purchase. The warrants were valued at $51,375 using the Black-Scholes Option
Price Calculation. The following assumptions were made is estimating fair value:
risk free interest rate is 5%, volatility is 100% and expected life is 3 years.
These warrants may be used to purchase 237,500 shares of the Company's common
stock at $1.35 per share. The warrants remain exercisable through October 15,
2005. As of the date of these financial statements, all but 10,000 of these
warrants remain outstanding and exercisable.

During the year ended September 30, 2004, the Company issued certain noteholders
warrants to purchase a total of 765,000 shares of common stock, exercisable at
$4.00 per share, expiring in three years. Both the number of warrants and the
exercise price are adjustable, dependent upon certain future equity transactions
of the Company. The warrants were valued at $745,237 using the Black-Scholes
Option Price Calculation. The following assumptions were made in estimating fair
value: risk-free interest rate is 5%, volatility is 100%, and expected life is
three years.

NOTE 10 - OIL AND GAS PROPERTIES

The Company's oil and gas producing activities are subject to laws and
regulations controlling not only their exploration and development, but also the
effect of such activities on the environment. Compliance with such laws and
regulations may necessitate additional capital outlays, affect the economics of
a project, and cause changes or delays in the Company's activities. The
Company's oil and gas properties are valued at the lower of cost or net
realizable value.

Louisiana

During the fourth quarter of the year ended September 30, 2001, the Company
began leasing acreage in a natural gas field in Desoto Parish, Louisiana. As of
the date of these financial statements, the Company has leased over 4,250 acres.
At September 30, 2004 and September 30, 2003, Louisiana leases of $42,711 and
$350,675, respectively, are included in the attached financial statements as
part of unproved properties. Under the terms of a joint operating agreement with
Bridas Energy USA, Bridas commenced drilling wells, 13 of which were completed
and of these 11 are producing at September 30, 2004. The Company has various
working interests in and net revenue interests in the wells drilled. Bridas is
the operator of all of Cadence's properties in Louisiana.

Texas

During the year ended September 30, 2002, the Company acquired an exploration
permit and lease option agreement for an oil well project in Wilbarger County,
Texas known as the Waggoner Ranch Project. During the quarter ended March 31,
2002 under the terms of a joint operating agreement with the W.T. Waggoner
Estate, Waggoner drilled an initial test well. By September 30, 2004, Waggoner
had drilled a total of eight wells in Wilbarger County, of which five were
producing oil. The W.T. Waggoner Estate is the operator of all of Cadence's
properties in Wilbarger County and the sole purchaser of all production from
these properties.

During the year ended September 30, 2002, the Company sold 40% of the working
interest in its initial well in this area (known as the "1A" well) to private
investors and two officers of the Company for $210,000. The Company's initial
cost in the portion of the prospect sold totaled $3,200.


                                      F-27


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 10 - OIL AND GAS PROPERTIES (Continued)

During February 2003, the Company completed the West Electra Lake Well on the
Waggoner Ranch Project. The Company entered into a 45% working interest joint
operating agreement with the Waggoner Ranch for the operations conducted on this
acreage. In the quarter ending September 30, 2003, the Company drilled and
completed two additional wells on the West Electra Lake joint venture operating
area on the Waggoner Ranch. The Company owns a 50% working interest in these
last two wells.

At September 30, 2004 and 2003, prepaid oil and gas leases relating to Texas
property of $6,500 and $4,500, respectively, are included in the attached
financial statements.

Michigan

In December 2002, the Company began participating in a natural gas drilling
program in Alpena County, Michigan with Aurora Energy, Ltd. As of September 30,
2004, Cadence had a 22.5% working interest (before payout, 20% after payout),
18% net revenue interest (before payout, 16% after payout), in ten producing
wells in Alpena County. Production commenced from this field in June 2003.
Aurora is the operator of all of Cadence's properties in Alpena County. At
September 30, 2004, Michigan leases totaling $96,375 are included in the
attached financial statements as unproved property.

Kansas

During the year ended September 30, 2003, and 2004, the Company leased over
26,000 acres of land in the Anadarko Basin in west central Kansas. No drilling
has commenced on any of this acreage. Cadence holds a 100% working interest and
82% net revenue interest in these leases.

At September 30, 2004, $253,213 of leases in Kansas are included in the attached
financial statements as unproved property.

New Mexico

At September 30, 2004, $57,420 of leases in New Mexico are included in the
attached financial statements as unproved property.

In June 2004, the Company began participating for a 20% working interest and 15%
net revenue interest in the Santa Nina Prospect in Eddy County. Earlier in the
year, the Company signed an agreement with SDX Resources to participate for up
to a 25% working interest and 20% net revenue interest in up to 17 development
wells in a project called the Sparkplug Unit.


                                      F-28


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 11 - NOTES PAYABLE - RELATED PARTIES

         All of the Company's notes payable are considered short-term. At
September 30, 2004, notes payable consisted of the following:



                                                                           2004             2003
                                                                       -------------    -------------
                                                                                  
Nathan Low Family Trust (a shareholder of the Company), secured
by assignment of a prorata interest in gas producing properties
located in Alpena County, Michigan, interest at 8%, dated
February 24, 2003, originally due
on April 4, 2003, extended to December 31, 2003                        $          --    $      50,000


Kevin Stulp (a  shareholder of the  Company),interest
at 8%, dated February 24, 2003, originally due on
April 5, 2003, extended to December 31, 2003                                      --           25,000


Howard Crosby (an officer and shareholder of the Company),
interest at 8%, dated February 24, 2003, originally due
on April 5, 2003, extended to December 31, 2003                                   --           25,000


Howard Crosby (an officer and shareholder of the Company),
unsecured, interest at 5%, dated January 9, 2003, originally
due on February 28, 2003,
extended to December 31, 2003                                                     --           60,000


CGT Management Ltd., unsecured, interest at 10%, dated
July 16, 2003 (paid in full October 2, 2003)                                      --          300,000


                                                                       -------------    -------------
Total                                                                  $          --    $     460,000
                                                                       =============    =============


NOTE 12 - 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 $380,000 was paid in connection with 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 September
30, 2004, $70,000 of this financing fee was written off. These notes 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 $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 period ended September 30, 2004, $186,309 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.


                                      F-29


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 13- COMMITMENTS AND CONTINGENCIES

Litigation

The Company was a defendant in a lawsuit alleging that the Company failed to
transfer common stock in exchange for a mining property interest. In June 1999,
Box Elder County Superior Court rejected the plaintiff's lawsuit and let stand
the Company's countersuit alleging fraudulent misrepresentation. Although the
plaintiff filed an appeal (regarding the originally filed lawsuit), the Utah
Supreme Court rejected the appeal in a judgment rendered on July 31, 2001.

The Company's countersuit, which sought both full title to the aforementioned
mineral property and compensatory damages as well as punitive damages, was
rejected in a jury trial in October 2002. Although the Company filed an appeal,
it expects the jury verdict will stand. As a result, the Company has and will
continue to hold an undivided 25% interest in the Vipont Mine. See Note 3.

Environmental Issues

The Company is engaged in oil and gas exploration and may become subject to
certain liabilities as they relate to environmental cleanup of well sites or
other environmental restoration procedures as they relate to the drilling of oil
and gas wells and the operation thereof. In the Company's acquisition of
existing or previously drilled wells, the Company may not be aware of what
environmental safeguards were taken at the time such wells were drilled or
during such time the wells were operated.

The Company could incur significant costs, including cleanup costs resulting
from a release of hazardous material, third-party claims for property damage and
personal injuries fines and sanctions, as a result of any violations or
liabilities under environmental or other laws. Changes in or more stringent
enforcement of environmental laws could also result in additional operating
costs and capital expenditures. In the course of routine oil and natural gas
operations, surface spills and leaks, including casing leaks, of oil or other
materials do occur, and the Company may incur costs for waste handling and
environmental compliance.

The Company was previously engaged in exploration of mineral properties. These
properties are classified as assets from discontinued operations or were
previously written off as permanently impaired. Although the Company has
discontinued the exploration of mineral properties, the possibility exists that
environmental cleanup or other environmental restoration procedures could remain
to be completed or be mandated by law, causing unpredictable and unexpected
liabilities to arise. At the date of this report, the Company is not aware of
any environmental issues related to any of its assets from discontinued
operations.

Capital Commitments

At September 30, 2004, the Company's future capital commitments are dependent
upon the Company's decision to proceed with additional well development. See
Note 10. No accruals have been made in the accompanying financial statements for
these amounts.

Lease Commitments

The Company began leasing office facilities in Walla Walla, Washington
commencing in June 2001. After a three-year lease with monthly payments of $400
expired in June 2004, the Company began a month to month tenancy, again paying
$400 per month. Total rent paid for this office space during the year ended
September 30, 2003 and 2002 was $4,800.

The Company began leasing additional office space in Hilton Head Island, South
Carolina in August 2003. The one-year lease calls for monthly rental payments of
$550. For the year ended September 30, 2004, the Company expended $4,967 for
this rental space.


                                      F-30


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)

Cadence Resources Corporation Limited Partnership On August 8, 2002, the Company
formed a limited partnership in the State of Washington whereby the Company
became the managing general partner and an outside individual investor became
the initial limited partner. The entity, Cadence Resources Corporation Limited
Cadence Resources Corporation Limited Partnership (continued) Partnership
("CRCLP" or the "Partnership") was formed to invest in oil and gas properties in
Texas and Louisiana.

In connection with the formation of the Partnership, the Company agreed to
contribute $12,500 in cash and its leasehold interest in an oil well ("2B",
which ultimately was a dry hole) in Wilbarger County, Texas and the limited
partner contributed $250,000 in cash.

Effective September 30, 2003, Cadence purchased the limited partner's interest
in the Partnership and thereby terminated the limited partner's security
interest in the equipment and fixtures affixed to wells 1A and 1B in Wilbarger
County, Texas. In this transaction, Cadence made a cash payment of $250,000 in
October 2003 to the limited partner and received, from the limited partner his
5% working interest in the West Electra Lake #1 oil well in Wilbarger, Texas.

In connection with the aforementioned transaction, Cadence also repaid in
October 2003 to the limited partner the unsecured sum of $300,000. These funds
were previously advanced to the Partnership in June 2003 for the exploration of
natural gas interests in the Black Bean Unit in Michigan in return for the
limited partner's receiving 120,000 shares of Cadence stock and a working
interest in each well drilled in the unit. Upon repayment of the $300,000
advance, the limited partner's working interest in each well drilled in the
Black Bean Unit was fixed at 2%.

Consulting Commitments

In June 2002, the Company entered into an agreement with Memphis Consulting
Group ("Memphis") for financial consulting and public relations services
beginning on August 1, 2002 through August 1, 2003. The agreement called for
monthly payments of $3,000, and an initial 50,000 stock options exercisable
through August 1, 2005 at $1.50 per share. See Note 8. This agreement was
terminated during the quarter ended March 31, 2003.

In September 2001, the Company entered into a consulting agreement with American
Financial Group for promotion to investors. The agreement called for monthly
payments of $2,000 to cover all expenses, 20,000 shares of the Company's common
stock (which were issued in October 2001) and an override of 2.5% of monies
raised in private placements from referrals or directed business. The agreement
was terminated during the quarter ended March 31, 2003.

In June 2003, the Company entered into a corporate advisory agreement with
Proteus Capital Corp. calling for a monthly fee of $3,000 in cash and 2,000
restricted shares of the common stock of the Company. Additionally, Proteus
received an option for 50,000 shares exercisable at $1.75 for a period of four
years, such shares bearing certain registration rights should the Company file a
registration statement on behalf of other shareholders.

Lucius C. Geer, a consultant to the Company who manages its acquisition,
exploration and production operations, has entered into several agreements with
Cadence and has contractually received a 2% overriding royalty interest in oil,
gas and mineral leases in Wilbarger County, Texas and a 1% overriding royalty
interest in oil and gas leases in Desoto Parish, Louisiana.

Effective August 1, 2003, Cadence agreed to pay Mr. Geer $7,500 per month plus
an overriding royalty interest of 2% of the sales price received for all oil,
gas and minerals from leases which Geer acquires for Cadence. Effective August
1, 2004, the agreement with Mr. Geer was changed to increase the monthly fee
from $7,500 to $10,000.


                                      F-31


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)

Other Commitments

The Company entered into an exploration agreement with the W.T. Waggoner Estate
(Waggoner) and its trustees on August 1, 2002. This agreement calls for
exploration of the West Electra Lake Project located in Wilbarger County, Texas.
See Note 10.

On August 13, 2002, the Company entered into a public relations retainer
agreement for one year whereby the Company agreed to issue 60,000 shares of its
common stock during this period for services received. The agreement also calls
for reimbursement of expenses incurred pursuant to terms of this agreement. This
agreement was terminated in the quarter ending September 30, 2003.

NOTE 14 - RELATED PARTY TRANSACTIONS

At September 30, 2004 and 2003, the Company had related party accounts payable
outstanding in the amounts of $300,000 and $550,000, respectively. At September
30, 2004 and 2003, the Company had related party notes payable outstanding in
the amounts of $0 and $460,000, respectively.

In February 2004, the Company borrowed $250,000 from an officer, a total of
$95,000 from two directors, and $50,000 from Dotson Exploration Company, a
related entity. All of these borrowings were repaid by Cadence in April 2004.

In January 2004, Cadence hired Mr. Douglas Newby as a Vice President; Mr. Newby
is the president and owner of Proteus Capital Corp., with whom the Company has a
consulting agreement. See Note 13.

During the year ended September 30, 2002, the Company sold several mineral
properties located in Shoshone County, Idaho to Caledonia Silver-Lead Mines,
Inc., later renamed Nevada-Comstock Mining Company. Two officers of the Company
collectively own 2.4% of this entity and Cadence owns 35%.

Two officers of the Company collectively own in excess of 40% of the stock of
Dotson Exploration Company and are the sole officers and directors of Dotson.
Dotson owns 109,000 shares of the Company's common stock. During fiscal year
2002 and the first quarter of fiscal year 2003, Cadence repaid Dotson a loan in
the amount of $10,000 and made two new loans to Dotson, one for $35,000 and one
for $20,000, each at an interest rate of 10% per annum. Dotson transferred to
Cadence marketable securities in the form of common stock of two unaffiliated
companies, Enerphaze Corporation and The Williams Companies, Inc., valued by
Cadence's board of directors at $33,380, as partial payment of the amount
loaned. During the nine months ended June 30, 2003, Dotson repaid the $20,000
loan in cash. At September 30, 2004 and 2003, Dotson owed Cadence $3,720, which
amount is payable on demand and bears interest at 10% per annum.

Because Dotson Exploration Company, Oxford Metallurgical, Inc. and
Nevada-Comstock Mining Company are controlled by two officers of Cadence, these
transactions cannot be considered to be the product of an arms-length
negotiation.

During fiscal 2003, the Company's president made two loans to Cadence. One loan
in December 2002 was in the principal amount of $70,000, bearing interest at 5%
and the other loan made in February 2003 was in the principal amount of $50,000
bearing interest at a rate of 8%. Cadence issued 14,000 shares of its common
stock valued at $10,920, as an inducement to making the $70,000 loan and 20,000
shares valued at $15,600, as an inducement to making the $50,000 loan. Cadence
repaid $60,000 and has agreed to issue 4,000 shares of its common stock in
repayment of the remaining $10,000 principal amount outstanding on the $70,000
loan. Cadence repaid $25,000 of the $50,000 loan in cash and issued 25,000
shares of its common stock in the year ending September 30, 2004 to repay the
remaining $25,000 principal amount.


                                      F-32


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 14 - RELATED PARTY TRANSACTIONS (Continued)

In February 2003, a Company director made a bridge loan to Cadence in the
principal amount of $50,000, bearing interest of 8% per annum. Cadence issued
20,000 shares of its stock valued at $15,600 as an inducement for the director
to make the loan. Cadence repaid $25,000 of the $50,000 loan in 2003 and settled
the remaining amount in 2004 with common stock. In July 2003, the director
exercised a warrant to purchase 100,000 shares of common stock at $0.75 per
share.

On August 8, 2002, the Company formed a limited partnership whereby the Company
became the managing general partner and an outside individual investor (a
Company shareholder) became the initial limited partner. During the year ended
September 30, 2003, the limited partner advanced $300,000 to the limited
partnership in exchange for an unsecured note, which was repaid in October 2003.

In October 2002, the Nathan A. Low Roth IRA and various entities controlled by
Thomas Kaplan, shareholders of Cadence, exercised warrants in separate cashless
transactions whereby each party surrendered a total of 175,676 shares of common
stock valued at $325,000 to exercise warrants for the acquisition of 1,083,334
shares of Cadence common stock.

In April 2002, Mr. Crosby purchased 83,334 Cadence investment units and Mr. Ryan
purchased 43,334 Cadence investment units at $0.30 per unit consisting of one
share of common stock and one warrant exercisable at $0.30. The warrants
contained a provision which allowed cashless exercise when and if Cadence common
stock traded at or above $1.50 per share. Also, in April 2002, Cadence issued to
Mr. Ryan 6,800 shares of its common stock in repayment of 6,800 Cadence shares
owned by Mr. Ryan that he had transferred to third parties to pay Cadence
invoices.

In January 2002, Cadence transferred 41,667 shares of the common stock it owned
in Trend Mining Company, of which Mr. Ryan is a director, to Mr. Ryan in payment
of past due salary of $16,000. Further, in October 2001, Mr. Ryan transferred
marketable securities of Enerphaze Corporation valued at $90,000 to Cadence in
exchange for 300,000 shares of Cadence, which shares are held by J.P. Ryan
Company, Inc. (which is held 100% by John Ryan), Andover Capital Corporation
(which is held 100% by John Ryan), and Dotson Exploration Company.

In October 2001, Cadence issued 200,000 shares of its common stock to Mr. Crosby
for cash in the amount of $60,000. On January 15, 2002, Cadence issued 100,000
shares of its common stock to Mr. Crosby in payment of a loan made to Cadence in
the principal amount of $30,000 in November 2001. On January 22, 2002, Mr.
Crosby made an additional loan of $30,000 bearing interest at 8% for which
Cadence issued him 15,000 shares valued at $4,500 as an inducement to making the
loan.

Other related party transactions are disclosed in Notes 3, 5, 6, and 11.

NOTE 15 - INCOME TAXES

At September 30, 2004, the Company had net deferred tax assets calculated at an
expected rate of 34% of approximately $5,672,000 as indicated below. As
management of the Company cannot determine that it is more likely than not that
the Company will realize the benefit of the net deferred tax asset, a valuation
allowance equal to the net deferred tax asset has been established at September
30, 2004.


                                      F-33


                          CADENCE RESOURCES CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               September 30, 2004

NOTE 15 - INCOME TAXES (Continued)

The significant components of the deferred tax asset at September 30, 2004, 2003
and 2002 were as follows:


                                            2004          2003          2002
                                         ----------    ----------    ----------
   Net operating loss carryforwards      $4,317,000    $2,829,000    $1,423,000
   Stock options and warrants issued        623,000       622,000       172,000
   Section 1231 loss carryforwards          146,000       151,000        89,000
   Capital loss carryforwards               586,000     1,532,000       887,000
                                         ----------    ----------    ----------
   Total deferred tax asset               5,672,000     5,134,000     2,571,000
   Less valuation allowance               5,672,000     5,134,000     2,571,000
                                         ----------    ----------    ----------
   Net deferred tax asset                $       --    $       --    $       --
                                         ==========    ==========    ==========

      At September 30, 2004, the Company has net operating loss carryforwards of
approximately $12,700,000, which expire in the years 2009 through 2024. In
addition, the Company has net Section 1231 loss carryforwards of approximately
$432,000, which expire in 2006, and net capital loss carryforwards of
approximately $1,700,000, which expire in the years 2005 through 2009. The
change in the allowance account from September 30, 2003 to September 30, 2004
was $538,000, which was primarily due to the Company's operating and capital
losses and the expiration of Section 1231 and capital losses.

      The Company may have had a control change as defined under the Internal
Revenue Code, because of new stock issuances and changes in ownership. The
effect of such control changes has not been calculated but may limit the future
use of net operating losses.

NOTE 16 - SUBSEQUENT EVENTS

Aurora Energy, Ltd.

On November 19, 2004, the Company announced that it had signed a letter of
intent establishing a 60-day period in which to conduct due diligence and
negotiate terms for acquisition of all of the outstanding common stock of Aurora
Energy, Ltd., a privately held company based in Traverse City, Michigan, in
exchange for shares of common stock of Cadence. The Company and Aurora Energy,
Ltd. are currently negotiating terms of the proposed transaction.


                                      F-34


                          CADENCE RESOURCES CORPORATION
                                 BALANCE SHEETS



                                                          June 30,               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.


                                      F-35


                          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 (DEFICIT)
          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 (DEFICIT)                               $  6,695,874     $  6,888,163     $  6,482,077
                                                         ============     ============     ============



        See accompanying condensed notes to interim financial statements.


                                      F-36


                          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.


                                      F-37


                          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                              --
       Proceeds 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.


                                      F-38


                          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.


                                      F-39


                          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.

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.


                                      F-40


                          CADENCE RESOURCES CORPORATION
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  June 30, 2005

NOTE 1 - BASIS OF PRESENTATION (Continued)

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

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.

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.


                                      F-41


                          CADENCE RESOURCES CORPORATION
         UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma condensed consolidated financial statements
have been prepared to reflect the effect of the proposed merger between Cadence
Resources Corporation (Cadence) and Aurora Energy, Ltd. (Aurora). The June 30,
2005 condensed consolidated pro forma financial statements include Cadence's
balance sheet as of June 30, 2005 and the results of its operations for the nine
months ended June 30, 2005 and Aurora's balance sheet as of June 30, 2005 and
the results of its operations for the six months ended June 30, 2005. The
historical financial data of Cadence and Aurora used in the December 31, 2004
pro forma condensed consolidated statements of operations have been derived from
Aurora's audited financial statements presented for the twelve months ended
December 31, 2004 and from Cadence's annual report on Form 10-K for the twelve
months ended September 30, 2004.

The historical financial information has been adjusted to give effect to pro
forma events that are directly attributable to the merger, factually
supportable, and expected to have a continuing impact on combined results. The
pro forma financial statements of operations assume that the combination
occurred at the beginning of the periods presented in the statements. All
intercompany accounts and transactions have been eliminated.

This information is provided to aid in the analysis of the financial aspects of
the merger. These unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the historical financial
statements and notes thereto of Cadence and Aurora, included elsewhere in this
prospectus.

The unaudited pro forma condensed consolidated financial statements are for
illustrative purposes only. The financial results may have been different had
the companies always been combined. Because the plans for these activities have
not yet been finalized, we are not able to reasonably quantify the costs for
such activities. You should not rely on the pro forma condensed consolidated
financial statements as being indicative of the historical results that would
have been achieved had the companies always been combined or the future results
that the combined company will experience.


                                      F-42


                          CADENCE RESOURCES CORPORATION
            UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
                                  JUNE 30,2005



                                                                                       Pro Forma Adjustments             Combined
                                               Cadence             Aurora         (See detailed summary in Note (g))    Pro Forma
                                                                                       DR                CR              Balance
                                          ----------------  -----------------     --------------------------------------------------
                                                                                                     
ASSETS
    CURRENT ASSETS
        Cash and cash equivalents         $     1,657,209   $     13,516,466   $                  $                 $    15,173,675
        Accounts receivable                       517,823          2,344,992                                              2,862,815
        Other Current Assets                      520,982            260,378                                                781,360
                                          ----------------  -----------------  -----------------  ----------------  ----------------
           TOTAL CURRENT ASSETS                 2,696,014         16,121,836                  -                 -        18,817,850
    OIL AND GAS PROPERTIES
        FULL COST                                       -         22,738,895         14,708,813            32,489        37,415,219
    OIL AND GAS PROPERTIES
        SUCCESSFUL EFFORTS                      2,893,080                  -             32,489         2,925,569                 -
    PROPERTY AND EQUIPMENT, NET                     2,335            189,241                  -                 -           191,576
    OTHER ASSETS
        Goodwill                                        -                  -         16,277,096                 -        16,277,096
        Identifiable Intangibles (net)                  -                  -          4,605,000           639,583         3,965,417
        Other assets                            1,104,445          1,484,360            633,251           750,000         2,472,056
                                          ----------------  -----------------  -----------------  ----------------  ----------------
    TOTAL ASSETS                          $     6,695,874         40,534,332   $     36,256,649   $     4,347,641   $    79,139,214
                                          ================  =================  =================  ================  ================


LIABILITIES AND STOCKHOLDERS' EQUITY
    CURRENT LIABILITIES
        Accounts payable and accrued
          expenses                        $       292,396   $      3,713,746   $              -   $             -         4,006,142
        Notes payable - related party                                      -                  -                 -                 -
        Other Liabilities                          35,990            252,191                  -                 -           288,181
                                          ----------------  -----------------  -----------------  ----------------  ----------------
           TOTAL CURRENT LIABILITIES              328,386          3,965,937                  -                 -         4,294,323


    LONG-TERM DEBT                                      -         20,078,428                  -                 -        20,078,428
                                          ----------------  -----------------  -----------------  ----------------  ----------------
    MINORITY INTEREST IN NET ASSETS
        OF SUBSIDIARIES                                 -                  -                  -                 -                 -
                                          ----------------  -----------------  -----------------  ----------------  ----------------


    REDEEMABLE PREFERRED STOCK                     59,925                  -                  -                 -            59,925
                                          ----------------  -----------------  -----------------  ----------------  ----------------
    STOCKHOLDERS' EQUITY
        Common stock                              207,023             19,046              6,000           367,878           587,947
        Additional paid-in capital             30,127,244         19,351,780         27,007,643        35,238,520        57,709,901
        Accumulated deficit                   (23,525,705)        (2,880,859)         3,009,643        26,325,896        (3,090,311)
        Accumulated other comprehensive loss     (500,999)                 -                  -                 -          (500,999)
                                          ----------------  -----------------  -----------------  ----------------  ----------------
           TOTAL STOCKHOLDERS' EQUITY           6,307,563         16,489,967         30,023,286        61,932,294        54,706,538
                                          ----------------  -----------------  -----------------  ----------------  ----------------
    TOTAL LIABILITIES AND
        STOCKHOLDERS' EQUITY              $     6,695,874   $     40,534,332   $     66,279,935   $    66,279,935   $    79,139,214
                                          ================  =================  =================  ================  ================


       See accompanying notes to unaudited pro forma financial statements.


                                      F-43


                          CADENCE RESOURCES CORPORATION
       UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

                          SIX MONTHS ENDED JUNE 30,2005



                                                                                              Pro Forma                  Combined
                                                  Cadence (1)          Aurora                 Adjustments                 Proforma
                                                                                         DR               CR
                                               ----------------   ---------------    ------------    -------------   ---------------
                                                                                                       
REVENUES
     Oil and gas sales                          $    1,783,287     $   1,097,906                                      $   2,881,193
     Project management fees                                 -           345,252                                            345,252
     Other income                                            -            16,756                                             16,756
                                               ----------------   ---------------    ------------    -------------   ---------------
            Total Revenues                           1,783,287         1,459,914               -                -         3,243,201
                                               ----------------   ---------------    ------------    -------------   ---------------


OPERATING AND ADMINISTRATIVE EXPENSES
     Depreciation, depletion and amortization        2,189,626           117,504         913,407                          3,220,537
     Officers' and directors' compensation             193,988                 -                                            193,988
     Consulting & other professional services          530,624                 -                                            530,624
     Oil and gas lease expenses                        443,150                 -                          443,150                 -
     Oil and gas consulting                            135,000                 -                          135,000                 -
     Exploration and drilling                          174,482                 -                          174,482                 -
     Production and lease operating expenses           187,824           652,957                                            840,781
     State Taxes                                                         237,697                                            237,697
     Other general and administrative                  518,748         1,126,396                                          1,645,144
                                               ----------------   ---------------    ------------    -------------   ---------------
        Total Expenses                               4,373,442         2,134,554         913,407          752,632         6,668,771
                                               ----------------   ---------------    ------------    -------------   ---------------


LOSS FROM OPERATIONS                                (2,590,155)         (674,640)        913,407          752,632        (3,425,570)
                                               ----------------   ---------------    ------------    -------------   ---------------


OTHER INCOME (EXPENSE)
     Interest income                                    10,169           165,910                                            176,079
     Interest expense and loan fees                   (210,134)         (222,077)                                          (432,211)
     Other income                                          846                 -                                                846
     Loss on repayment of debt                        (660,559)                -                                           (660,559)
     Loss on disposition and impairment
       of assets                                       (40,267)                -                                            (40,267)
                                               ----------------   ---------------    ------------    -------------   ---------------
        Total Other Income (Expense)                  (899,945)          (56,167)              -                -          (956,112)
                                               ----------------   ---------------    ------------    -------------   ---------------


LOSS BEFORE MINORITY INTEREST ALLOCATION
     AND INCOME TAX PROVISION                       (3,490,100)         (730,807)        913,407          752,632        (4,381,682)


MINORITY INTEREST IN LOSS OF SUBSIDIARIES                    -            (6,190)              -                -            (6,190)
                                               ----------------   ---------------    ------------    -------------   ---------------


LOSS BEFORE INCOME TAX PROVISION                    (3,490,100)         (736,997)        913,407          752,632        (4,387,872)


INCOME TAX PROVISION                                         -                 -                                                  -
                                               ----------------   ---------------    ------------    -------------   ---------------


NET LOSS                                        $   (3,490,100)    $    (736,997)        913,407          752,632     $  (4,387,872)
                                               ================   ===============    ============    =============   ===============


PROFORMA LOSS PER SHARE, basic and diluted                                                                            $       (0.07)
                                                                                                                     ===============


      (1) Cadence, nine months ended June 30, 2005

       See accompanying notes to unaudited pro forma financial statements.


                                      F-44


                          CADENCE RESOURCES CORPORATION
       UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

                                               YEAR ENDED DECEMBER 31, 2004



                                                                                              Pro Forma                 Combined
                                                  Cadence (1)          Aurora                Adjustments                Proforma
                                                                                          DR            CR
                                              -----------------   ---------------     ------------  ------------   ----------------
                                                                                                     
REVENUES
     Oil and gas sales                         $     2,541,447     $     960,011                                    $    3,501,458
     Project management fees                                 -           883,687                                           883,687
     Other income                                            -           309,148                                           309,148
                                              -----------------   ---------------     ------------  ------------   ----------------
            Total Revenues                           2,541,447         2,152,846                -             -          4,694,293
                                              -----------------   ---------------     ------------  ------------   ----------------


OPERATING AND ADMINISTRATIVE EXPENSES
     Depreciation, depletion and amortization        2,663,695           203,249        1,723,975                        4,590,919
     Officers' and directors' compensation             725,485                 -                                           725,485
     Consulting                                        319,338                 -                                           319,338
     Oil and gas lease expenses                        565,148                 -                        565,148                  -
     Oil and gas consulting                            105,535                 -                        105,535                  -
     Exploration and drilling                          134,452                 -                        134,452                  -
     Production and lease operating expenses           174,836           614,338                                           789,174
     Taxes                                                   -            75,000                                            75,000
     Other general and administrative                1,506,446         2,057,333                                         3,563,779
                                              -----------------   ---------------     ------------  ------------   ----------------
         Total Expenses                              6,194,935         2,949,920        1,723,975       805,135         10,063,695
                                              -----------------   ---------------     ------------  ------------   ----------------


LOSS FROM OPERATIONS                                (3,653,488)         (797,074)       1,723,975       805,135         (5,369,402)
                                              -----------------   ---------------     ------------  ------------   ----------------


OTHER INCOME (EXPENSE)
     Interest income                                    18,874            47,678                                            66,552
     Interest expense and loan fees                   (302,955)         (392,402)         794,706                       (1,490,063)
     Other income                                       11,172                 -                                            11,172
     Loss on sale of investment                         (9,156)                -                                            (9,156)
     Loss on disposition and impairment
       of assets                                    (1,236,365)                -                                        (1,236,365)
                                              -----------------   ---------------     ------------  ------------   ----------------
         Total Other Income (Expense)               (1,518,430)         (344,724)         794,706             -         (2,657,860)
                                              -----------------   ---------------     ------------  ------------   ----------------


LOSS BEFORE MINORITY INTEREST ALLOCATION
     AND INCOME TAX PROVISION                       (5,171,918)       (1,141,798)       2,518,681       805,135         (8,027,262)


MINORITY INTEREST IN LOSS OF SUBSIDIARIES                    -            38,087                                            38,087
                                              -----------------   ---------------     ------------  ------------   ----------------


LOSS BEFORE INCOME TAX PROVISION                    (5,171,918)       (1,103,711)       2,518,681       805,135         (7,989,175)


INCOME TAX PROVISION                                         -                 -                                                 -
                                              -----------------   ---------------     ------------  ------------   ----------------


NET LOSS                                       $    (5,171,918)    $  (1,103,711)       2,518,681       805,135     $   (7,989,175)
                                              =================   ===============     ============  ============   ================


PROFORMA LOSS PER SHARE
     Including effect of
     subsequent stock issuances                                                                                     $        (0.14)
                                                                                                                   ================


     Excluding effect of
     subsequent stock issuances                                                                                     $        (0.19)
                                                                                                                   ================


      (1) Year ended September 30, 2004

      See accompanying notes to unaudited pro forma financial statements.



                                      F-45


                          CADENCE RESOURCES CORPORATION
                     NOTES TO PRO FORMA FINANCIAL STATEMENTS

NOTE 1 - MERGER AGREEMENT

On January 31, 2005, Cadence Resources Corporation (Cadence) entered into a
definitive merger agreement with Aurora Energy, Ltd. (Aurora) whereby Cadence
will acquire 100% of the outstanding stock and options of Aurora. Consideration
in this transaction will consist of the issuance of two shares of common stock
of Cadence for every one share of outstanding stock of Aurora, and the issuance
of two options for the purchase of stock in Cadence for each option outstanding
of Aurora.

The Aurora stockholder group will receive the largest portion of the voting
rights, will have the majority number of members of the board of directors, and
will dominate senior management. Accordingly, under FAS 141, Aurora is treated
as the acquirer for accounting purposes and, accordingly, reverse acquisition
accounting has been applied to this business combination. As the registrant, the
equity structure of Cadence remains the equity structure of the ongoing entity.

The merger will be accounted for as a reverse acquisition application of the
purchase method of accounting by Cadence, with Aurora treated as the accounting
acquirer. As such, for purposes of these unaudited pro forma financial
statements, the purchase price assigned to this transaction is equal to
$41,546,351 determined as follows:

Fair value of Cadence's common stock outstanding at January 31, 2005:
$33,951,817

Fair value of Cadence's stock options outstanding at January 31, 2005 536,210

Fair value of Cadence's warrants outstanding at January 31, 2005 7,058,324

Total purchase price $ 41,546,351

The $33,951,816 is computed as 20,702,327 shares of Cadence multiplied by $1.64
(per share sales price of Cadence common stock as reported on the OTC Bulletin
Board as of January 31, 2005).

The accompanying pro forma financial statements contain adjustments to
characterize the transactions of Cadence as those of Aurora for the periods
presented. The Aurora pro forma statements of operations are presented for the
twelve months ended December 31, 2004 and six months ended June 30, 2005. The
Cadence pro forma statements of operations are presented for the twelve months
ended September 30, 2004 and the nine months ended June 30, 2005

The pro forma balance sheet is presented at June 30, 2005 for Aurora and
Cadence. In compiling this balance sheet, the $41,546,351 purchase price has
been allocated as follows:



                                                                                                     Cadence
                                                 Balances         Fair Value        Adjusted         Activity         Balances
Book Value of Cadence Assets                     1/31/2005       Adjustments        Balances         2/1-6/30          6/30/05
- ----------------------------                     ------------------------------------------------------------------------------
                                                                                                      
     Current Assets                               8,600,202                         8,600,202       (5,904,188)       2,696,014
     Oil & Gas Properties, Property & Equip       3,653,613       11,353,113       15,006,726         (758,198)      14,248,528
     Investments                                    938,955          633,521        1,572,476               --        1,572,476
     Mineral rights                                 197,406                           197,406          (31,916)         165,490
     Non Compete                                                   3,265,000        3,265,000                         3,265,000
     Proprietary Business Relationship                             1,340,000        1,340,000                         1,340,000
     Goodwill                                                     16,277,096       16,277,096                        16,277,096
                                                                                           --                                --
Less: Liabilities as of 6/30/05                                                            --                                --
- -------------------------------
     Accounts payable and accrued expenses         (400,154)                         (400,154)          71,768         (328,386)
     Notes Payable-Long Term                     (4,252,476)                       (4,252,476)       4,252,476               --
     Other Liabilities                                   --                                --                                --
     Redeemable Preferred Stock                     (59,925)                          (59,925)                          (59,925)


Other Adjustments:                                                                                                           --
- ------------------
     Cadence activity from date of merger                                                                                    --
            through June 30, 2005                        --                                          2,370,058        2,370,058
- -------------------------------------------------------------------------------------------------------------------------------
             Total Purchase Price allocated       8,677,621       32,868,730       41,546,351               --       41,546,351
===============================================================================================================================


                                      F-46


NOTE 2 - SUMMARY OF PRO FORMA ADJUSTMENTS

PRO FORMA ADJUSTMENTS - June 30, 2005

(a) To reclassify the working interest in properties owned by Aurora and
purchased by Cadence. Additionally, reclassification of the depletion and/or
amortization of the property have been completed to the proper owner.

(b) To increase the outstanding shares of Aurora on a two-for-one basis in
accordance with the definitive merger agreement and to adjust par value of the
revised outstanding shares of common stock of Aurora to the par value of
Cadence.

(c) To eliminate the accumulated deficit of Cadence to additional paid-in
capital as part of the value of the acquisition upon merger.

(d) To reflect the fair value at January 31, 2005, the date of the definitive
merger agreement, the shares outstanding in Cadence were multiplied the per
share sales price as listed on the OTC Bulletin Board as of January 31, 2005
($1.64), with the resulting increase in value allocated between oil and gas
properties, other investments, goodwill and other intangible assets.
Amortization has been computed in the accompanying pro forma as follows;
$4,605,000 of estimated intangible assets amortized over 36 months (estimated
useful life of the other intangible assets) for a total of $639,583 in
amortization expense.

(e) To conform the oil and gas properties owned by Cadence to the full cost
method as used by Aurora, the accounting acquirer. Note, the oil and gas
exploration and intangible drilling expenses of Cadence under the successful
efforts method have been adjusted to give pro forma effect to conform to the
treatment of these expenditures under the full cost method used by Aurora. The
net addition to oil and gas properties in converting from successful efforts to
full cost is $430,132 and is recorded on the balance sheet as an addition to the
oil and gas properties and adjustment to net deficit.

The table below sets out in detail the effect of changing to full cost by period
to highlight the amounts reflected in the statements of operations for the
period ended June 30, 2005 and December 31, 2004.



- ---------------------------------------------------------------------------------------------------------------------------
                                                     2005             2004           2003         2002           Totals
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                                 
Net exploration costs added back                    752,632          805,136       422,172      260,786          2,240,726


Net adjustment to depletion, depreciation and
  amortization and impairment under respective
  methods                                          (273,824)      (1,323,975)     (192,718)     (20,076)        (1,810,594)


- ---------------------------------------------------------------------------------------------------------------------------
Net Change in asset value                           478,808         (518,839)      229,454      240,710            430,132
- ---------------------------------------------------------------------------------------------------------------------------


      (f) To eliminate the investment in Aurora by Cadence.


                                      F-47


PRO FORMA ADJUSTMENTS-December 31, 2004

(a) Depreciation, depletion and amortization are adjusted as follows:

(1) Estimated amortization computed on the original value assigned to intangible
assets of $2,000,000 over


5 years.  This is adjusted in the 6/30/05
for the final valuation. (see (d) above)                      $      400,000

(2) Convert from successful efforts to
full cost.(see table in (e) above)                                  1,323,975
                                                              ---------------

Total Additional to Depreciation, depletion and amortization  $    1,723,975


(b) Interest expense and loan fees are adjusted to reflect the amortization of
debt discount of $794,706 included as a subsequent event at 12/31/04. This
adjustment is not reflected in the 6/30/05 pro forma statements of operations as
they were included in Cadence's 6/30/05 statement of operations totals.

 (g) The effects of the above transactions are summarized as follows:



BALANCE SHEET ACCOUNT                                                                 Note Ref            AMOUNT
                                                                                      --------            ------
                                                                                                
(1) OIL AND GAS PROPERTIES (NET) USING FULL COST
     Beginning Balance (combined companies)                                                           $ 22,738,895
     Reclassification of working interest in properties owned by Aurora
        and purchased by Cadence,                                                        (a)               528,503
     Reclassification of depletion and/or amortization associated with
       above reclassification of working interest                                        (a)               (32,489)
     Estimated allocation of purchase price to oil and gas properties
       based on fair value of unproved Cadence properties                                (d)            11,353,113
     Reclassification of Cadence properties from successful efforts to full cost         (e)             2,397,066
     Record upward net adjustment from successful efforts to full cost                   (e)               430,131
                                                                                                -------------------
       Total pro forma adjustments to oil and gas properties under full cost                            14,676,324
                                                                                                -------------------
     Ending pro forma balance                                                                         $ 37,415,219
                                                                                                ===================


(2) OIL AND GAS PROPERTIES (NET) USING SUCCESSFUL EFFORTS
     Beginning Balance (combined companies)                                                           $  2,893,080
     Reclassification of working interest in properties owned by Aurora
        and purchased by Cadence,                                                        (a)              (528,503)
     Reclassification of depletion and/or amortization associated with
       above reclassification of working interest                                        (a)                32,489
     Reclassification of Cadence properties from successful efforts to full cost         (e)            (2,397,066)
                                                                                                -------------------
         Total pro forma adjustments to oil and gas properties under successful efforts               $ (2,893,080)
                                                                                                -------------------
     Ending pro forma balance                                                                         $          -
                                                                                                ===================


(3)  GOODWILL
     Beginning Balance (combined companies)                                                           $          -
     Estimated allocation of purchase price to goodwill based on
        estimated fair value                                                             (d)            16,277,096
                                                                                                -------------------
     Ending pro forma balance                                                                         $ 16,277,096
                                                                                                ===================


(4) OTHER INTANGIBLE ASSETS (NET)
     Beginning Balance (combined companies)                                                                      -
     Estimated allocation of purchase price to intangibles based on
        estimated fair value                                                             (d)             4,605,000
     Amortization expense ($4,605,000 estimated intangibles over 36 months)              (d)              (639,583)
                                                                                                -------------------
     Ending pro forma balance                                                                            3,965,417
                                                                                                ===================



                                      F-48




                                                                                                
(5) OTHER ASSETS
     Beginning Balance (combined companies)                                                              2,588,805
     Estimated allocation of purchase price to other investments based on
        estimated fair valuation                                                         (d)               633,251
     Eliminate Cadence investment in Aurora Stock                                        (f)              (750,000)
                                                                                                -------------------
     Ending pro forma balance                                                                            2,472,056
                                                                                                ===================


(6) COMMON STOCK
     Beginning Balance (combined companies)                                                                226,069
     Issuance of Cadence Stock for Aurora Stock on a 2-for 1 basis                       (b)                19,046
     Adjust par value of revised outstanding shares of common stock of Aurora
        to par value of Cadence                                                          (b)               348,832
     Remove the investment in Aurora by Cadence                                          (f)                (6,000)
                                                                                                -------------------
     Total pro forma adjustments                                                                           361,878
                                                                                                -------------------
     Ending pro forma balance                                                                              587,947
                                                                                                ===================


(7) ADDITIONAL PAID IN CAPITAL
     Beginning Balance (combined companies)                                                             49,479,024
     Issuance of Cadence Stock for Aurora Stock on a 2-for 1 basis                       (b)               (19,046)
     Adjust par value of revised outstanding shares of common stock of Aurora
        to par value of Cadence                                                          (b)              (348,832)
     To close the accumulated deficit of Cadence                                         (c)           (25,895,765)
     Record net purchase price after allocation to Cadence net assets
           ($41,546,351 - $6,307,563)                                                    (d)            35,238,520
     Remove the investment in Aurora by Cadence                                          (f)              (744,000)
                                                                                                -------------------
     Total pro forma adjustments                                                                         8,230,877
                                                                                                -------------------
     Ending pro forma balance                                                                           57,709,901
                                                                                                ===================


(8) ACCUMULATED DEFICIT
     Beginning Balance (combined companies)                                                             26,406,564
     To close the accumulated deficit of Cadence                                         (c)           (25,895,765)
     Adjust for Cadence 2/1/05-6/30/05 activity after allocation of net 1/31/05 assets   (d)             2,370,060
     Record 5 months amortization on intangible assets ($4,605,000 over 36 months)       (d)               639,583
     Record upward net adjustment from successful efforts to full cost                   (e)              (430,131)
                                                                                                -------------------
     Total pro forma adjustments                                                                       (23,316,253)
                                                                                                -------------------
     Ending pro forma balance                                                                            3,090,311
                                                                                                ===================



                                      F-49


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
Aurora Energy, Ltd.
Traverse City, Michigan

We have audited the accompanying consolidated balance sheets of Aurora Energy,
Ltd. and Subsidiaries as of December 31, 2004 and 2003 and the related
consolidated statements of operations, shareholders' equity and minority
interest and cash flows for each of the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aurora Energy, Ltd.
and Subsidiaries as of December 31, 2004 and 2003 and the results of their
operations and their cash flows for each of the years then ended, in conformity
with U.S. generally accepted accounting principles.

                            RACHLIN COHEN & HOLTZ LLP

Miami, Florida
April 20, 2005


                                      F-50


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS



                                                                                               December 31
                                                                                       ----------------------------
                                                                                            2004            2003
                                                                                       ------------    ------------
                                                      ASSETS
                                                                                                 
Current assets:
  Cash and cash equivalents                                                            $  5,179,582    $  1,045,752
  Accounts receivable                                                                     2,269,907       1,022,450
  Accounts receivable - related party                                                       129,960          20,000
  Notes receivable                                                                          136,247         120,905
  Receivable from shareholder                                                               100,000              --
  Prepaid expenses and other                                                                     --          76,110
                                                                                       ------------    ------------
    Total current assets                                                                  7,815,696       2,285,217
                                                                                       ------------    ------------

Oil and gas properties, using full cost accounting:
  Properties being amortized                                                              7,585,807      11,794,654
  Properties not subject to amortization                                                  7,981,727       3,174,420
                                                                                       ------------    ------------
    Total oil and gas properties                                                         15,567,534      14,969,074
    Less accumulated amortization                                                           600,077         425,077
                                                                                       ------------    ------------

Oil and gas properties, net                                                              14,967,457      14,543,997


Other property and equipment, net                                                           115,283          69,366
Other investments                                                                           230,396              --
Deferred loan origination costs                                                             294,545              --
Other long term receivable                                                                   22,452             221
                                                                                       ------------    ------------
    Total assets                                                                       $ 23,445,829    $ 16,898,801
                                                                                       ============    ============

                                       LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                                     $  3,221,533    $  1,281,568
  Accrued expenses                                                                          200,800         148,021
  Drilling advances                                                                         387,175          34,855
  Short-term bank borrowings                                                                350,000              --
  Current portion of obligations under capital leases                                         8,823         254,021
  Current portion of notes payable - related parties                                      1,940,825              --
  Current portion of note payable - other                                                        --          60,000
                                                                                       ------------    ------------
    Total current liabilities                                                             6,109,156       1,778,465


Reserve base lending                                                                             --         498,675
Obligations under capital leases, net of current portion                                     12,663         742,768
Notes payable - related parties                                                           1,077,706       3,241,847
Note payable - other, net of current portion                                                     --         247,935
Mezzanine financing                                                                      10,000,000       4,200,400
                                                                                       ------------    ------------
    Total liabilities                                                                    17,199,525      10,710,090
                                                                                       ------------    ------------

Minority interest in net assets of subsidiaries                                                  --       1,685,063
                                                                                       ------------    ------------

Shareholders' equity:
  Series A preferred stock, $1.50 par value; 500,000 shares authorized, 99,350
    shares issued and outstanding, liquidation preference of approximately
    $185,000
    (410,461 shares issued and outstanding in 2003)                                         149,025         615,692
  Common stock, $.001 par value; 24,500,000 shares authorized, 13,775,933
    shares issued and outstanding (11,432,824 shares issued and outstanding in 2003)         13,776          11,433
  Additional paid-in capital                                                              8,183,025       4,745,222
  Accumulated deficit                                                                    (2,099,522)       (868,699)
                                                                                       ------------    ------------
    Total shareholders' equity                                                            6,246,304       4,503,648
                                                                                       ------------    ------------
    Total liabilities and shareholders' equity                                         $ 23,445,829    $ 16,898,801
                                                                                       ============    ============

                 See Notes to Consolidated Financial Statements


                                      F-51


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                                       Year Ended December 31
                                                     ----------------------------
                                                         2004            2003
                                                     ------------    ------------
                                                               
Revenues:

  Oil and gas sales                                  $    960,011    $  1,094,612
  Gain on sale of oil and gas properties                       --       2,814,222
  Interest income                                          47,678           8,478
  Other income                                          1,192,835       1,921,285
                                                     ------------    ------------
    Total revenues                                      2,200,524       5,838,597
                                                     ------------    ------------

Costs and expenses:

  General and administrative                            2,057,333       1,464,736
  Production and lease operating                          614,338         920,439
  Interest                                                392,402         416,690
  Depreciation, depletion and amortization                203,249         188,623
  Taxes                                                    75,000              --
                                                     ------------    ------------
    Total costs and expenses                            3,342,322       2,990,488
                                                     ------------    ------------

Income (loss) before minority interest                 (1,141,798)      2,848,109

Minority interest in income (loss) of subsidiaries        (38,087)      1,145,388
                                                     ------------    ------------

Net income (loss)                                      (1,103,711)      1,702,721

Less dividends on preferred stock                         (30,268)        (36,942)
                                                     ------------    ------------

Net income (loss) available to common shareholders   $ (1,133,979)   $  1,665,779
                                                     ============    ============

Net income (loss) per common share
  Basic                                              $      (0.10)   $       0.15
                                                     ============    ============
  Diluted                                            $      (0.10)   $       0.14
                                                     ============    ============

Weighted average common shares outstanding:

  Basic                                                11,817,812      11,288,112
                                                     ============    ============
  Diluted                                              11,817,812      12,526,162
                                                     ============    ============


                 See Notes to Consolidated Financial Statements


                                      F-52


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND MINORITY INTEREST



                                                                  Preferred Stock         Common Stock      Additional
                                                                --------------------   ------------------    Paid-in    Accumulated
                                                                 Shares     Amount       Shares    Amount    Capital     Deficit
                                                                --------   ---------   ----------  -------  ----------  -----------
                                                                                                      
Balances at January 1, 2003                                      410,461   $ 615,692   11,202,824  $11,203  $4,615,452  $(2,571,420)
Issuance of common stock for cash ($0.50 per share)                   --          --      200,000      200      99,800           --
Issuance of common stock in exchange for interest
  in certain oil and gas properties ($1.00 per share)                 --          --       30,000       30      29,970           --
Capital contribution by minority members                              --          --           --       --          --           --
Distributions to minority members                                     --          --           --       --          --           --
Net income                                                            --          --           --       --          --    1,702,721
                                                                --------   ---------   ----------  -------  ----------  -----------
Balances at December 31, 2003                                    410,461     615,692   11,432,824   11,433   4,745,222     (868,699)


Issuance of common stock in exchange for consulting
  services ($.83 per share)                                           --          --       49,976       50      41,429           --
Issuance of common stock for cash ($2.50 per share):
  Issued in private placement                                         --          --      600,000      600   1,499,400           --
  Issued to Cadence Resource Corporation                              --          --      300,000      300     749,700           --
  Issued to others                                                    --          --      145,000      145     362,355           --
Issuance of common stock for consulting
  services ($2.50 per share)                                          --          --        4,800        5      11,995           --
Exercise of common stock options ($.75 per share)                     --          --       10,000       10       7,490           --
Exercise of common stock options ($1.00 per share)                    --          --      300,000      300     299,700           --
Conversion of preferred stock to common stock                   (311,111)   (466,667)     933,333      933     465,734           --
Distributions to minority members                                     --          --           --       --          --           --
Income allocated to minority interest owners prior to disposal        --          --           --       --          --           --
Disposition of subsidiary and elimination of
  minority member interest                                            --          --           --       --          --           --
Transfer of member interest in subsidiary in exchange
  for working interest                                                --          --           --       --          --           --
Minority interest reclassified as other receivable                    --          --           --       --          --           --
Dividends paid on preferred stock                                     --          --           --       --          --     (127,112)
Net loss                                                              --          --           --       --          --   (1,103,711)
                                                                --------   ---------   ----------  -------  ----------  -----------
Balances at December 31, 2004                                     99,350   $ 149,025   13,775,933  $13,776  $8,183,025  $(2,099,522)
                                                                ========   =========   ==========  =======  ==========  ===========



                                      F-53


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND MINORITY INTEREST



                                                                                  Minority
                                                                   Total          Interest
                                                                Shareholders'   in Net assets
                                                                   Equity       of Subsidiaries
                                                                 -----------     -----------
                                                                           
Balances at January 1, 2003                                      $ 2,670,927     $ 1,699,626
Issuance of common stock for cash ($0.50 per share)                  100,000              --
Issuance of common stock in exchange for interest
  in certain oil and gas properties ($1.00 per share)                 30,000              --
Capital contribution by minority members                                  --         114,842
Distributions to minority members                                         --      (1,274,793)
Net income                                                         1,702,721       1,145,388
                                                                 -----------     -----------
Balances at December 31, 2003                                      4,503,648       1,685,063

Issuance of common stock in exchange for consulting
  services ($.83 per share)                                           41,479              --
Issuance of common stock for cash ($2.50 per share):
  Issued in private placement                                      1,500,000              --
  Issued to Cadence Resource Corporation                             750,000              --
  Issued to others                                                   362,500              --
Issuance of common stock for consulting
  services ($2.50 per share)                                          12,000              --
Exercise of common stock options ($.75 per share)                      7,500              --
Exercise of common stock options ($1.00 per share)                   300,000              --
Conversion of preferred stock to common stock                             --              --
Distributions to minority members                                         --         (41,347)
Income allocated to minority interest owners prior to disposal            --          41,243
Disposition of subsidiary and elimination of
  minority member interest                                                --         (90,518)
Transfer of member interest in subsidiary in exchange
  for working interest                                                    --      (1,578,806)
Minority interest reclassified as other receivable                        --          22,452
Dividends paid on preferred stock                                   (127,112)             --
Net loss                                                          (1,103,711)        (38,087)
                                                                 -----------     -----------
Balances at December 31, 2004                                    $ 6,246,304     $        --
                                                                 ===========     ===========



                 See Notes to Consolidated Financial Statements


                                      F-54


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                         Year Ended December 31
                                                                       --------------------------
                                                                          2004          2003
                                                                       ------------   -----------
                                                                                
Cash flows from operating activities:
  Net income (loss)                                                    $ (1,103,711)  $ 1,702,721
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
      Depreciation, depletion and amortization                              203,249       188,623
      Gain on sale of oil and gas properties                                     --    (2,814,222)
      Services received in settlement of note receivable                     39,754        39,095
      Common stock issued in exchange for services                           53,479            --
      Minority interest in income (loss) of subsidiaries                    (38,087)    1,145,388
      Other                                                                   7,854            --
      Changes in operating assets and liabilities:
        Accounts receivable                                              (1,365,271)     (648,478)
        Advance for services                                                     --      (160,000)
        Prepaid expenses and other                                           76,110       (27,680)
        Accounts payable                                                  1,939,965      (174,885)
        Drilling advances                                                   352,320       (82,895)
        Accrued expenses                                                     52,779       (57,962)
                                                                       ------------   -----------
          Net cash provided by (used in) operating activities               218,441      (890,295)
                                                                       ------------   -----------


Cash flows from investing activities:

  Capital expenditures for oil and gas properties                       (10,159,663)   (6,395,001)
  Proceeds from sale of oil and gas properties                            1,902,537     8,475,080
  Capital expenditures for other property and equipment                     (74,166)      (20,317)
  Advances on notes receivable                                             (155,096)           --
  Capital expenditures for oil and gas working interests                         --    (1,590,025)
  Working interest owner reimbursements                                          --       113,300
  Investment in Hudson Pipeline                                            (230,396)           --
                                                                       ------------   -----------
          Net cash provided by (used in) investing activities            (8,716,784)      583,037
                                                                       ------------   -----------


Cash flows from financing activities:

  Net short-term bank borrowings (repayments)                               350,000    (1,250,000)
  Mezzanine financing advances, net of loan costs of $294,545 in 2004    10,179,694     4,200,400
  Reserve base lending advances                                                  --       498,676
  Proceeds from capital lease                                                    --       880,000
  Payments on capital lease obligations                                    (128,278)     (338,938)
  Capital contribution by minority interest members                              --       114,842
  (Payments) proceeds from notes payable - other                           (307,935)      307,935
  Distributions to minority interest members                                (41,347)   (1,274,793)
  Amounts paid to lease fund investors and other owners                          --    (2,007,965)
  Net proceeds from sales of common stock and exercise of options         2,920,000            --
  Net proceeds from subsidiary disposition                                   10,467            --
  Advances from related parties                                             154,118            --
  Repayment of advances from related parties                                (504,546)     (248,089)
                                                                       ------------   -----------
Net cash provided by financing activities                                12,632,173       882,068
                                                                       ------------   -----------


Net increase in cash and cash equivalents                                 4,133,830       574,810

Cash and cash equivalents, beginning of year                              1,045,752       470,942
                                                                       ------------   -----------


Cash and cash equivalents, end of year                                 $  5,179,582   $ 1,045,752
                                                                       ============   ===========


                 See Notes to Consolidated Financial Statements


                                      F-55


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                                  CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
Aurora Energy, Ltd. and the entities identified below under the heading
Organization and Nature of Operations, hereinafter referred to as "the Company"
or "Aurora".

All significant intercompany accounts and transactions have been eliminated in
consolidation.

                      ORGANIZATION AND NATURE OF OPERATIONS

The nature and composition of the Company's operations are as follows:

AURORA ENERGY, LTD. ("Aurora") is a Nevada corporation, engaged primarily in the
acquisition, development, production, exploration and sale of oil, gas and
natural gas liquids. Aurora sells its oil and gas products primarily to domestic
pipelines and refineries.

Aurora Energy, Ltd.'s subsidiary operations are as follows:

AURORA PRODUCTION, LLC (F/K/A JET/LAVANWAY, LLC) ("APL") is a limited liability
company, engaged primarily in the extraction of gas reserves from its 76%
working interest in the New Albany Shale area located in Harrison, Crawford,
Washington, Floyd and Clark Counties, in the State of Indiana, which covers
approximately 80,656 acres. APL was formed on June 1, 1995 and its original term
of existence was anticipated through November 1, 2013. Aurora holds a 51%
interest in APL. As a result of the sale disclosed in Note 5, all operations of
APL ceased as of December 31, 2003.

INDIANA GATHERING, LLC ("IGL") is a limited liability company, established on
July 31, 1998 to operate a gas processing plant for gas produced primarily in
Indiana. Aurora owns a 40% interest in IGL. Operating and management agreements
establish sufficient control by Aurora to support consolidation of the financial
statements. As a result of the sale disclosed in Note 5, all operations of IGL
ceased as of December 31, 2003.

AURORA OPERATING, LLC ("Operating") is a limited liability company, engaged
primarily in oil and gas operations and development. Operating was formed on
January 1, 2000 and its term of existence extends through January 1, 2020.
Operating holds certain oil and gas properties in the New Albany Shale Project.
Aurora owned a 71% member interest in this entity. In December 2003, Aurora
entered into an agreement to sell 20% of its member interest in Operating to an
unrelated third party. This sale changed Aurora's ownership in Operating from
71% to 51%. Restrictions related to this sale specify that the purchaser is not
entitled to receive any cash distributions nor are they required to make any
capital contributions within two years from the closing date (December 9, 2003).
The agreement also includes put and call options at the same price that the 20%
was initially sold for. The call option allows Aurora to purchase this interest
back between December 10, 2005 and December 9, 2008. The put option allows the
purchaser to sell their interest back to Aurora during the same time frame.


                                      F-56


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                ORGANIZATION AND NATURE OF OPERATIONS (Continued)

AURORA ANTRIM NORTH, LLC ("North") is a limited liability company engaged
primarily in any activity with the purpose for which the LLC may be formed.
North was formed on January 18, 2001 and its term of existence extends through
January 18, 2021. Aurora holds a 100% interest in North. In 2003 certain oil and
gas properties were conveyed from Aurora to North in connection with the
mezzanine financing with Wells Fargo. This financing facility was paid in full
and terminated during 2004 and Aurora entered into a new mezzanine financing
arrangement, which is more fully described in Note 9.

AURORA HOLDINGS, LLC ("Holdings") is a limited liability company engaged
primarily in any activity with the purpose for which the LLC may be formed.
Holdings was formed on January 10, 2001 and its term of existence extends
through January 10, 2021. Aurora holds a 100% interest in Holdings. Operations
for Holdings for the period from inception to December 31, 2004 were
insignificant.

INDIANA ROYALTY TRUSTORY, LLC ("IRT") is a limited liability company engaged
primarily in investments in royalties and other financial instruments. IRT was
formed on January 1, 2001 and its term of existence extends through January 1,
2021. The Company holds a 51% interest in IRT. Operations for IRT during 2004
and 2003 were insignificant.

AURORA INVESTMENTS, LLC ("AIL") is a limited liability company formed in October
2001 to raise funds specifically earmarked for drilling of certain defined oil
and gas prospects. Under the terms outlined in the private placement memorandum
dated October 1, 2001, third party investors contributed 95% of the funds needed
to drill a specific project and Aurora contributed 5% in the form of oil and gas
properties. As manager of AIL, Aurora makes key decisions relating to AIL's
operations and was conveyed an additional 12.5% interest in AIL for a total
membership interest of 17.5%. Once all third party investor members have
received 100% of their initial investment back, Aurora will receive an
additional 12.5% interest for a total member interest of 30%. AIL was
consolidated into Aurora due to the control that Aurora exercised over the
operations of AIL. During 2004, Aurora exchanged its 17.5% membership interests
in AIL in exchange for certain working interests which resulted in the removal
of AIL from these consolidated financial statements as of December 31, 2004.
While the agreement covering a potential 12.5% additional interest is still in
effect, management believes the likelihood of receiving this additional interest
is remote.

BEYER ANTRIM COMPANY, LLC ("BAC") is a limited liability company formed in May
2002 to raise funds specifically earmarked for drilling of certain defined oil
and gas prospects. Under the terms outlined in the private placement memorandum
dated April 20, 2002, third party investors contributed 95% of the funds needed
to drill a specific project and Aurora contributed 5% in the form of oil and gas
properties. As manager of BAC, Aurora makes key decisions relating to BAC's
operations and was conveyed an additional 12.5% interest in BAC for a total
membership interest of 17.5%. Once all third party investor members have
received 100% of their initial investment back, Aurora will receive an
additional 12.5% interest for a total member interest of 30%. BAC was
consolidated into Aurora due to the control that Aurora exercised over the
operations of BAC. During 2004, Aurora exchanged its 17.5% membership interests
in BAC in exchange for certain working interests which resulted in the removal
of BAC from these consolidated financial statements as of December 31, 2004.
While the agreement covering a potential 12.5% additional interest is still in
effect, management believes the likelihood of receiving this additional interest
is remote.


                                      F-57


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                ORGANIZATION AND NATURE OF OPERATIONS (Continued)

AURORA NATURAL GAS PRODUCTION, LLC ("ANG") is a limited liability company formed
in June 2002 to raise funds specifically earmarked for drilling of certain
defined oil and gas prospects. Under the terms outlined in the private placement
memorandum dated May 15, 2002, third party investors contributed 95% of the
funds needed to drill a specific project and Aurora contributed 5% in the form
of oil and gas properties. As manager of ANG, Aurora makes key decisions
relating to ANG's operations and was conveyed an additional 12.5% interest in
ANG for a total membership interest of 17.5%. Once all third party investor
members have received 100% of their initial investment back, Aurora will receive
an additional 12.5% interest for a total member interest of 30%. ANG was
consolidated into Aurora due to the control that Aurora exercised over the
operations of ANG. During 2004, Aurora exchanged its 17.5% membership interests
in ANG in exchange for certain working interests which resulted in the removal
of ANG from these consolidated financial statements as of December 31, 2004.
While the agreement covering a potential 12.5% additional interest is still in
effect, management believes the likelihood of receiving this additional interest
is remote.

BFG HOLDINGS, LLC ("BFG") is a limited liability company engaged primarily in
any activity with the purpose for which the LLC may be formed. BFG was formed on
September 18, 2002 and Aurora holds a 100% interest in BFG. In 2003, certain oil
and gas properties were conveyed from Aurora to BFG in connection with the
reserve base financing with Texas Capital Bank, N.A. This financing vehicle has
been paid in full and terminated during 2004. These properties were transferred
to BFG at their net book value on the date of transfer. During 2004, BFG was
closed and transferred all oil and gas properties to North at their net book
value. All operations of BFG have ceased as of December 31, 2004.

CONSOLIDATED EXPLORATION, LLC ("Conexco") is a limited liability company engaged
primarily in the acquisition, development and sale of oil and gas leasehold
interests. Conexco owns significant leasehold interests in Indiana's New Albany
Shale area, including an overriding royalty in the producing Corydon fields.
Conexco was formed on April 4, 1994 and its term of existence extends through
April 4, 2014. On January 1, 1999, Aurora purchased a 100% interest in Conexco
and this entity became a wholly owned subsidiary. In 2003, Conexco was allocated
a portion of the sales proceeds in transactions disclosed in Note 5.

INDIGAS ENERGY, LLC ("Indigas") is a limited liability company engaged primarily
in the acquisition, development, production and sale of oil and gas leasehold
interests. Indigas owns significant leasehold interests in Indiana and
Kentucky's New Albany Shale area. Indigas was formed on January 1, 1996 and its
term of existence extends through January 1, 2016. On January 1, 1999 Aurora
purchased a 100% interest in Indigas and this entity became a wholly owned
subsidiary.

Both Conexco and Indigas received a portion of the funds from the option
agreement (the "Option") described more fully in Note 5. These proceeds were
then used to return to investors their original investment plus the agreed upon
return percentage. Since all of the lease investors monies have been returned,
operations of both entities have ceased as of December 31, 2003. As a result of
the Option being exercised subsequent to December 31, 2004, all proceeds have
been allocated to Aurora as all lease investor obligations have been met (see
Note 17).

                                USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.


                                      F-58


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                ORGANIZATION AND NATURE OF OPERATIONS (Continued)

                             OIL AND GAS PROPERTIES

The Company uses the full cost method of accounting for oil and gas properties.
Under this method, all costs associated with acquisition, exploration and
development of oil and gas reserves, including directly related overhead costs,
are capitalized. Costs associated with production and general corporate
activities are expensed in the period incurred.

All capitalized costs of oil and gas properties, including the estimated future
costs to develop proven reserves, are amortized on the unit-of-production method
using estimates of proven reserves. Investments in unproven properties and major
development projects are not amortized until proven reserves associated with the
projects can be determined or until impairment occurs. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized.

Capitalized costs of oil and gas properties, net of accumulated amortization,
are limited to the aggregate of estimated future net revenues from proven
reserves, discounted at ten percent, based on current economic and operating
conditions, plus the lower of cost or fair value of unproven properties.

Sales of proven and unproven properties are applied to reduce the capitalized
costs with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between capitalized costs and proven
reserves of oil and gas, in which case the gain or loss is recognized in income.
Abandonment of properties is accounted for as adjustments of capitalized costs
with no loss recognized.

                              CAPITALIZED INTEREST

The Company capitalizes interest on expenditures made in connection with
exploration and development projects that are not subject to current
amortization. Interest is capitalized only for the period that activities are in
progress to bring these projects to their intended use. Interest capitalized
amounted to $329,028 and $205,154 during 2004 and 2003, respectively.

                            CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of demand deposits in banks. The Company's
bank accounts periodically exceed federally insured limits. As of December 31,
2004 and 2003, cash in excess of FDIC limits amounted to approximately
$1,055,000 and $953,000, respectively. Management believes that the Company is
not exposed to any significant credit risk on its cash deposits.

                         DEFERRED LOAN ORIGINATION COSTS

Loan origination costs related to mezzanine financing obtained in late 2004, as
more fully described in Note 9, are deferred. These costs are being amortized
using the interest method over the term of the related loan. Annual amortization
expense during 2005 to 2009 will be approximately $59,000.


                                      F-59


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                ORGANIZATION AND NATURE OF OPERATIONS (Continued)

                                OTHER INVESTMENTS

HUDSON PIPELINE & PROCESSING CO., LLC ("Hudson") is a limited liability company
that owns a facility plant, pipeline, rights-of-way and meter used by nearby
Antrim wells, and processes the gas produced from those wells. North owns a
48.75% membership interest in this limited liability company until the revenues
received from the pipeline facility equal 125% of the amount spent on
construction of the pipeline, after which North's membership interest will be
47.5%.

      Ownership for this investment is accounted for using the equity method,
whereby the investment is stated at cost and adjusted for the Company's equity
in undistributed earnings and loss since acquisition. The construction of the
pipeline began in late 2004. Operations for Hudson for the period ending
December 31, 2004 were insignificant.

The following is condensed financial information concerning Hudson:

Balance Sheet December 31, 2004

                                   (Unaudited)

Current assets                                                          $ 43,839
Construction projects in progress, net                                   749,223
                                                                        --------
Total assets                                                            $793,062
                                                                        ========

Current liabilities                                                     $563,009
Member's equity                                                          230,053
                                                                        --------
Total liabilities and member's equity                                   $793,062
                                                                        ========

                             Statement of Operations
                      For the Period September 15, 2004 to

                                December 31, 2004
                                   (Unaudited)

Revenues                                                                 $24,964
Costs and expenses                                                        22,565
                                                                         -------
Net income                                                               $ 2,399
                                                                         =======


                                      F-60


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                               REVENUE RECOGNITION

Oil and gas sales are generally recognized at the time of extraction of product
or performance of services. Revenues from service contracts are recognized
ratably over the term of the contract. See Note 5 regarding the sale in 2003 of
interest in oil and gas properties.

                               ACCOUNTS RECEIVABLE

Accounts receivable generally consist of amounts due from working interest
partners for their proportionate share of expenses related to certain oil and
gas projects. Accounts receivable are stated at the amounts management expects
to collect from outstanding balances. The Company provides for probable
uncollectible amounts through a charge to earnings based on management's
assessment of the current status of individual accounts. Balances that are still
outstanding after the Company has attempted reasonable collection efforts are
written off through a charge to earnings and a credit to accounts receivable.
Charges to earnings have typically not been material to the consolidated
financial statements.

                       FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash, accounts
receivable, loans receivable, accounts payable and accrued expenses and debt.
The carrying amounts of such financial instruments approximate their respective
estimated fair value due to the short-term maturities and approximate market
interest rates of these instruments. The estimated fair value is not necessarily
indicative of the amounts the Company would realize in a current market exchange
or from future earnings or cash flows.

                          OTHER PROPERTY AND EQUIPMENT

Other property and equipment are stated at cost. Major improvements and renewals
are capitalized while ordinary maintenance and repairs are expensed. Management
annually reviews these assets to determine whether carrying values have been
impaired.

          DEPRECIATION AND AMORTIZATION OF OTHER PROPERTY AND EQUIPMENT

Depreciation, which includes amortization of assets recorded as capital leases,
is computed using the straight-line method over the estimated useful lives of
the related assets, which range from 5 to 20 years or lease term, if shorter.

                                     DEPOSIT

A cash deposit in the amount of $100,000 was received from an investor for the
purchase of Aurora's common stock. The Company received these funds in 2002 and
the stock was issued during 2003.


                                      F-61


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                                  INCOME TAXES

Aurora and its wholly- owned subsidiaries file a combined federal income tax
return, while the remaining subsidiaries each file separate federal income tax
returns. Taxable income and losses of subsidiaries not included in the combined
tax return are passed directly to the shareholders or members. Consequently, in
the accompanying consolidated financial statements, income taxes are not
provided on taxable income or losses allocated to the minority interest in the
subsidiaries.

Deferred income tax assets and liabilities are computed annually for differences
between the consolidated financial statements and federal income tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future, based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Deferred income taxes
arise from temporary basis differences principally related to intangible
drilling costs incurred in connection with the development of oil and gas
properties, depreciation and net operating losses. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the year
plus or minus the change during the year in deferred tax assets and liabilities.

                                MINORITY INTEREST

The minority interest shown in the accompanying consolidated balance sheets
represents the minority members' share of contributed capital, income or loss
and distributions.

                        RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123R, "Share-Based Payment" (SFAS 123R), which is a revision of SFAS 123 and
supersedes APB Opinion No. 25. SFAS 123R requires all share-based payments to
employees, including grants of employee stock options, to be valued at fair
value on the date of grant, and to be expensed over the applicable vesting
period. Pro forma disclosure of the income statement effects of share-based
payments is no longer an alternative. SFAS 123R is effective for all stock-based
awards granted on or after July 1, 2005. In addition, companies must also
recognize compensation expense related to any awards that are not fully vested
as of the effective date. Compensation expense for the unvested awards will be
measured based on the fair value of the awards previously calculated in
developing the pro forma disclosures in accordance with the provision of SFAS
123. The Company is currently assessing the impact of adopting SFAS 123R to its
consolidated financial statements.

In September 2004, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 106 (SAB 106) which provides guidance regarding the
interaction of SFAS 143 with the calculation of depletion and the full cost
ceiling test of oil and gas properties under the full cost accounting rules of
the SEC. The guidance provided in SAB 106 is not expected to have a material
effect on the Company's consolidated financial position, results of operations
or cash flows.

In October 2004, the American Jobs Creation Act of 2004 (AJCA) was signed into
law. In December 2004, the FASB issued Staff Position No. 109-1 (FSP 109-1),
"Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004" and Staff Position No. 109-2 (FSP 109-2), "Accounting and
Disclosure Guidance of the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004". FSP 109-1 clarifies that the manufacturer's
tax deduction provided for under the AJCA should be accounted for as a special
deduction in accordance with SFAS No. 109 and not as a tax rate reduction. FSP
109-2 provides accounting and disclosure guidance for the repatriation of
certain foreign earnings to a U.S. taxpayer as provided for the AJCA. The
Company does not expect that the tax benefits resulting from the AJCA will have
a material impact on its financial statements.


                                      F-62

                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 2. SUPPLEMENTAL CASH FLOWS INFORMATION

                   NON-CASH FINANCING AND INVESTING ACTIVITIES

2004

During 2004, Aurora conveyed its entire interest totaling $338,177 in AIL, BAC
and ANG back to the respective consolidated subsidiaries in exchange for oil and
gas reserves in the same amount. As a result of this conveyance, Aurora no
longer maintained a controlling interest in these subsidiaries. Minority
interests and oil and gas properties related to this conveyance, in the amount
$1,992,361, has been eliminated from these consolidated financial statements.

Pursuant to the purchase and sale agreement with an unrelated third party more
fully described in Note 5, Aurora repaid in full the mezzanine facility
obligation in the amount of $4,674,639, reserve base lending obligation in the
amount of $498,675 and transferred certain lease obligations in the amount of
$847,025.

During 2004, $127,112 of cumulative dividends on convertible preferred stock
were satisfied by issuance of a note payable.

2003

Aurora issued 30,000 shares of common stock, valued at $1.00 per share, in
exchange for the receipt of certain oil and gas interests.

                          OTHER CASH FLOWS INFORMATION

Cash paid for interest amounted to $681,025 and $621,844 in 2004 and 2003,
respectively.

             NOTE 3. ACCOUNTS RECEIVABLE (INCLUDING RELATED PARTIES)

Accounts receivable consists primarily of joint interest billings to investors
who have invested with the Company on specific oil and gas projects. Accounts
receivable may be offset by royalty payments and are typically collateralized by
the owners' interest in a specific oil and gas project. Potential credit losses,
in the aggregate, have not been significant and have not exceeded management's
expectations.

Receivables due from related parties at December 31, 2004 and 2003 amounted to
$129,960 and $20,000, respectively, and consist of amounts due from affiliates
with common ownership for joint billings on projects which they are involved in
with the Company, and are included in accounts receivable in the accompanying
consolidated balance sheets.


                                      F-63


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 4. NOTES RECEIVABLE (INCLUDING RELATED PARTIES)

Notes receivable consist of the following amounts as of December 31:



                                                                          2004      2003
                                                                        --------  --------
                                                                            
Unsecured note receivable from a third party arising from an agreement $ 81,151   $120,905
to provide funds to secure certain contract services over a two year
period. The structure of this agreement requires payments to be made as
the third party renders services to the company, including interest
capitalized at 6%. Total payments received in the form of services
rendered during 2004 and 2003 amounted to $39,754 and $39,095,
respectively

Unsecured note receivable from a party related by virtue of common        35,096        --
ownership, including interest charged at 6.0%.  This note was
collected in full in March, 2005

Unsecured note receivable from a third party, due on demand, with
interest charged at 6.0%                                                  20,000        --
                                                                        --------  --------

Total notes receivable                                                  $136,247  $120,905
                                                                        ========  ========


                           SHAREHOLDER NOTE RECEIVABLE

The Company holds an unsecured note receivable from a shareholder in the amount
of $100,000, which is due upon demand, with interest charged at 4.5%.

NOTE 5. SALE OF INTERESTS IN OIL AND GAS PROPERTIES

The Company had the following transactions related to the sale of oil and gas
properties, all of which were applied to reduce the full cost pool:


                                                Interest        Gross
Year  Type of Property     Description            Sold        Proceeds
- ----  ----------------     -----------            ----        --------

2004  Unproven and Proven  Antrim leasehold        80%        $6,433,890
2004  Proven               Crossroads project      90%           292,132
2004  Unproven             New Albany Shale        95%           349,829
                                                              ----------
Total                                                         $7,075,851
                                                              ==========


                                      F-64


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 5. SALE OF INTERESTS IN OIL AND GAS PROPERTIES (Continued)


                                                           Interest      Gross
    Year  Type of Property     Description                  Sold        Proceeds
    ----  ----------------     -----------                  ----        --------

    2003  Unproven              Graben leasehold            100%      $1,266,520
    2003  Proven                Black Bean                   50%         873,492
    2003  Unproven              Indiana leasehold interest   50%          47,500
    2003  Unproven              Antrim leasehold - ORRI       2%          47,066
    2003  Proven                Compressor sale             100%          43,832
                                                                      ----------
    Total                                                             $2,278,410
                                                                      ==========


During 2004, Aurora entered into a sale agreement with an unrelated third party
for $6,433,890. As part of this agreement, the third party assumed capital
leases in the amount of $847,025. Further, Aurora received $1,260,576 in
proceeds net of the payoff of the mezzanine facility obligation in the amount of
$4,674,639 and reserve base lending obligation in the amount of $498,675 for the
sale of an 80% interest in Aurora's Antrim leasehold units located in northeast
Michigan. Proceeds, net of historical cost in the amount of $7,211,916, were
recorded as a reduction to the full cost pool as the reduction of capitalized
costs to the oil and gas reserve were not significantly altered.

In addition to the above transactions, the following transactions occurring in
2003 were recorded as a reduction to the full cost pool for the historical cost
of the assets sold and the remainder was recorded as a gain in the accompanying
2003 consolidated statements of operations. Since the sale of these oil and gas
properties or the conveyance of an option to purchase certain oil and gas
properties would significantly alter the relationship between capitalized costs
and the oil and gas reserves, the net proceeds were accounted for as a gain on
sale of oil and gas interests in the accompanying 2003 consolidated statements
of operations.



                                                                    Net
                                                   Payments to    Proceeds
                                                   Lease Fund     Allocable
                                        Gross    Investors and     to the     Historical     Gain
Property/Option Sold                  Proceeds    Other Owners    Company        Cost       on Sale
- -----------------------------------  ----------   -----------    ----------   ----------   ----------
                                                                            
100% of APL's proven assets          $2,825,845   $  (864,454)   $1,961,391   $  243,299   $1,718,092
100% of Conexco's proven assets         162,812            --       162,812           --      162,812
100% of IGL's proven assets             136,350        (1,958)      134,392       88,879       45,513
95% of Aurora's unproved leases*      1,388,649    (1,003,540)      385,109           --      385,109
95% of Operating's unproved leases*   1,679,950      (138,013)    1,541,937    1,042,305      499,632
Other sales                               3,064            --         3,064           --        3,064
                                     ----------   -----------    ----------   ----------   ----------
Total                                $6,196,670   $(2,007,965)   $4,188,705   $1,374,483   $2,814,222
                                     ==========   ===========    ==========   ==========   ==========


*Proceeds received in excess of the costs are recorded as a gain as these
transactions represent options and the option agreement covers certain amounts
capitalized as oil and gas properties in Operating and Aurora. The amounts
advanced to the Company are non-refundable and, therefore, are recorded as
income. Subsequent to December 31, 2004 and in conjunction with the exercising
of the Option, 95% of Operating's assets have been sold and Aurora maintains a
5% interest (see Note 17).


                                      F-65


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 6. OIL AND GAS PROPERTIES NOT SUBJECT TO AMORTIZATION

The Company is currently participating in oil and gas exploration and
development activities on blocks of acreage in the states of Indiana, Michigan,
Ohio, and Kentucky. A determination cannot be made about the extent, if any, of
additional oil and gas reserves that should be classified as proven reserves in
connection with these projects. Consequently, the associated property and
exploration costs have been excluded in computing amortization of the full cost
pool.

NOTE 7. OTHER PROPERTY AND EQUIPMENT

Other property and equipment consist of the following at December 31:


                                                          2004            2003
                                                        --------        --------

Furniture and fixtures                                  $108,047        $ 75,085
Computer equipment                                        77,509          37,615
Software                                                  11,325          10,015
Leasehold improvements                                    19,042          19,042
Truck                                                      7,050           7,050
                                                        --------        --------
Total property and equipment                             222,973         148,807
Less accumulated depreciation                            107,690          79,441
                                                        --------        --------
Property and equipment, net                             $115,283        $ 69,366
                                                        ========        ========



Depreciation expense amounted to $28,249 and $19,055 during 2004 and 2003,
respectively.

NOTE 8. LEASES (INCLUDING RELATED PARTIES)

Oil and gas equipment which qualify as a capital lease with an original cost of
$42,400 and $1,380,880 in 2004 and 2003, respectively, are capitalized into the
oil and gas cost pool and are amortized as part of the entire full cost pool.

The following is a schedule of annual future minimum lease payments required
under capitalized lease obligations as of December 31, 2004:


2005                                                                     $ 9,960
2006                                                                       9,960
2007                                                                       3,292
                                                                         -------
Total minimum payments due                                                23,212
Less amounts representing interest, imputed at 6.5%                        1,726
                                                                         -------
Present value of net minimum lease payments                               21,486
Current portion                                                            8,823
                                                                         -------
Obligations under capital leases, net of current portion                 $12,663
                                                                         =======


                                      F-66


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 8. LEASES (INCLUDING RELATED PARTIES) (Continued)

During 2003, the Company leased office space under an operating lease on a
month-to-month basis. The leased office space is owned by an entity which is
owned one-third by one of the Company's principal shareholders and one-third by
a trust in the name of another of the Company's principal shareholders. During
2004, the Company extended this lease for a 3-year term requiring monthly
payments of $8,700 expiring in March 2007. Rent charged to expense during 2004
and 2003 was $106,800 and 90,000, respectively. Future minimum lease payments
required under this lease amount to $104,400 in both 2005 and 2006 and $26,100
in 2007.

NOTE 9. DEBT (INCLUDING RELATED PARTIES)

                           SHORT TERM BANK BORROWINGS

During 2004, the Company entered into an unsecured revolving line-of-credit
agreement with a bank. Under the terms of this agreement, the Company can borrow
up to a maximum of $350,000, with monthly interest payments at prime plus 1%
(effective rate at December 31, 2004 of 6.0%). Subsequent to December 31, 2004,
short-term borrowings in the amount of $350,000 were paid in full. The
line-of-credit agreement expires on April 1, 2005.

                              LONG-TERM LIABILITIES

                              RESERVE BASE LENDING

On April 25, 2003, BFG entered into a $250,000 initial reducing revolving line
of credit governed by a borrowing base pursuant to a $10,000,000 master note.
This obligation was paid in full during 2004. Interest expense on this line of
credit amounted to $10,674 and $14,877 in 2004 and 2003, respectively, none of
which was capitalized.

                         NOTES PAYABLE - RELATED PARTIES

A summary of notes payable by the Company to related parties is as follows at
December 31:



                                       Interest    Due
    Related Party                        Rate      Date             2004           2003
    -------------                        ----      ----             ----           ----
                                                               
Affiliated entity           (1)         Prime    5/31/2005 **  $   1,700,000  $   2,000,000
Shareholder/director        (2)          9.50%   See below **        400,000        473,213
Shareholder/director        ~~           6.00%    6/1/2006 **        150,000        150,000
Shareholder/director        ~~           6.00%  12/31/2005 **        127,112             --
Affiliated entity           *            6.00%   3/15/2005 **         86,650             --
Affiliated entity           *           10.50%    5/1/2006            69,833         69,833
Shareholder/director        (3)          4.68%    1/1/2006 **         50,000         50,000
Shareholder/director                     8.00%    1/1/2006 **         50,000         50,000
Shareholder/director                     8.00%    1/1/2006 **         45,000         50,000



                                      F-67


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 9. DEBT (INCLUDING RELATED PARTIES) (Continued)

                        LONG-TERM LIABILITIES (Continued)

                   NOTES PAYABLE - RELATED PARTIES (Continued)





                                       Interest    Due
    Related Party                        Rate      Date             2004           2003
    -------------                        ----      ----             ----           ----
                                                                     
Shareholder/director        ~~           8.00%    1/1/2006 **         47,251         47,251
Shareholder/director        ~~           5.12%    1/1/2006 **         34,421         34,421
Shareholder/director        ~~           6.00%   3/15/2005 **         27,063             --
Shareholder/director        ~~           8.00%    1/1/2006 **         25,000         50,000
Shareholder/director        ~~           8.00%    1/1/2006 **         17,595         17,595
Shareholder/director        ~~           8.00%    1/1/2006 **         10,000         10,000
Shareholder/director        ~~           6.00%    1/1/2006 **         10,000         10,000
Shareholder/director        ~~           8.00%    1/1/2006 **          7,050          7,050
Shareholder/director        ~~           5.50%    1/1/2006 **          2,530          2,530
Shareholder/director        ~~           8.00%    1/1/2006 **          1,333          1,333
Shareholder/director        ~~           6.50%    1/1/2006 **          1,000          1,000
Shareholder/director        ~~           6.50%    1/1/2006                --         50,000
Shareholder/director        ~~           8.00%    1/1/2006                --         20,000
Shareholder/director        ~~           8.00%    1/1/2006                --         20,000
Shareholder/director        ~~           6.50%    1/1/2006                --          6,000
Shareholder/director        ~~           7.25%    1/1/2006                --          4,000
Shareholder/director        ~~           8.00%    1/1/2006                --          1,333
Accrued interest                                           **        156,693        116,288
                                                               -------------  -------------


Total notes payable - related parties                              3,020,535      3,243,850
Current portion of notes payable - related parties                 1,940,825             --
                                                               -------------  -------------


Notes payable - related parties, net of current portion        $   1,079,710  $   3,243,850
                                                               =============  =============


(1) This note requires payments of interest monthly and also requires additional
payments based upon the quantity of gas extracted from certain oil and gas
properties. Interest expense related to this note amounted to $93,618 and
$85,719 in 2004 and 2003, respectively.

(2) Monthly payments are required on this note with the principal and interest
determined based upon the quantity of oil and gas extracted from certain oil and
gas properties. Interest expense amounted to $45,704 and $45,579 in 2004 and
2003, respectively.

(3) This interest rate adjusts annually based on the highest applicable federal
rate (4.68% at December 31, 2004).

*These entities are affiliated through common ownership and ultimate management
control. **These notes were paid in full during March, 2005.

There are no required principal payments for the remaining notes. Interest
expense is accrued annually and is due upon note maturity.

                              NOTE PAYABLE - OTHER

The Company was obligated on a note payable that was issued to replace prior
lease obligations related to oil and gas equipment used on a project that was
shut-in in 2001. The outstanding balance at December 31, 2003 was $307,935. This
obligation was assumed as part of the purchase agreement more fully described in
Note 5.


                                      F-68


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 9. DEBT (INCLUDING RELATED PARTIES) (Continued)

                               MEZZANINE FINANCING

In August 2004, North entered into a $30,000,000 mezzanine credit facility to
enable the Company to fund its 20% - 50% share of the Michigan Antrim drilling
program. The terms of this financing are as follows:

Facility Amount: Up to $30,000,000 senior secured advancing line-of-credit with
overriding royalty provisions. Initial borrowing base of $10,000,000
redetermined as reserves are established accordingly.




        Interest Rate:    11.5%

        Maturity:         September 30, 2009

        Use of Proceeds:  To fund drilling,  completion,



gathering lines, and gas processing facility for certain Michigan Antrim wells.

Security: 100% working interest in all wells completed.

Payments: Beginning September 29, 2005 and quarterly thereafter. The required
payment is 75% (100% if coverage deficiency or default occurs) of Adjusted Net
Cash Flow ("ANCF") determined by deducting applicable drilling expenses from
gross revenue.

Interest expense, all of which was capitalized, related to this debt amounted to
$329,028 in 2004.

In January 2003, North entered into a $15,000,000 mezzanine credit facility to
enable the Company to drill and develop 25 Michigan Antrim wells. This
obligation was paid in full and the agreement was terminated in 2004. Interest
expense related to this facility was $160,649 (none of which was capitalized)
and $390,631 (of which $205,154 was capitalized) in 2004 and 2003, respectively.


                                      F-69


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 10. INCOME TAXES

A reconciliation of the provision for income taxes and the amount computed by
applying the statutory federal income tax rate to net income (loss) is as
follows for the year ended December 31:



                                                                2004        2003
                                                             ---------   ---------

                                                                   
Income tax (benefit) provision at the statutory rate         $(375,300)  $ 578,900
Increase (decrease) in allowance against net operating loss    335,500    (579,600)
Permanent differences/other                                     39,800         700
                                                             ---------   ---------
Income tax provision                                         $      --   $      --
                                                             =========   =========


The Company's total deferred tax liabilities, deferred tax assets and deferred
tax asset valuation allowances as of December 31 are as follows:


                                                       2004             2003
                                                   -----------      -----------
Total deferred tax assets:
  Net operating loss carryover                     $ 1,441,300      $ 1,589,400
Less valuation allowance                              (635,400)        (299,900)
                                                   -----------      -----------
Deferred tax assets, net                               805,900        1,289,500
Total deferred tax liabilities:
  Intangible drilling costs                           (805,900)      (1,289,500)
                                                   -----------      -----------
Net deferred tax assets (liabilities)              $        --      $        --
                                                   ===========      ===========


Aurora has net operating loss carryforwards available to offset future federal
taxable income of approximately $4,241,000, which expire from 2018 through 2024.
However, the utilization of the benefits of such carryforwards may be limited,
as more fully discussed below. Sufficient uncertainty exists regarding the
realization of these operating loss carryforwards and, accordingly, a valuation
allowance of approximately $635,000 and $300,000 at December 31, 2004 and 2003,
respectively, which is related to the net operating losses and other temporary
differences, has been established.

      The Tax Reform Act of 1986 imposed substantial restrictions on the
utilization of net operating losses and tax credits in the event of an
"ownership change", as defined by the Internal Revenue Code. Federal and state
net operating losses are subject to limitations as a result of these
restrictions. Under such circumstances, the Company's ability to utilize its net
operating losses against future income may be reduced.


                                      F-70


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 11. COMMON STOCK

2004

The Company issued 49,976 shares of common stock in exchange for consulting
services provided to the Company during the previous three years. The value
assigned per share was contractual and was agreed to by the Company and the
vendor in June, 2001. The amount expensed as a result of this exchange amounted
to $41,479.

The Company sold 1,045,000 shares of common stock to unrelated third parties at
$2.50 per share, primarily in the fourth quarter of 2004. Total proceeds from
the sale of these shares amounted to $2,612,500.

The Company issued 4,800 shares of common stock as payment for consulting on the
sale of the Company's common stock. The price per share used for this exchange
of $2.50 was based upon comparable sales of the Company's common stock and
amounted to $12,000.

The Company issued 310,000 shares of common stock to a director upon the
exercise of options at prices ranging from $.75 to $1.00 per share.

2003

The Company sold 200,000 shares of common stock to an unrelated third party at
$.50 per share. Total proceeds from the sale of these shares amounted to
$100,000.

The Company issued 30,000 shares of common stock in exchange for the acquisition
of certain oil and gas interests. The Company recorded $30,000 in capitalized
oil and gas properties in connection with the issuance of these shares based on
the fair value of the oil and gas interests acquired. Such value was considered
more objectively determinable than the fair value of the shares.

NOTE 12. PREFERRED STOCK

During 2000, Aurora authorized 500,000 shares of Series A preferred stock with
the terms and amounts set at the Board of Directors discretion. Preferred stock
has liquidation preference over common stock equal to the original issue value,
plus any accrued or arreared dividends.

Each share of Series A preferred stock is voting and is convertible into three
shares of common stock. During 2004, 311,111 shares of preferred stock were
exchanged for 933,333 shares of the Company's common stock. The preferred shares
require dividends of 6% on a cumulative basis commencing in 2001. Dividends are
required to be accrued on January 1 of each year. Dividends in arrears as of
December 31, 2003 amounted to $132,459. Dividends in the amount of $127,112 were
satisfied through issuance of a note payable and, as a result, dividends in
arrears amounted to $35,768 as of December 31, 2004. Subsequent to December 31,
2004, the remaining 99,350 shares of preferred stock were converted to 298,050
shares of common stock and all dividends associated with these shares were paid
in full.


                                      F-71


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 13. COMMON STOCK OPTIONS

On October 1, 1997, Aurora adopted an incentive qualified stock option plan (the
"Plan") which authorized the issuance of up to 1,000,000 shares of Aurora's
common stock at an option price which may not be less than 100% of the estimated
fair value on the date of grant (25% effective with a January 1, 2004 amendment
to the Plan). The maximum term of options granted is ten years. The plan was
created in an effort to retain key employees, attract new employees, obtain the
services of consultants, encourage the sense of proprietorship of such persons
in Aurora and to stimulate the active interest of such persons in the
development and financial success of Aurora. Activity related to options issued
under the Plan is as follows for the year ended December 31:


                                                            2004         2003
                                                           -------     --------

Options outstanding at beginning of the year               250,000      230,000
Granted during the year                                     94,000       40,000
Forfeited during the year                                       --      (20,000)
                                                           -------     --------
Options outstanding at the end of the year                 344,000      250,000
                                                           =======     ========


A majority of the Company's outstanding stock options have been issued outside
of the common stock option plan described above. These include, in both 2004 and
2003, options for the purchase of 99,999 shares which were issued to certain
directors as compensation in exchange for serving on Aurora's board of
directors.

Activity with respect to all stock options (including options granted under the
plan) is presented below for the year ended December 31:


                                            2004                  2003
                                            ----                  ----
                                               Weighted              Weighted
                                               Average                Average
                                               Exercise              Exercise
                                    Shares      Price     Shares       Price
                                   ---------   -------   ---------   --------
Outstanding, beginning of year     2,816,665   $  1.01   2,696,666   $   1.02
Options granted                      193,999      0.75     139,999       0.75
Options exercised                   (310,000)     0.99          --         --
Options forfeited                         --        --     (20,000)      1.00
                                   ---------            ----------
                                   2,700,664      0.99   2,816,665       1.01
                                   =========   =======  ==========   ========




                                      F-72


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 13. COMMON STOCK OPTIONS (Continued)

All of the above options are considered eligible for exercise as such options
vest immediately upon their grant. The weighted average remaining life by
exercise price as of December 31, 2004 is summarized below:


                                                          Weighted
                             Shares                       Average
Range of                   Outstanding                   Remaining
Exercise                       and                      Contractual
 Prices                    Exercisable                     Life
 ------                    -----------                     ----
  $ 0.50                         20,000                     3.4
  $ 0.75                        573,997                     7.0
  $ 0.83                        900,000                     2.2
  $ 1.00                         40,000                     4.9
  $ 1.25                      1,166,667                     1.8
                              ---------
                              2,700,664
                              =========


The Company follows only the disclosure aspects of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
The Company continues to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plans. Under APB 25, the exercise price of the stock options
were more than the fair value of the shares at the date of grant and,
accordingly, no compensation cost has been recognized in the consolidated
financial statements for its outstanding stock options.

The following table illustrates the effect on net income (loss) and income
(loss) per share as if the Company had applied the fair value recognition
provisions of SFAS 123 during the years ended December 31, 2004, 2003 and 2002:



                                                             Years Ended
                                                             December 31,
                                                    -----------------------------
                                                         2004            2003
                                                    -------------   -------------
                                                              
Net income (loss) available to common shareholders  $  (1,133,979)  $   1,665,779

Deduct: total stock-based compensation expense
determined under fair value based method for all
awards, net of related tax effects                        (36,746)        (21,640)
                                                    -------------   -------------

Pro forma net income (loss)                         $  (1,170,725)  $   1,644,139
                                                    =============   =============

Income (loss) per share:
  Basic:
    As reported                                     $       (0.10)  $        0.15
    Pro forma                                       $       (0.10)  $        0.15
  Diluted:
    As reported                                     $       (0.10)  $        0.14
    Pro forma                                       $       (0.10)  $        0.13



                                      F-73


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

The weighted average assumptions used in the Black-Scholes option-pricing model
used to determine fair value were as follows:


                                                              2004         2003
                                                              ----         ----

Risk-free interest rate                                        3%           3%
Expected years until exercise                                  5-10         5-10
Expected stock volatility                                      0%           0%
Dividend yield                                                 0%           0%



NOTE 14. OTHER INCOME

Components of other income presented in the accompanying consolidated statements
of operations are summarized as follows for the year ended December 31:


                                                        2004             2003
                                                     ----------       ----------

Project management fees                              $  883,687       $1,521,676
Administrative overhead to wells                        157,592           97,675
Compressor/equipment rental                             151,556           78,580
Operator revenue                                             --          110,725
Pipeline transportation fees                                 --           24,074
Miscellaneous income                                         --           88,555
                                                     ----------       ----------
   Total other income                                $1,192,835       $1,921,285
                                                     ==========       ==========


NOTE 15. RETIREMENT PLAN

The Company maintains a SIMPLE 401(k) plan for substantially all of its
employees. Under this SIMPLE plan, eligible employees are permitted to
contribute up to 15% of gross compensation into the retirement plan. The Company
makes no matching contribution; however, the Company can make a discretionary
contribution to the plan. There were no contributions to this plan in 2004 and
2003.

NOTE 16. CONTINGENCIES

The Company is occasionally subject to various lawsuits arising in the normal
course of business. In the opinion of management, the ultimate liability, if
any, resulting from such matters will not have a significant effect on the
Company's results of operations, liquidity, or financial position.


                                      F-74


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 17. NET INCOME (LOSS) PER SHARE

Basic earnings per share are computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares outstanding
for the period. The computation of diluted net income (loss) per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that would then share in the earnings of the
Company.




                                                                  Year Ended
                                                                  December 31,
                                                          --------------------------
                                                              2004          2003
                                                          ------------   -----------
                                                                   
Basic EPS:
  Income (loss) available to common shareholders          $ (1,133,979)  $ 1,665,779
  Weighted average common shares outstanding                11,817,812    11,288,112

Basic income (loss) per share                             $      (0.10)  $      0.15
                                                          ============   ===========

Diluted EPS:

  Income (loss) available to common shareholders          $ (1,133,979)  $ 1,665,779
  Adjustments for assumed conversions:
    Dividends on preferred stock                                30,268        36,942
                                                          ------------   -----------

Income (loss) available to common shareholders - diluted    (1,103,711)    1,702,721

Common shares outstanding                                   11,817,812    11,288,112
Effect of dilutive securities:
  Convertible preferred stock                                       --     1,231,383
  Stock options                                                     --         6,667
                                                          ------------   -----------

Potentially dilutive common shares                                  --     1,238,050

Adjusted common shares outstanding - diluted                11,817,812    12,526,162
                                                          ------------   -----------
Diluted income (loss) per share                           $      (0.10)  $      0.14
                                                          ============   ===========


During 2004, stock options and convertible preferred stock were excluded in the
computation of diluted loss per share because their effect was anti-dilutive.

During 2003, only those stock options that resulted in a dilutive effect were
included in the computation of diluted earning per share.


                                      F-75


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 18. SUBSEQUENT EVENTS

                                PRIVATE PLACEMENT

On January 31, 2005, the Company consummated a private placement pursuant to
which 5,020,000 shares of its common stock and warrants to purchase 1,900,000
shares of its common stock were issued for cash proceeds of $12,550,000. Of this
amount, 600,000 common shares were issued for $1,500,000 which was received in
December 2004 and are included in the accompanying consolidated financial
statements. The remaining 4,420,000 shares were issued and related proceeds of
$11,050,000 were received in February 2005.

                                MERGER AGREEMENT

On January 31, 2005, the Company entered into a definitive merger agreement with
Cadence Resources Corporation ("CRC"). Under the terms of this agreement and
upon filing and effectiveness of a registration statement with the U.S.
Securities and Exchange Commission, which is then to be provided to the
shareholders before the vote and upon a favorable vote by shareholders of
Aurora, CRC is expected to acquire all of the outstanding shares and options of
the Company.

                                OPTION AGREEMENT

In January 2005, El Paso exercised its option to purchase from the Company 95%
of the working interest in certain acreage as outlined in the option agreement.
As a result of this transaction, the Company received proceeds in the amount of
approximately $7,321,000 (see Note 5).

                        PRO FORMA INFORMATION (UNAUDITED)

The following pro forma balance sheet gives effect to the following transactions
that occurred subsequent to December 31, 2004, assuming that they had occurred
as of December 31, 2004:

(1) Conversion of 99,350 shares of preferred stock into 298,050 shares of common
stock, as discussed in Note 12;

(2) Sales of 4,420,000 shares of common stock and warrants to purchase 1,900,000
shares of common stock for an aggregate sale price of $11,050,000, as discussed
above.


                                      F-76

                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

Pro Forma Condensed Consolidated Balance Sheet December 31, 2004



                                   (Unaudited)

                                                                    Pro Forma
                                                   As Reported     Adjustments      Pro Forma
                                                   ------------   ------------   ------------
                            ASSETS

                                                                        
Cash and cash equivalents                          $  5,179,582   $ 11,050,000   $ 16,229,582
Other current assets                                  2,636,114             --      2,636,114
                                                   ------------   ------------   ------------
    Total current assets                              7,815,696     11,050,000     18,865,696
Oil and gas properties                               14,967,457             --     14,967,457
Other assets                                            662,676             --        662,676
                                                   ------------   ------------   ------------
    Total assets                                   $ 23,445,829   $ 11,050,000   $ 34,495,829
                                                   ============   ============   ============

             LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities                                $  6,109,156   $         --   $  6,109,156
Long-term liabilities                                11,090,369             --     11,090,369
                                                   ------------   ------------   ------------
  Total liabilities                                  17,199,525             --     17,199,525
                                                   ------------   ------------   ------------

Shareholders' Equity:
  Preferred stock                                       149,025       (149,025)            --
  Common stock                                           13,776          4,718         18,494
  Additional paid-in capital                          8,183,025     11,194,307     19,377,332
  Accumulated deficit                                (2,099,522)            --     (2,099,522)
                                                   ------------   ------------   ------------
    Total shareholders' equity                        6,246,304     11,050,000     17,296,304
                                                   ------------   ------------   ------------
    Total liabilities and shareholders' equity     $ 23,445,829   $ 11,050,000   $ 34,495,829
                                                   ============   ============   ============



                                      F-77


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                      SUPPLEMENTAL OIL AND GAS INFORMATION
                                   (UNAUDITED)

                              NET CAPITALIZED COSTS

The following summarizes net capitalized costs as of December 31:


                                                       2004             2003
                                                    -----------      -----------
Oil and gas properties:
  Proved                                            $ 7,585,807      $11,794,654
  Unproved                                            7,981,727        3,174,420
  Inventory                                                  --            4,621
                                                    -----------      -----------
    Total oil and gas properties                     15,567,534       14,973,695
  Less accumulated depreciation,
   depletion and amortization                           600,077          425,077
                                                    -----------      -----------
Oil and gas properties, net                         $14,967,457      $14,548,618
                                                    ===========      ===========


                             UNPROVED PROPERTY COSTS

The following summarizes the capitalized unproved property costs excluded from
amortization as of December 31, 2004. All costs represent investments in
unproved property in Michigan and will be evaluated over several years as the
properties are explored.



                                      Prior
                              2004          2003        Years         Total
                           -----------   -----------   ----------  ------------

                                                       
Property acquisition costs $ 6,836,229   $   639,423   $5,018,409  $ 12,494,061
Sales and conveyances       (2,362,571)   (2,683,945)          --    (5,046,516)
Capitalized interest           329,028       205,154           --       534,182
                           -----------   -----------   ----------  ------------
  Total unproved costs     $ 4,802,686   $(1,839,368)  $5,018,409  $  7,981,727
                           ===========   ===========   ==========  ============



                                      F-78


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                      SUPPLEMENTAL OIL AND GAS INFORMATION
                                   (UNAUDITED)
                                   (Continued)

     COSTS INCURRED IN OIL AND GAS ACQUISITION, EXPLORATION AND DEVELOPMENT



                                                                           2004          2003
                                                                        -----------   -----------
                                                                                
Acquisition costs:
  Proved                                                                $ 3,714,581   $ 6,218,221
  Unproved                                                                6,836,229       639,423
Sales of properties                                                      (9,956,971)   (2,683,945)
                                                                        -----------   -----------
Costs incurred in oil and gas acquisition, exploration and development  $   593,839   $ 4,173,699
                                                                        ===========   ===========


           RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES

The Company's results of operations from oil and gas producing activities are
presented below for the years 2004 and 2003. The following table includes
revenues and expenses associated directly with our oil and gas producing
activities. It does not include any general and administrative costs of any
interest costs.



                                                       2004          2003
                                                   -----------   -----------

Oil and gas sales                                  $   960,011   $ 1,094,612
Operations income                                    1,192,835     1,921,285
Production and lease operating expenses                614,338       920,439
Net gain from sale of oil and gas properties                --     2,814,222
Depreciation, depletion and amortization              (203,249)     (188,623)
                                                   -----------   -----------
Results of operations from oil and gas activities  $ 2,563,935   $ 6,561,935
                                                   ===========   ===========

             OIL AND NATURAL GAS RESERVES AND RELATED FINANCIAL DATA

Information with respect to Aurora's oil and natural gas producing activities is
presented in the following tables. Reserve quantities, as well as certain
information regarding future production and discounted cash flows, were
determined by Aurora's independent petroleum consultants and internal petroleum
reservoir engineers.

The following tables present Aurora's estimates of its proved oil and natural
gas reserves. Aurora emphasizes reserves are approximates and are expected to
change as additional information becomes available. Reservoir engineering is a
subjective process of estimating underground accumulations of oil and natural
gas that cannot be measured in an exact way, and the accuracy of any reserve
estimate is a function of the quality of available data and of engineering and
geological interpretation and judgment. A substantial portion of the reserve
balances was estimated utilizing the volumetric method, as opposed to the
production performance method.


                                      F-79


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                      SUPPLEMENTAL OIL AND GAS INFORMATION
                                   (UNAUDITED)
                                   (Continued)

Natural Gas

                                     (MMscf)

Proved reserves, January 1, 2003                                             --
Revisions of previous estimates                                              --
Extensions, discoveries and other additions                              16,874
Production                                                                 (214)
                                                                        -------
Proved reserves, December 31, 2003                                       16,660
Revisions of previous estimates                                          (4,025)
Extensions, discoveries and other additions                              22,465
Production                                                                 (151)
                                                                        -------
Proved reserves, December 31, 2004                                       34,949
                                                                        =======


                                     Natural
                                       Gas
                                     (MMcf)
   Proved developed reserves at December 31:

   2004                                                                 12,520
   2003                                                                  3,052
Proved reserves are estimated quantities of natural gas and crude oil, which
geological and engineering data indicate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves that can be
expected to be recovered through existing wells with existing equipment and
operating methods.

            STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS

The following table presents a standardized measure of discounted future net
cash inflows relating to proved oil and natural gas reserves. Future cash flows
were computed by applying year-end prices of oil and natural gas relating to
Aurora's proved reserves to the estimated year-end and assuming that each well
will produce for a period of 40 years. Future production and development costs
were computed by estimating those expenditures expected to occur in developing
and producing the proved oil and natural gas reserves at the end of the year,
based on year-end costs. Actual future cash inflows may vary considerably, and
the standardized measure does not necessarily represent the fair value of
Aurora's oil and natural gas reserves. The effects of hedging activities are
insignificant to the standardized measure of discounted future net cash flows.



                                                                  2004           2003
                                                             -------------   ------------
                                                                       
Future cash inflows                                          $ 216,495,630   $ 78,779,790
Less deductions:
  Future production costs                                      (61,008,580)   (22,178,300)
  Future production taxes                                      (13,277,780)    (4,726,790)
  Future development costs                                     (13,659,320)    (6,389,860)
  Future income tax expense                                    (42,421,000)   (13,875,000)
                                                             -------------   ------------
Future net cash inflows                                         86,128,950     31,609,840
Less 10% annual discount for estimated timing of cash flows    (48,008,140)   (15,901,690)
                                                             -------------   ------------
Standardized measure of discounted future net cash flows     $  38,120,810   $ 15,708,150
                                                             =============   ============



                                      F-80


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                      SUPPLEMENTAL OIL AND GAS INFORMATION
                                   (UNAUDITED)
                                   (Continued)

The base sales prices for Aurora's reserve estimates were as follows:


                                                                    Natural
                                                                      Gas
                                                                      (MMcf)
                                                                     ------

 12/31/2004                                                         $6.195*
 12/31/2003                                                     $4.488 to $7.082


*Except for the Alpena Beyer unit which is calculated at the contract price of
$4.37 per Mmcf in 2005 and $5.00 per Mmcf for years after 2005.

These base prices were adjusted to reflect applicable transportation and quality
differentials on a well-by-well basis to arrive at realized sales prices used to
estimate Aurora's reserves at these dates.

Changes in the future net cash inflows discounted at 10% per annum follow:


                                                                        2004
                                                                   ------------
Beginning of year                                                  $ 15,708,150
Sales of oil and natural gas produced, net of production costs         (345,673)
Previously estimated development costs incurred during the period    10,550,810
Extensions and discoveries                                           12,207,523
                                                                   ------------
End of year                                                        $ 38,120,810
                                                                   ============

Principal drilling and exploration for Aurora commenced during 2003. Reserve
studies with sufficient detail were completed for the years ended December 31,
2003 and 2004.


                                      F-81


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS



                                                               June 30,        December 31,
                                                                 2005              2004
                                                             ------------      ------------
                                ASSETS                        (Unaudited)
Current assets:
                                                                         
    Cash and cash equivalents                                $ 13,516,466      $  5,179,582
    Accounts receivable                                         2,204,240         2,269,907
    Accounts receivable - related party                           140,752           129,960
    Notes receivable                                              208,626           136,247
    Notes receivable - shareholder                                 15,000           100,000
    Prepaid expenses                                               36,752                --
                                                             ------------      ------------
      Total current assets                                     16,121,836         7,815,696
                                                             ------------      ------------

Oil and gas properties, using full cost accounting:
    Properties being amortized                                 14,306,899         7,585,807
    Properties not subject to amortization                      9,119,573         7,981,727
                                                             ------------      ------------
      Total oil and gas properties                             23,426,472        15,567,534
      Less accumulated amortization                               687,577           600,077
                                                             ------------      ------------

Oil and gas properties, net                                    22,738,895        14,967,457
Property and equipment, net                                       189,241           115,283
Other investments                                                 758,749           230,396
Other assets                                                      709,349           294,545
Other long term receivable                                         16,262            22,452
                                                             ------------      ------------
      Total assets                                           $ 40,534,332      $ 23,445,829
                                                             ============      ============

                 LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                         $  3,347,866      $  3,221,533
    Accrued expenses                                              365,880           200,800
    Drilling advances                                             243,368           387,175
    Short-term bank borrowings                                         --           350,000
    Current portion of obligations under capital leases             4,483             8,823
    Current portion of note payable - related party                    --         1,940,825
                                                             ------------      ------------
      Total current liabilities                                 3,961,597         6,109,156

Obligations under capital leases, net of current portion           12,935            12,663
Notes payable - related party                                      69,833         1,077,706
Mezzanine financing                                            20,000,000        10,000,000
                                                             ------------      ------------
      Total liabilities                                        24,044,365        17,199,525
                                                             ------------      ------------

Shareholders' equity:
    Series A preferred stock                                           --           149,025
    Common stock                                                   19,046            13,776
    Additional paid-in capital                                 19,351,780         8,183,025
    Accumulated deficit                                        (2,880,859)       (2,099,522)
                                                             ------------      ------------
      Total shareholders' equity                               16,489,967         6,246,304
                                                             ------------      ------------
      Total liabilities and shareholders' equity             $ 40,534,332      $ 23,445,829
                                                             ============      ============


      The accompanying notes are an integral part of these condensed
consolidated financial statements.


                                      F-82


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)




                                                             Three Months Ended                  Six Months Ended
                                                                   June 30,                           June 30,
                                                       ------------------------------      ------------------------------
                                                            2005             2004              2005              2004
                                                       ------------      ------------      ------------      ------------
                                                                                                 
Revenues:
    Oil and gas sales                                  $    719,285      $    247,675      $  1,097,906      $    676,798
    Interest income                                          71,245             1,345           165,910             2,649
    Equity in income of non-consolidated investee            26,806                --            12,397                --
    Other income                                            118,285           550,326           349,611         1,013,768
                                                       ------------      ------------      ------------      ------------
        Total revenues                                      935,621           799,346         1,625,824         1,693,215
                                                       ------------      ------------      ------------      ------------


Costs and expenses:
    General and administrative                              627,348           585,108         1,126,396         1,025,712
    Production and lease operating                          378,200           131,069           652,957           383,578
    Depreciation and amortization                            59,027             9,431           117,504            18,862
    Interest                                                189,067           100,262           222,077           273,303
    Taxes                                                        --                --           237,697                --
                                                       ------------      ------------      ------------      ------------
        Total costs and expenses                          1,253,642           825,870         2,356,631         1,701,455
                                                       ------------      ------------      ------------      ------------


Loss before minority interest                              (318,021)          (26,524)         (730,807)           (8,240)


Minority interest in (income) loss of subsidiaries           (7,472)          (34,256)           (6,190)          (64,581)
                                                       ------------      ------------      ------------      ------------


Net loss                                                   (325,493)          (60,780)         (736,997)          (72,821)


Less dividends on preferred stock                                --            (9,109)           (1,641)          (18,218)
                                                       ------------      ------------      ------------      ------------


Net loss available to common shareholders              $   (325,493)     $    (69,889)     $   (738,638)     $    (91,039)
                                                       ============      ============      ============      ============


Net loss per common share:
    Basic and diluted                                  $      (0.02)     $      (0.01)     $      (0.04)     $      (0.01)
                                                       ============      ============      ============      ============


Weighted average common shares outstanding:
    Basic and diluted                                    19,046,183        11,485,833        18,078,919        11,477,931
                                                       ============      ============      ============      ============




         The accompanying notes are an integral part of these condensed
consolidated financial statements.


                                      F-83


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                     SIX MONTHS ENDED JUNE 30, 2005 AND 2004



                                                                                   2005              2004
                                                                               ------------      ------------
                                                                                           
Cash flows from operating activities:
   Net loss                                                                    $   (736,997)     $    (72,821)
   Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities
       Depreciation and amortization                                                117,504            18,862
       Equity in income of non-consolidated investee                                (12,397)               --
       Disposition of subsidiary                                                         --           (76,096)
       Payments received in the form of services
         on note receivable                                                              --            60,951
       Common stock issue in exchange for services                                   41,497
       Minority interest in income (loss) of subsidiaries                             6,190            64,581
       Changes in operating assets and liabilities:
         Accounts receivable                                                         65,667           419,666
         Accounts receivable, related party                                         (10,792)            7,854
         Prepaid expenses                                                           (36,752)          (46,150)
         Accounts payable                                                           126,333          (179,053)
         Drilling advances                                                         (143,807)           99,327
         Accrued expenses                                                           165,080            (1,550)
                                                                               ------------      ------------
         Net cash provided by (used in) operating activities                       (459,971)          337,068
                                                                               ------------      ------------
Cash flows from investing activities:
   Proceeds from sale of oil and gas properties                                   7,373,737         1,551,591
   Capital expenditures for oil and gas development                             (14,447,849)       (2,062,565)
   Capital expenditures for property and equipment                                 (105,677)          (44,521)
   Costs in connection with pending merger                                         (263,092)               --
   Advances on notes receivable                                                     (72,379)          (20,000)
   Payments from shareholder on notes receivable                                     85,000                --
   Investment in Hudson Pipeline                                                   (501,956)               --
   Investment in GeoPetra                                                           (14,000)               --
                                                                               ------------      ------------
         Net cash used in investing activities                                   (7,946,216)         (575,495)
                                                                               ------------      ------------
Cash flows from financing activities:
   Net short-term bank repayments                                                  (350,000)               --
   Advances from mezzanine financing, net of financing costs of $150,000          9,850,000           241,000
   Payments on capital lease obligations                                             (4,068)          (80,498)
   Distributions to minority interest members                                      (805,000)          (65,080)
   Net proceeds from sales of common stock                                       11,025,000            22,500
   Dividends paid                                                                   (44,340)               --
   Reimbursements from (payments to) lease fund investors and other owners           20,177          (132,950)
   Net proceeds from subsidiary disposition                                              --            10,783
   Payments on notes payable - related party                                     (2,948,698)          (11,333)
   Proceeds from notes payable - related party                                           --            86,650
   Payments on notes payable - other                                                     --          (307,935)
                                                                               ------------      ------------
         Net cash provided by (used in) financing activities                     16,743,071          (236,863)
                                                                               ------------      ------------

Net increase (decrease) in cash and cash equivalents                              8,336,884          (475,290)

Cash and cash equivalents, beginning of period                                    5,179,582         1,045,752
                                                                               ------------      ------------
Cash and cash equivalents, end of period                                       $ 13,516,466      $    570,462
                                                                               ============      ============


      The accompanying notes are an integral part of these condensed
consolidated financial statements.


                                      F-84


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The condensed consolidated balance sheet as of June 30, 2005, the condensed
consolidated statements of operations for the three months and six months ended
June 30, 2005 and 2004, and the condensed consolidated statements of cash flows
for the six months ended June 30, 2005 and 2004 are unaudited. However, in the
opinion of management, all adjustments (which are of a normal recurring nature)
necessary to present fairly the financial position, results of operations and
cash flows at June 30, 2005 and for all periods presented, have been made. The
results of operations for interim periods are not necessarily indicative of the
operating results for the full year.

These condensed consolidated financial statements and notes are presented in
accordance with the rules and regulations of the Securities and Exchange
Commission relating to interim financial statements. Certain information and
footnote disclosures normally included in consolidated financial statements
prepared in accordance with U.S. generally accepted accounting principles have
been condensed or omitted. These condensed consolidated financial statements
should be read in conjunction with the Company's December 31, 2004 consolidated
financial statements and notes thereto included elsewhere herein.

NOTE 2. MERGER AGREEMENT WITH CADENCE RESOURCES CORPORATION

On January 31, 2005, the Company entered into a definitive merger agreement with
Cadence Resources Corporation ("CRC"). Under the terms of this agreement and
upon filing and effectiveness of a registration statement on Form S-4 with the
U.S. Securities and Exchange Commission, which is then to be provided to the
shareholders before the vote and upon a favorable vote by shareholders of
Aurora, CRC is expected to acquire all of the outstanding shares, options and
warrants of the Company.

Upon consummation of the merger, (i) CRC 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 CRC. 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, Michigan and the board of directors and management of
Cadence will be significantly restructured.

The Aurora shareholder group will receive the largest portion of the voting
rights, will have the majority number of members of the board of directors, and
will dominate senior management. Accordingly, Aurora is expected to be treated
as the accounting acquirer, and the merger is expected to be accounted for as a
reverse acquisition. As such, the purchase price was determined to be
approximately $41,546,000 computed as 20,702,327 shares of CRC common stock
outstanding at January 31, 2005 multiplied by $1.64 (per share sales price of
CRC common stock as reported on the OTC Bulletin Board on that date), plus
approximately $7,594,000 representing the fair value of CRC's stock options and
warrants outstanding on that date. In addition, Aurora incurred approximately
$263,000 in merger costs. Such costs have been included in other assets in the
accompanying unaudited balance sheet at June 30, 2005 and will be reallocated to
the purchase price on the effective date of the merger.


                                      F-85


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 3. INVESTMENTS

                                           Hudson Pipeline & Processing Co., LLC

The Company has an investment in Hudson Pipeline & Processing Co., LLC
("Hudson"), a limited liability company that owns a facility plant, pipeline,
rights-of-way and meter used by nearby Antrim wells, and processes the gas
produced from those wells. One of the company's subsidiaries owns a 48.75%
membership interest in this limited liability company until the revenues
received from the pipeline facility equal 125% of the amount spent on
construction of the pipeline, after which the subsidiary's membership interest
will be 47.5%.

Ownership for this investment is accounted for using the equity method, whereby
the investment is stated at cost and adjusted for the Company's equity in
undistributed earnings and loss since acquisition. The construction of the
pipeline began in late 2004.

The following is condensed financial information concerning Hudson:


                      Balance Sheet
                      June 30, 2005
                       (Unaudited)

Current assets                               $  253,571
Construction projects in progress, net        1,192,519
Other assets                                     21,216
                                             ----------
   Total assets                              $1,467,306
                                             ==========

Current liabilities                          $   27,170
Members' equity                               1,440,136
                                             ----------
   Total liabilities and members' equity     $1,467,306
                                             ==========

                Statements of Operations
                       (Unaudited)

                                  Three             Six
                                  Months           Months
                                  Ended            Ended
                           June 30, 2005 June 30, 2005

Revenues                      $    157,701     $    234,303
Costs and expenses                 103,558          211,270
                              ------------     ------------
Net income                    $     54,143     $     23,033
                              ============     ============


                                      F-86


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 3. INVESTMENTS (Continued)

                             Geopetra Partners, LLC

During the quarter ended June 30, 2005, the Company acquired a 30% interest in
Geopetra Partners, LLC ("Geopetra") for $14,000. Geopetra is a limited liability
company engaged primarily in the following activities (i) identification and
evaluation for acquisition of oil and gas properties and interest and entities
which hold such properties and interests, (ii) areas to be explored and
developed for the production of oil and gas and (iii) providing consultation,
advice and recommendations to the members of Geopetra in connection with other
oil and gas properties and interests, operations and activities. Geopetra was
formed April 1, 2005. Operations for Geopetra for the quarter ended June 30,
2005 were insignificant.

NOTE 4. SALE OF INTERESTS IN OIL AND GAS PROPERTIES

The Company had the following transactions related to the sale of oil and gas
properties during the six months ended June 30, 2005 and 2004, respectively:




      Type of                                                     Interest         Gross
Year  Property                        Property Sold                 Sold          Proceeds
                                                                                (Unaudited)

                                                                    
2005  Unproven   Various Indiana Leasehold                             95%      $ 7,373,737
                                                                                -----------
                 Totals for the six months ended June 30, 2005                  $ 7,373,737
                                                                                ===========

2004   Proven    Various Antrim Leasehold                              80%       $ 6,432,773
2004   Proven    Crossroads Project                                    90%          292,132
                                                                                -----------
                 Totals for the six months ended June 30, 2004                  $ 6,724,905
                                                                                ===========



From the 2004 sales proceeds, $5,173,314 was directly used to repay the
mezzanine obligation and the reserve base lending, resulting in net proceeds of
$1,551,591 to the Company.

NOTE 5. DEBT (INCLUDING RELATED PARTIES)

                           Short Term Bank Borrowings

During 2004, the Company entered into an unsecured revolving line-of-credit
agreement with a bank. Under the terms of this agreement, the Company could
borrow up to a maximum of $350,000, with monthly interest payments at prime plus
1%. Subsequent to December 31, 2004, short-term borrowings in the amount of
$350,000 were paid in full. The line-of-credit agreement expired on April 1,
2005.


                                      F-87


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 5. DEBT (INCLUDING RELATED PARTIES) (Continued)

                              Long-Term Liabilities

                         Notes Payable - Related Parties

A summary of notes payable by the Company to related parties is as follows:


                   Interest         Due            June 30,
Related Party        Rate           Date             2005
- -------------        ----           ----             ----
                                                  (Unaudited)

Affiliated entity    10.50%      5/1/2006          $ 69,833


As of December 31, 2004, the Company had approximately $3,019,000 in notes
payable to related parties. Of this amount, approximately $2,949,000 was repaid
during the quarter ended March 31, 2005, along with accrued interest of
$157,000.

                                                    Mezzanine Financing

In August 2004, the Company entered into a $30,000,000 mezzanine credit facility
to enable the Company to fund its 20% - 50% share of the Michigan Antrim
drilling program. The terms of this financing are as follows:



Facility Amount:        Up to $30,000,000 senior secured advancing
                        line-of-credit with overriding royalty provisions.
                        Initial borrowing base of $10,000,000 redetermined as
                        reserves are established accordingly.


Interest Rate:           11.5%, payable quarterly.


Maturity:                September 30, 2009


Use of Proceeds:         To fund drilling, completion, gathering lines, and gas
                         processing facility for certain Michigan Antrim wells.


Security:               100% working interest in all wells completed.


Principal Payments:     Beginning September 29, 2005 and quarterly thereafter.
                        The required payment is 75% (100% if coverage deficiency
                        or default occurs) of Adjusted Net Cash Flow ("ANCF")
                        determined by deducting applicable drilling expenses
                        from gross revenue. Based on preliminary calculations,
                        no principal payments will be required on September 29,
                        2005 and for the one year subsequent to June 30, 2005.


                                      F-88


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 5. DEBT (INCLUDING RELATED PARTIES) (Continued)

As of March 31, 2005, the balance on the line of credit was $10,000,000. During
the quarter ended June 30, 2005, an additional $10,000,000 was drawn against the
line, resulting in a balance of $20,000,000 as of June 30, 2005. During the
three months ended June 30, 2005, interest capitalized and expensed relating to
this debt amounted to $175,556 and $184,554, respectively. During the six months
ended June 30, 2005, interest capitalized and expensed relating to this debt
amounted to $456,667 and $184,554, respectively.

During the quarter ended June 30, 2005, Aurora was in violation of a debt
coverage ratio under the TCW facility. The lender has granted Aurora a waiver of
this violation.

NOTE 6. SHAREHOLDERS' EQUITY

During the quarter ended March 31, 2005, the Company's articles of incorporation
were amended to increase the Company's total authorized capital to 32,000,000
shares, of which 31,500,000 shares are common stock, and 500,000 shares are
Series A Preferred stock.

On January 31, 2005, the Company consummated a private placement pursuant to
which 5,020,000 shares of its common stock and warrants to purchase 1,900,000
shares of its common stock at an exercise price of $2.50 per share were issued
for cash proceeds of $12,550,000. Of this amount, 600,000 common shares were
issued for $1,500,000 which was received in December 2004 and were included in
the December 31, 2004 consolidated financial statements. The remaining 4,420,000
shares were issued and related proceeds of $11,050,000 were received in February
2005.

In connection with this issuance, the Company incurred $25,000 in fees and
issued 552,200 shares of common stock and warrants to purchase 502,000 shares of
common stock at an exercise price of $2.50 per share to one of its shareholder,
as commission on the transaction. The $25,000 and the par value amount of $552
assigned to the shares were netted against additional paid-in capital.

As of December 31, 2004, the Company had 99,350 shares of Series A preferred
stock outstanding. Each share of preferred stock was convertible into three
shares of common stock. During the quarter ended March 31, 2005, the 99,350
shares of preferred stock were converted into 298,050 shares of common stock.


                                      F-89


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 7. COMMON STOCK OPTIONS

Activity related to the Company's Stock Options Plan was as follows for the
three months and six months ended June 30, 2005 and 2004:



                                                  Three Months Ended              Six Months Ended
                                                        June 30,                      June 30,
                                               -------------------------     -------------------------
                                                  2005           2004            2005           2004
                                               ----------     ----------     ----------     ----------
                                               (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)
                                                                                   
Options outstanding at beginning of period        344,000        260,000        344,000        250,000
Granted during the period                              --         66,000             --         76,000
                                               ----------     ----------     ----------     ----------
Options outstanding at end of period              344,000        326,000        344,000        326,000
                                               ==========     ==========     ==========     ==========




A majority of the Company's outstanding stock options have been issued outside
of the common stock option plan. These include, in 2004, options for the
purchase of 99,999 shares which were issued to certain directors as compensation
in exchange for serving on Aurora's board of directors.

Activity with respect to all stock options (including options granted under the
plan) is presented below for the three months and six months ended June 30, 2005
and 2004:



                                                  Three Months Ended              Six Months Ended
                                                        June 30,                      June 30,
                                               -------------------------     -------------------------
                                                  2005           2004          2005           2004
                                               ----------     ----------     ----------     ----------
                                               (Unaudited)    (Unaudited)   (Unaudited)     (Unaudited)
                                                                                 
Options outstanding at beginning of period      2,700,664      2,926,664      2,700,664      2,816,665
Granted during the period                              --         66,000             --        175,999
                                               ----------     ----------     ----------     ----------
Options outstanding at end of period            2,700,664      2,992,664      2,700,664      2,992,664
                                               ==========     ==========     ==========     ==========



The Company follows only the disclosure aspects of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation".
The Company continues to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plans. Under APB 25, the exercise price of the stock options
was more than the market value of the shares at the date of grant and,
accordingly, no compensation cost has been recognized in the consolidated
financial statements for the outstanding stock options.


                                      F-90


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 7. COMMON STOCK OPTIONS (Continued)

The following table illustrates the effect on net loss and loss per share as if
the Company had applied the fair value recognition provisions of SFAS 123 during
the three months and six months ended June 30, 2005 and 2004:



                                                         Three Months Ended                 Six Months Ended
                                                               June 30,                          June 30,
                                                     ----------------------------      ----------------------------
                                                         2005             2004             2005             2004
                                                     -----------      -----------      -----------      -----------
                                                     (Unaudited)       (Unaudited)      (Unaudited)    (Unaudited)
                                                                                            
Net loss available to common shareholders            $  (325,493)     $   (69,889)     $  (738,638)     $   (91,039)


Deduct: total stock-based compensation expense
determined under fair value based method for all
awards, net of related tax effects                            --          (12,800)              --          (25,200)
                                                     -----------      -----------      -----------      -----------


Pro forma net loss                                   $  (325,493)     $   (82,689)     $  (738,638)     $  (116,239)
                                                     ===========      ===========      ===========      ===========


Loss per share:
   Basic:
      As reported                                    $     (0.02)     $     (0.01)     $     (0.04)     $     (0.01)
      Pro forma                                      $     (0.02)     $     (0.01)     $     (0.04)     $     (0.01)
   Diluted:
      As reported                                    $     (0.02)     $     (0.01)     $     (0.04)     $     (0.01)
      Pro forma                                      $     (0.02)     $     (0.01)     $     (0.04)     $     (0.01)



The weighted average assumptions used in the Black-Scholes option-pricing model
used to determine fair value were as follows:


                                                      2005          2004
                                                      ----          ----

Risk-free interest rate                                 --            3%
Expected years until exercise                           --          5-10
Expected stock volatility                               --            0%
Dividend yield                                          --            0%



There were no options granted during the six months ended June 30, 2005.


                                      F-91


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 8. OTHER INCOME

Components of other income presented in the accompanying unaudited condensed
consolidated statements of operations are summarized as follows for the three
months and six months ended June 30, 2005 and 2004:



                                         Three Months Ended            Six Months Ended
                                              June 30,                      June 30,
                                     -------------------------     -------------------------
                                         2005          2004            2005          2004
                                     ----------     ----------     ----------     ----------
                                     (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)
                                                                      
Project management fees              $  117,926     $  489,611     $  345,252     $  894,454
Administrative overhead to wells            359         21,126          4,359         51,210
Compressor/equipment rental                  --         39,589             --         68,104
                                     ----------     ----------     ----------     ----------
   Total other income                $  118,285     $  550,326     $  349,611     $1,013,768
                                     ==========     ==========     ==========     ==========


NOTE 9. NET LOSS PER SHARE

Basic earnings per share are computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares outstanding
for the period. The computation of diluted net income (loss) per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that would then share in the earnings of the
Company.

During the three months and six months ended June, 2005 and 2004, stock options
and convertible preferred stock were excluded in the computation of diluted loss
per share because their effect was anti-dilutive.

NOTE 10. PURCHASE OF OFFICE FACILITIES

On April 26, 2005, the Company entered into a Condominium Purchase agreement to
purchase the entire second floor of a commercial condominium project currently
under construction. The terms of this agreement are as follows:

Purchase of 14,645 sq. ft. of building, including 15 covered parking spaces for
a total of $2,240,685. A deposit of $20,000 was paid upon the execution of the
agreement with the balance to be paid in cash or financed under a conventional
mortgage upon closing. The Company intends to finance 80% of the purchase price
(approximately $1,800,000) with the balance paid in cash. Closing will occur as
mutually acceptable by Developer and the Company. In any event, the closing will
occur no earlier than 10 days after receipt by the Company of the Conveyance of
Title and no later than ten (10) days after the developer has obtained a
Certificate of Occupancy for the building. Based on current construction
progress, this closing is expected to occur November 1, 2005.


                                      F-92


                      AURORA ENERGY, LTD. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 11. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123R, "Share-Based Payment" (SFAS 123R), which is a revision of SFAS 123 and
supersedes APB Opinion No. 25. SFAS 123R requires all share-based payments to
employees, including grants of employee stock options, to be valued at fair
value on the date of grant, and to be expensed over the applicable vesting
period. Pro forma disclosure of the income statement effects of share-based
payments is no longer an alternative. SFAS 123R is effective for all share-based
awards granted on or after July 1, 2005. In addition, companies must also
recognize compensation expense related to any awards that are not fully vested
as of the effective date. Compensation expense for the unvested awards will be
measured based on the fair value of the awards previously calculated in
developing the pro forma disclosures in accordance with the provision of SFAS
123. The Company is currently assessing the impact of adopting SFAS 123R on its
consolidated financial statements.

In September 2004, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 106 (SAB 106) which provides guidance regarding the
interaction of SFAS 143 with the calculation of depletion and the full cost
ceiling test of oil and gas properties under the full cost accounting rules of
the SEC. The guidance provided in SAB 106 is not expected to have a material
effect on the Company's consolidated financial position, results of operations
or cash flows.

In October 2004, the American Jobs Creation Act of 2004 (AJCA) was signed into
law. In December 2004, the FASB issued Staff Position No. 109-1 (FSP 109-1),
"Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004" and Staff Position No. 109-2 (FSP 109-2), "Accounting and
Disclosure Guidance of the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004". FSP 109-1 clarifies that the manufacturer's
tax deduction provided for under the AJCA should be accounted for as a special
deduction in accordance with SFAS No. 109 and not as a tax rate reduction. FSP
109-2 provides accounting and disclosure guidance for the repatriation of
certain foreign earnings to a U.S. taxpayer as provided for the AJCA. The
Company does not expect that the tax benefits resulting from the AJCA will have
a material impact on its financial statements.


                                      F-93



================================                ================================



                                                  CADENCE RESOURCES CORPORATION



                                                       22,860,000 SHARES OF

                                                           COMMON STOCK




      We have not authorized any
dealer, salesperson or any other
person to give any information
or to represent anything not
contained in this prospectus.
You must not rely on any
unauthorized information. This
prospectus does not offer to
sell or buy any shares in any
jurisdiction where it is
unlawful. The information in
this prospectus is current as of
November 14,2005


                                                      --------------------
                                                           PROSPECTUS
                                                      --------------------

================================                ================================





                      PART II

      INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification Of Directors And Officers.

Limitation of liability of directors, officers and others.

      In accordance with Utah law, our articles of incorporation eliminate or
limit the liability of a director to the corporation or to its shareholders for
monetary damages for any action taken or any failure to take any action as a
director, except liability for (a) the amount of a financial benefit received by
a director to which he is not entitled; (b) an intentional infliction of harm on
the corporation or the shareholders; (c) specified unlawful distributions; or
(d) an intentional violation of criminal law.

      In addition, in Utah, unless a corporation's articles of incorporation
provide otherwise:

      (1) an officer of the corporation is entitled to mandatory
indemnification, and is entitled to apply for court-ordered indemnification, to
the same extent as a director of the corporation;

      (2) the corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the corporation to the same extent as to a
director; and

      (3) a corporation may also indemnify and advance expenses to an officer,
employee, fiduciary, or agent who is not a director to a greater extent, if not
inconsistent with public policy, and if provided for by its articles of
incorporation, bylaws, general or specific action of its board of directors, or
contract.

      Our officers and directors are accountable to us as fiduciaries, which
mean they are required to exercise good faith and fairness in all dealings
affecting us. In the event that a shareholder believes the officers and/or
directors have violated their fiduciary duties to us, the shareholder may,
subject to applicable rules of civil procedure, be able to bring a class action
or derivative suit to enforce the shareholder's rights, including rights under
certain federal and state securities laws and regulations to recover damages
from and require an accounting by management. Shareholders who have suffered
losses in connection with the purchase or sale of their interest in Cadence
Resources Corporation in connection with such sale or purchase, including the
misapplication by any such officer or director of the proceeds from the sale of
these securities, may be able to recover such losses from us.

      Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of Cadence Resources Corporation, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore, unenforceable.

Item 25. Other Expenses of Issuance and Distribution

         The following table sets forth the estimated expenses in connection
with the issuance and distribution of the securities covered by this
registration statement, other than underwriting discounts and commissions. All
of the expenses will be borne by the company except as otherwise indicated.

Registration fee .....................................       $9,180.60
Fees and expenses of accountants......................        1,000.00
Fees and expenses of legal counsel ...................       10,000.00
Printing and engraving expenses.......................            0.00
Miscellaneous expenses................................        1,000.00
                                                        --------------
Total.................................................  $    21,806.60


                                      II-1



Item 26. Recent Sales of Unregistered Securities

      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-K, all quarterly and
periodic reports filed subsequent to such Form 10-K and Cadence's most recent
proxy materials.

      Between April and June 2002, Cadence sold an aggregate of 1,932,802 units
to 5 accredited investors, each unit consisting of one share of common stock and
a warrant to purchase one share of common stock, for an aggregate of
$579,840.60. Each warrant was exercisable at a price of $.15 per share and have
all been exercised. No sales commissions were paid in connection with this
transaction. The Units were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act. On October 23,
2002, Cadence issued 1,815,316 shares of common stock to four accredited
investors upon the cashless exercise of the warrants granted in the April
through June 2002 offering. On September 15, 2003, Cadence issued 141,668 shares
of its common stock to three accredited investors upon the cashless exercise of
the warrants granted in the April through June 2002 offering. No sales
commissions were paid in connection with the exercise of the warrants. The
shares were issued in reliance upon the exemption from registration provided by
Section 4 (2) of the Securities Act.

      Between November 2002 and March 2003, Cadence issued 34,950 shares of
Class A Preferred Shares to 8 investors who were not US persons under Regulation
S of the Securities Act for an aggregate of $52,425. No sales commissions were
paid in connection with this transaction. The shares were issued in reliance
upon the exemption from registration provided by Regulation S of the Securities
Act.

      During fiscal 2003, Howard M. Crosby made two loans to Cadence. One loan
in December 2002 was in the principal amount of $70,000, bearing interest at 5%
and the other loan made in February 2003 in the principal amount of $50,000
bearing interest at a rate of 8%. Cadence issued 14,000 shares of its common
stock as an inducement to making the $70,000 loan and 20,000 shares as an
inducement to making the $50,000 loan. Cadence repaid $60,000 and has agreed to
issue 4,000 shares of its common stock in repayment of the remaining $10,000
principal amount outstanding on the $70,000 loan. Cadence repaid $25,000 of the
$50,000 loan in cash and issued 25,000 shares of its common stock to repay the
remaining $25,000 principal amount outstanding. No sales commissions were paid
in connection with these transactions. The shares were issued in reliance upon
the exemption from registration provided by Section 4(2) of the Securities Act.

      In February 2003, Kevin Stulp, one of Cadence's directors, made a bridge
loan to Cadence in the principal amount of $50,000, bearing interest of 8% per
annum. Cadence issued 20,000 shares of its stock to Mr. Stulp as an inducement
to making the loan. In July 2003, Cadence issued 25,000 shares of its stock in
repayment of $25,000 of the principal amount of such loan and 100,000 shares of
common stock upon the exercise of a warrant at $.75 per share. At September 30,
2004, the Company issued another 25,000 shares of its stock in full payment of
the remaining loan principal of $25,000. No sales commissions were paid in
connection with these transactions. The shares were issued in reliance upon the
exemption from registration provided by Section 4 (2) of the Securities Act.

      On February 4, 2003, Cadence issued an aggregate of 150,000 shares of its
common stock to four of its officers and/or directors in consideration of
services provided to Cadence. No sales commissions were paid in connection with
this transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

      On February 19, 2003, Cadence issued 5,000 shares of its common stock to
one sophisticated investor in consideration of certain consulting services
provided to Cadence. No sales commissions were paid in connection with this
transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

      On February 19, 2003, Cadence issued 40,000 shares of its common stock to
an accredited investor as an inducement for making a loan to Cadence of
$100,000. No sales commissions were paid in connection with this transaction.
The shares were issued in reliance upon the exemption from registration provided
by Section 4 (2) of the Securities Act.


                                      II-2


      Between April and May 2003, Cadence issued an aggregate of 44,000 shares
of its common stock to two sophisticated investor in consideration of certain
consulting services provided to Cadence. No sales commissions were paid in
connection with this transaction. The shares were issued in reliance upon the
exemption from registration provided by Section 4 (2) of the Securities Act.

      On May 7, 2003, Cadence issued an aggregate of 75,000 shares of its common
stock to four of its officers and/or directors in consideration of services
provided to Cadence. No sales commissions were paid in connection with this
transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

      On May 7, 2003, Cadence issued 10,000 shares of its common stock to one
sophisticated investor in consideration of certain consulting services provided
to Cadence. No sales commissions were paid in connection with this transaction.
The shares were issued in reliance upon the exemption from registration provided
by Section 4 (2) of the Securities Act.

      Between May and August 2003, Cadence sold an aggregate of 730,000 shares
of its common stock to 16 accredited investors for an aggregate of $710,000. No
sales commissions were paid in connection with this transaction. The shares were
issued in reliance upon the exemption from registration provided by Section 4
(2) of the Securities Act.

      On February 19, 2003, Cadence issued 6,000 shares of its common stock to
one sophisticated investor in consideration for a loan of $30,000, which was
subsequently repaid.

      In June 2003, Nathan Low loaned $300,000 to Cadence Resources Corporation
Limited Partnership, of which Cadence was the sole general partner and Mr. Low
was the sole limited partner. As partial inducement for making this loan,
Cadence issued Mr. Low 120,000 shares of common stock. No sales commissions were
paid in connection with this transaction. The shares were issued in reliance
upon the exemption from registration provided by Section 4(2) of the Securities
Act.

      In July 2003, CGT Management, Ltd. loaned Cadence $300,000 at 10%
interest. See "Related Parties Transactions." As an inducement for making the
loan, Cadence issued 120,000 shares to CGT Management. No sales commissions were
paid in connection with this transaction. The shares were issued in reliance
upon the exemption from registration provided by Section 4 (2) of the Securities
Act.

      On July 1, 2003, Cadence issued an aggregate of 95,000 shares of its
common stock to four of its officers and/or directors in consideration of
services provided to Cadence. No sales commissions were paid in connection with
this transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act.

      In August 2003, Cadence issued 102,000 shares of its common stock to four
sophisticated investors in consideration of certain consulting services provided
to Cadence. No sales commissions were paid in connection with this transaction.
The shares were issued in reliance upon the exemption from registration provided
by Section 4 (2) of the Securities Act.

      On September 15, 2003, Cadence issued an aggregate of 95,000 shares of its
common stock to four of its officers and/or directors in consideration of
services provided to Cadence. No sales commissions were paid in connection with
this transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

      Between September and October 2003, Cadence sold an aggregate of 1,721,400
shares of its common stock to 29 accredited investors for an aggregate of
$4,303,500. Sales commissions consisting of (i) $376,565 in cash, (ii) 11,000
shares of common stock valued at $2.90 per share or $31,900 in the aggregate and

      (iii) options to purchase 162,140 shares of common stock at $2.50 per
share to one finder or an entity controlled by such finder, and additional fees
totaling $11,250 to two other finders. All finders are accredited investors. The
shares and warrant were issued in reliance upon the exemption from registration
provided by Section 4 (2) of the Securities Act.


                                      II-3


      On January 23, 2004, Cadence issued 5,000 shares of its common stock and
an option to purchase 75,000 shares of its common stock to each of Glenn
DeHekker and Jeffrey M. Christian in consideration of their becoming directors
of Cadence. The shares and options were issued in reliance upon the exemption
from registration provided by Section 4 (2) of the Securities Act.

      On January 23, 2004, Cadence issued an option to purchase 250,000 shares
of its common stock to Douglas Newby in consideration of his becoming a Vice
President of Cadence. The options were issued in reliance upon the exemption
from registration provided by Section 4 (2) of the Securities Act.

      On February 25, 2004, Cadence issued 15,000 shares to David Nahmias and
15,000 shares to Lyons Capital, LLC in consideration of services provided to
Cadence. The shares were issued in reliance upon the exemption from registration
provided by Section 4 (2) of the Securities Act.

      On April 2, 2004, Cadence sold 120 units consisting of a note in the
principal amount of $50,000 and a warrant to purchase 6,375 shares of Common
Stock, exercisable at $4.00 per share, to seven accredited investors for an
aggregate sales price of $6,000,000. As compensation for his services in
connection with this private placement, Cadence paid Nathan A. Low, an
accredited investor, $300,000 and issued him a warrant to purchase 76,500 shares
of Common Stock, exercisable at $4.00 per share. On January 31, 2004, Cadence
paid off the notes without a prepayment penalty in exchange for the exercise
price of the warrants being reduced to $1.25. All the warrants described in this
paragraph expire on April 2, 2007. The shares and warrant were issued in
reliance upon the exemption from registration provided by Section 4 (2) of the
Securities Act.

      On April 15, 2004 Cadence issued 10,000 shares each to Glenn DeHekker,
Jeff Christian, and Kevin Stulp for Director services for two quarters. On the
same date Cadence also issued 5,000 shares each to Howard Crosby and John Ryan
for Director services for one quarter, and 5,000 shares each to Howard Crosby,
John Ryan, and Doug Newby for Officer services for one quarter. The shares were
issued in reliance upon the exemption from registration provided by Section 4(2)
of the Securities Act.

      On June 2, 2003, Cadence issued 6,000 shares to Proteus Capital Corp. in
consideration of services rendered to the Company. On the same date Cadence
issued 10,000 shares to Robert Denison upon exercise of warrants at $1.35. The
shares were issued in reliance upon the exemption from registration provided by
Section 4 (2) of the Securities Act.

      On August 20, 2004 Cadence issued 25,000 shares to Howard Schraub and
17,500 shares to Lyons Capital LLC for professional services rendered. On the
same date Cadence issued 5,000 shares to Glenn DeHekker, Kevin Stulp and Jeff
Christian for quarterly services as Directors to the Company, and issued 5,000
shares to Doug Newby for quarterly services as an Officer of the Company. Also
on the same date Cadence issued 15,000 shares to RMB International (Dublin),
Limited as a break-up fee for a proposed debt financing. In each case the shares
were issued in reliance upon the exemption from registration provided by Section
4 (2) of the Securities Act.

      On January 31, 2005, Cadence issued 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 shares to 22 accredited investors for $9,762,500. Sunrise Securities
Corporation, an affiliate of Nathan Low (a 10% shareholder of Cadence), will
receive a commission equal to $926,250 and a warrant to purchase 2,186,000
shares of Cadence's common stock at an exercise price of $1.75 per share for
services rendered as the placement agent in the transaction. All the warrants
described in this paragraph expire on January 31, 2009. The shares were issued
in reliance upon the exemption from registration provided by Section 4 (2) of
the Securities Act.

      On October 31, 2005 Cadence issued warrants to purchase 37,500 shares of
common stock of Cadence to each of Glenn DeHekker, Jeff Christian, and John Ryan
upon their resignation as and in recognition of their prior services as
directors of Cadence. The warrants, and the underlying shares to be issued upon
exercise of the warrants, were (or, as applicable, will be) issued in reliance
upon the exemption from registration provided by Section 4(2) of the Securities
Act.

                                      II-4

Item 27. Exhibits

Exhibit No.       Document Description
- -----------       --------------------

3.1(1)            Restated Articles of Incorporation of Cadence Resources
                  Corporation

3.2(2)            Bylaws of Cadence Resources Corporation

4.1(1)            Articles of Amendment to the Articles of Incorporation,
                  relating to the Class A Preferred Stock

4.2(3)            Form of Promissory Note in favor of the investors in the April
                  2, 2002 private placement 4.3(3) Form of Warrant issued to the
                  investors in the April 2, 2002 private placement 4.4(4) Voting
                  Agreement between Cadence Resources Corporation and its
                  stockholders 5.1 Opinion of Troutman Sanders LLP, as to the
                  validity of the Securities being registered hereunder

10.1(1)           Joint Exploration Agreement with Bridas Energy USA, Inc. dated
                  April 30, 2003

10.2(1)           Lease Acquisition and Participation Agreement with Aurora
                  Energy, Ltd. dated December 8, 2002

10.3(1)           Consulting Agreement with Lucius C. Geer dated August 1, 2003

10.4(1)           Agreement dated effective September 30, 2003 with Nathan A.
                  Low, Sunrise Securities Corporation and Cadence Resources
                  Corporation Limited Partnership

10.5(3)           Securities Purchase Agreement between Cadence Resources
                  Corporation and the investors signatory thereto, dated April
                  2,2004

10.6(3)           Security Agreement between Cadence Resources Corporation and
                  the investors signatory thereto, dated April 2, 2004

10.7(4)           Agreement and Plan Of Merger dated as of January 31, 2005
                  between Cadence Resources Corporation, Aurora Acquisition
                  Corp. and Aurora Energy, Ltd.

10.8(4)           Membership Interest Purchase Agreement between Aurora Energy,
                  Ltd. and Wabash Partners, L.P., dated November 21, 2003

10.9(4)           Development Agreement between Aurora Energy, Ltd. and Wabash
                  Energy Partners, L.P., dated December 2, 2003


10.20(4)          Development Agreement between Aurora Energy, Ltd. and Oil &
                  Gas engineering GmbH, dated March 31, 2004

10.11(4)          Exploration Agreement between Aurora Energy, Ltd. and Samson
                  Resources Company, dated May 14, 2004

10.12(4)          Note Purchase Agreement between Aurora Antrim North, LLC, et.
                  al. and TCW Asset Management Company, dated August 12, 20044

10.13(4)          AEL Security Agreement between Aurora Energy, Ltd. and TCW
                  Asset Management Company, dated August 12, 2004

10.14(4)          Senior Secured Amortizing Notes issued by Aurora Antrim North,
                  LLC, dated August 12, 2004

10.15(5)          Condominium Purchase Agreement between Copper Ridge, LLC and
                  Aurora Energy, Ltd.

10.16(6)          Amendment No.1 to Agreement and Plan of Merger

23.1              Consent of Ralph E. Davis Associates, Inc.

23.2              Consent of Schlumberger DCS

23.3              Consent of Troutman Sanders LLP (included in Exhibit 5)

23.4              Consent of Williams & Webster, P.S.

23.5              Consent of Rachlin Cohen & Holtz LLP

23.6              Consent of Richard Deneau

23.7              Consent of Ronald E. Huff

23.8              Consent of Gary J. Myles

23.9              Consent of Earl V. Young

(1)   Filed as an Exhibit to the registrant's 10-KSB for the fiscal year ended
      September 30, 2003, filed with the SEC on January 13, 2004

(2)   Filed as an exhibit to the registrant's Current Report on Form 8-K, filed
      with the SEC on November 1, 2005

(3)   Filed as an exhibit to the registrant's Current Report on Form 8-K dated
      April 5, 2004, filed with the SEC on April 5, 2004


                                      II-5


(4)   Filed as an exhibit to the registrant's Form S-4 Registration Statement
      filed with the SEC on May 13, 2005.

(5)   Filed as an exhibit to Amendment No. 1 to the registrant's Form S-4
      Registration Statement filed with the SEC on August 23, 2005

(6)   Filed as an exhibit to Amendment No. 2 to the registrant's Form S-4
      Registration Statement filed with the SEC on August 23, 2005

Item 28. Undertakings

(a)   The undersigned hereby undertakes:

      1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

      (i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

      (ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424(b) under
the Securities Act of 1933 if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement;

      (iii) To include any additional or changed material information on the
plan of distribution.

      2. That, for the purpose of determining any liability under the Securities
Act of 1933, as amended, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

      3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

      C. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.


                                      II-6


                                   SIGNATURES

            In accordance with the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Form SB-2
Registration Statement to be signed on its behalf by the undersigned, in the
city of Traverse City, State of Michigan, on this 14th day of November, 2005.


                                                CADENCE RESOURCES CORPORATION



                                                By: /s/ William W. Deneau
                                                    ---------------------------
                                                    William W. Deneau, President

         Pursuant to the requirements of the Securities Act of 1933, this Form
SB-2 Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:



Signature                                Title                                  Date


                                                                          
/s/ William W. Deneau                    President and Director                 November 14, 2005
- -------------------------------          (Principal Executive Officer)
William W. Deneau


/s/ Lorraine M. King                     Chief Financial Officer                November 14, 2005
- --------------------------------          (Principal Financial Officer)
Lorraine M. King


/s/ Howard M. Crosby                     Director                               November 14, 2005
- -------------------------------
Howard M. Crosby

/s/ Kevin D. Stulp                       Director                               November 14, 2005
- -------------------------------
Kevin D. Stulp



                                      II-7


                                  EXHIBIT INDEX

Exhibit No.       Document Description

3.1(1)            Restated Articles of Incorporation of Cadence Resources
                  Corporation

3.2(2)            Bylaws of Cadence Resources Corporation

4.1(1)            Articles of Amendment to the Articles of Incorporation,
                  relating to the Class A Preferred Stock

4.2(3)            Form of Promissory Note in favor of the investors in the April
                  2, 2002 private placement 4.3(3) Form of Warrant issued to the
                  investors in the April 2, 2002 private placement 4.4(4) Voting
                  Agreement between Cadence Resources Corporation and its
                  stockholders 5.1 Opinion of Troutman Sanders LLP, as to the
                  validity of the Securities being registered hereunder

10.1(1)           Joint Exploration Agreement with Bridas Energy USA, Inc. dated
                  April 30, 2003

10.2(1)           Lease Acquisition and Participation Agreement with Aurora
                  Energy, Ltd. dated December 8, 2002

10.3(1)           Consulting Agreement with Lucius C. Geer dated August 1, 2003

10.4(1)           Agreement dated effective September 30, 2003 with Nathan A.
                  Low, Sunrise Securities Corporation and Cadence Resources
                  Corporation Limited Partnership

10.5(3)           Securities Purchase Agreement between Cadence Resources
                  Corporation and the investors signatory thereto, dated April
                  2,2004

10.6(3)           Security Agreement between Cadence Resources Corporation and
                  the investors signatory thereto, dated April 2, 2004

10.7(4)           Agreement and Plan Of Merger dated as of January 31, 2005
                  between Cadence Resources Corporation, Aurora Acquisition
                  Corp. and Aurora Energy, Ltd.

10.8(4)           Membership Interest Purchase Agreement between Aurora Energy,
                  Ltd. and Wabash Partners, L.P., dated November 21, 2003

10.9(4)           Development Agreement between Aurora Energy, Ltd. and Wabash
                  Energy Partners, L.P., dated December 2, 2003

10.20(4)          Development Agreement between Aurora Energy, Ltd. and Oil &
                  Gas engineering GmbH, dated March 31, 2004

10.11(4)          Exploration Agreement between Aurora Energy, Ltd. and Samson
                  Resources Company, dated May 14, 2004

10.12(4)          Note Purchase Agreement between Aurora Antrim North, LLC, et.
                  al. and TCW Asset Management Company, dated August 12, 20044

10.13(4)          AEL Security Agreement between Aurora Energy, Ltd. and TCW
                  Asset Management Company, dated August 12, 2004

10.14(4)          Senior Secured Amortizing Notes issued by Aurora Antrim North,
                  LLC, dated August 12, 2004

10.15(5)          Condominium Purchase Agreement between Copper Ridge, LLC and
                  Aurora Energy, Ltd.

10.16(6)          Amendment No.1 to Agreement and Plan of Merger

23.1              Consent of Ralph E. Davis Associates, Inc.

23.2              Consent of Schlumberger DCS

23.3              Consent of Troutman Sanders LLP (included in Exhibit 5)

23.4              Consent of Williams & Webster, P.S.

23.5              Consent of Rachlin Cohen & Holtz LLP

23.6              Consent of Richard Deneau

23.7              Consent of Ronald E. Huff

23.8              Consent of Gary J. Myles

23.9              Consent of Earl V. Young

(1)   Filed as an Exhibit to the registrant's 10-KSB for the fiscal year ended
      September 30, 2003, filed with the SEC on January 13, 2004

(2)   Filed as an exhibit to the registrant's Current Report on Form 8-K, filed
      with the SEC on November 1, 2005

(3)   Filed as an exhibit to the registrant's Current Report on Form 8-K dated
      April 5, 2004, filed with the SEC on April 5, 2004


                                      II-8


(4)   Filed as an exhibit to the registrant's Form S-4 Registration Statement
      filed with the SEC on May 13, 2005.

(5)   Filed as an exhibit to Amendment No. 1 to the registrant's Form S-4
      Registration Statement filed with the SEC on August 23, 2005


                                      II-9

EX-23.1

EX-23.2

   v029304_ex23-2
   

EX-23.3

                                                                    EXHIBIT 23.3

- ------------------------------TROUTMAN SANDERS LLP------------------------------
                                ATTORNEYS AT LAW
                              THE CHRYSLER BUILDING
                              405 LEXINGTON AVENUE
                            NEW YORK, NEW YORK 10174
                               www.troutmansanders.com
                             TELEPHONE: 212-704-6000
                             FACSIMILE: 212-704-6288

                               November 14, 2005

Cadence Resources Corporation
3760 North US 31 South
P.O. Box 961
Traverse City, Michigan 49685-0961

Ladies and Gentlemen:

      We have acted as counsel to Cadence Resources Corporation, a Utah
corporation (the "Company"), in connection with the Company's filing of a
Registration Statement on Form SB-2 (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"), relating to the resale of an aggregate of
21,860,000 shares of its common stock, par value $.01 per share (the "Common
Stock"), by certain investors named therein (the "Investors"). Of the 21,860,000
shares of Common Stock being registered 7,810,000 shares are currently issued
and outstanding and 14,050,000 shares are issuable upon the exercise of warrants
(the "Warrants").

      In connection with the foregoing, we have examined originals or copies,
satisfactory to us, of: (i) the Registration Statement, including the form of
prospectus included therein, (ii) a Securities Purchase Agreement, dated January
31, 2005 (the "Purchase Agreement"), between the Company and the Investors,
(iii) the form of the Warrants, (iv) the Company's Restated Articles of
Incorporation, (v) the Company's By-laws, (vi) resolutions of the Company's
board of directors authorizing the Company to enter into, and consummate, the
transactions contemplated by the Purchase Agreement, including the issuance of
certain of the Warrants to the Investors, and (vii) such other documents and
instruments as we have deemed necessary for the expression of the opinion herein
contained.

      We have also reviewed such other matters of law as we have deemed relevant
and necessary as a basis for the opinion hereinafter expressed. In such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals and the conformity with the
original documents of all documents submitted to us as copies or facsimiles. As
to any facts material to such opinion, we have, to the extent that relevant
facts were not independently established by us, relied on certificates of public
officials and certificates of officers or other representatives of the Company.


                                     II-10


      We have also assumed that (i) all shares of Common Stock issued will be
issued and sold in compliance with applicable federal and state securities laws
(ii) at the time of any offering or sale of any shares of Common Stock, the
Company will have such number of shares of Common Stock authorized or created
and available for issuance as may be offered and sold and as are issuable upon
the conversion, exchange or exercise of any shares of Common Stock that may be
offered and sold, (iii) there shall be no change in law affecting the validity
of any of the shares of Common Stock (between the date hereof and the date of
issuance and sale of such shares of Common Stock), and (iv) all parties to
agreements involving the issuance or sale of the shares of Common Stock will
perform their obligations thereunder in compliance with the terms of such
documents.

      Based upon and subject to the foregoing, we are of the opinion that the
(i) 7,810,000 shares of Common Stock currently outstanding are legally issued,
fully paid and non-assessable shares of Common Stock and (ii) the remaining
14,050,000 shares of Common Stock, upon the exercise of the Warrants and the
payment of the exercise price of the Warrants by the Investors to the Company in
accordance with the terms of the Warrants and the issuance of the shares of
Common Stock by the Company in accordance with the terms of the Warrants, will
be legally issued, fully paid and non-assessable shares of Common Stock.

      We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the prospectus constituting part of the Registration Statement. In
giving this consent, we do not thereby admit that we are within the category of
persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Commission promulgated pursuant to Section 7 of the Act or
Item 509 of Regulation S-B promulgated under the Act.

         We are members of the Bar of the State of New York and do not hold
ourselves out as being experts on laws other than laws of the State of New York
and the laws of the United States of America. To the extent our opinion is based
on Utah corporate law we have relied on an unofficial compilation of the Utah
Revised Business Corporation Act.

                                Very truly yours,


                                /s/ TROUTMAN SANDERS LLP
                                ------------------------

EX-23.5

   v029304_ex23-5