SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM:
COMMISSION FILE NUMBER: 0-25170
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(Exact name of registrant as specified in its charter)
UTAH 87-0306609
(State or other jurisdiction of (I.R.S. Employer ID number)
Incorporation or organization)
6 EAST ROSE STREET, P.O. BOX 2056
WALLA WALLA, WASHINGTON 99362
(Address of Principal Executive Offices, including Zip Code.)
509-526-3491
(Registrant's telephone number, including area code.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
The number of shares outstanding at June 30, 2002: 6,735,860 shares
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
FINANCIAL STATEMENTS
JUNE 30, 2002
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
C O N T E N T S
Accountant's Review Report. . . . . . . . . . . . . . . . . . . . . . . 1
Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Operations and Comprehensive Loss . . . . . . . . . . . . 4
Statement of Stockholders' Equity . . . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . 8
The Board of Directors
Cadence Resources Corp.
(Formerly Royal Silver Mines, Inc.)
Walla Walla, Washington
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying balance sheet of Cadence Resources Corporation
(formerly Royal Silver Mines, Inc.) (an exploration stage company) as of June
30, 2002, and the related statements of operations and comprehensive loss,
stockholders' equity, and cash flows for the nine months ended June 30, 2002,
2001 and 2000, and for the period from July 1, 2001 (inception of exploration
stage) through June 30, 2002. All information included in these financial
statements is the representation of the management of Cadence Resources
Corporation.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with accounting principles generally accepted in the United States of
America.
The financial statements for the years ended September 30, 2001 and 2000 were
audited by us and we expressed an unqualified opinion on them in our report
dated January 8, 2002. We have not performed any auditing procedures since that
date.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern.
Management's plans are also discussed in Note 2. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
August 12, 2002
1
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
BALANCE SHEETS
June 30, September 30,
2002 ---------------------
(Unaudited) 2001 2000
---------- ---------- ---------
ASSETS
CURRENT ASSETS
Cash $ 271,443 $191,684 $ 15,915
Receivable from working interest owners 18,830 - -
Notes receivable 43,000 18,000 14,628
Prepaid rent - 1,275 -
Deposit 425 425 150
---------- ---------- ---------
TOTAL CURRENT ASSETS 333,698 211,384 30,693
---------- ---------- ---------
OIL AND GAS PROPERTIES, USING
SUCCESSFUL EFFORTS ACCOUNTING
Proved properties 45,427 - -
Unproved properties 78,997 - -
Wells and related equipment and facilities 89,914 - -
Support equipment and facilities 11,687 - -
Prepaid mineral leases 154,758 82,155 -
---------- ---------- ---------
TOTAL OIL AND GAS PROPERTIES 380,783 82,155 -
---------- ---------- ---------
PROPERTY AND EQUIPMENT
Furniture and equipment 1,440 1,440 1,440
Less accumulated depreciation (1,440) (1,440) (1,404)
---------- ---------- ---------
TOTAL PROPERTY AND EQUIPMENT - - 36
---------- ---------- ---------
OTHER ASSETS
Investments 496,540 104,343 236,428
---------- ---------- ---------
NONCURRENT ASSETS
Net assets of discontinued operations 246,757 266,757 702,097
---------- ---------- ---------
TOTAL ASSETS $1,457,778 $664,639 $969,254
========== ========== =========
See accountant's review report and accompanying notes.
2
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
BALANCE SHEETS
June 30, September 30,
2002 ----------------------------
(Unaudited) 2001 2000
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 115,017 $ 158,857 $ 109,115
Payable to related party - 8,231 -
Deferred working interest 44,396 - -
Accrued compensation 46,261 50,000 -
------------- ------------- -------------
TOTAL CURRENT LIABILITIES 205,674 217,088 109,115
------------- ------------- -------------
LONG-TERM DEBT
Notes payable - related parties 10,000 135,000 -
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES - - -
------------- ------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 20,000,000 shares
authorized, -0- shares issued and outstanding - - -
Common stock, $.01 par value; 100,000,000 shares
authorized, 6,735,860, 2,453,890, and
1,199,607 shares issued and outstanding
respectively 67,359 24,539 11,996
Additional paid-in capital 13,221,269 12,198,855 11,767,998
Stock options 324,000 - -
Stock warrants 233,334 - -
Accumulated deficit before exploration stage (11,102,595) (11,102,595) (10,885,466)
Deficit accumulated during exploration stage (1,342,192) (658,086) -
Accumulated other comprehensive income (loss) (159,071) (150,162) (34,389)
------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY 1,242,104 312,551 860,139
------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 1,457,778 $ 664,639 $ 969,254
============= ============= =============
See accountant's review report and accompanying notes.
3
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------------------- -------------------------
2002 2001 2000 2002 2001
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------ -----------
REVENUES $ - $ - $ - $ - $ -
------------ ------------ ------------ ------------ -----------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization - - 1,646 - 402
Officers' and directors' compensation 45,000 13,750 2,000 97,510 13,750
Consulting 68,082 3,500 5,000 538,600 87,500
Professional fees 21,092 11,995 66,235 54,314 45,217
Oil and gas lease expenses 36,047 - - 85,689 -
Exploration and drilling 1,731 - - 178,769 -
General and administrative 20,231 18,370 3,971 40,548 12,138
------------ ------------ ------------ ------------ -----------
Total expenses 192,183 47,615 78,852 995,430 159,007
------------ ------------ ------------ ------------ -----------
OPERATING LOSS (192,183) (47,615) (78,852) (995,430) (159,007)
------------ ------------ ------------ ------------ -----------
OTHER INCOME (EXPENSES)
Interest income 3 28 122 27 77
Interest expense (2,333) (1,476) - (4,722) (5,486)
Gain on debt forgiveness - - - 6,109 -
Gain (loss) on disposition and impairment of assets 1,180 (23,487) 26,089 (20,288) (51,284)
------------ ------------ ------------ ------------ -----------
Total other income (expense) (1,150) (24,935) 26,211 (18,874) (56,693)
------------ ------------ ------------ ------------ -----------
LOSS BEFORE TAXES (193,333) (72,550) (52,641) (1,014,304) (215,700)
INCOME TAX BENEFIT - - - 66,040 -
------------ ------------ ------------ ------------ -----------
LOSS FROM CONTINUING OPERATIONS (193,333) (72,550) (52,641) (948,264) (215,700)
GAIN (LOSS) FROM DISCONTINUED OPERATIONS
Gain (Loss) from mining operations (net of
income taxes) - (1,195) (2,322) 264,158 (1,429)
------------ ------------ ------------ ------------ -----------
NET INCOME (LOSS) (193,333) (73,745) (54,963) (684,106) (217,129)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) on market value of
investments (22,584) (26,065) (146,426) (8,909) (136,926)
------------ ------------ ------------ ------------ -----------
COMPREHENSIVE LOSS $ (215,917) $ (99,810) $ (201,389) $ (693,015) $ (354,055)
============ ============ ============ ============ ===========
NET LOSS PER COMMON SHARE
BASIC AND DILUTED
Net loss from continuing operations $ (0.03) $ (0.04) $ (0.05) $ (0.22) $ (0.15)
Net income (loss) from discontinued operations - Nil Nil 0.06 Nil
------------ ------------ ------------ ------------ -----------
NET INCOME (LOSS) PER COMMON SHARE $ (0.03) $ (0.04) $ (0.05) $ (0.16) $ (0.15)
============ ============ ============ ============ ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 5,903,443 1,672,079 1,020,521 4,348,048 1,422,614
============ ============ ============ ============ ===========
Period from
July 1, 2001
(Inception of
Exploration Stage)
through
2000 June 30, 2002
(Unaudited) (Unaudited)
------------ -------------
REVENUES $ - $ -
------------ -------------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 7,948 -
Officers' and directors' compensation 17,000 164,010
Consulting 11,536 538,600
Professional fees 98,013 54,314
Oil and gas lease expenses - 85,689
Exploration and drilling - 178,769
General and administrative 15,364 133,266
------------ -------------
Total expenses 149,861 1,154,648
------------ -------------
OPERATING LOSS (149,861) (1,154,648)
------------ -------------
OTHER INCOME (EXPENSES)
Interest income 304 50
Interest expense - (24,947)
Gain on debt forgiveness - 6,109
Gain (loss) on disposition and impairment of assets (25,688) (59,345)
------------ -------------
Total other income (expense) (25,384) (78,133)
------------ -------------
LOSS BEFORE TAXES (175,245) (1,232,781)
INCOME TAX BENEFIT - 66,040
------------ -------------
LOSS FROM CONTINUING OPERATIONS (175,245) (1,166,741)
GAIN (LOSS) FROM DISCONTINUED OPERATIONS
Gain (Loss) from mining operations (net of
income taxes) (7,417) (175,451)
------------ -------------
NET INCOME (LOSS) (182,662) (1,342,192)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) on market value of
investments 125,715 12,244
------------ -------------
COMPREHENSIVE LOSS $ (56,947) $ (1,329,948)
============ =============
NET LOSS PER COMMON SHARE
BASIC AND DILUTED
Net loss from continuing operations $ (0.17)
Net income (loss) from discontinued operations (0.01)
------------
NET INCOME (LOSS) PER COMMON SHARE $ (0.18)
============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 1,018,713
============
See accountant's review report and accompanying notes.
4
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Common Stock Accumulated
------------------- Additional During
Number Paid-in Stock Stock Accumulated Exploration
of Shares Amount Capital Options Warrants Deficit Stage
--------- -------- ------------ -------- ------------ ------------- --------------
Balance, September 30, 1999 1,014,982 $ 10,150 $11,621,519 $ - $ - $(10,457,146) $ -
Shares issued to consultants
for services at $1.00
per share 3,125 31 3,094 - - - -
Shares issued to officers for
debt at $0.80 per share 110,000 1,100 86,900 - - - -
Shares issued to officers for
investment at $0.80 per share 71,500 715 56,485 - - - -
Net loss for the year ended
September 30, 2000 - - - - - (428,320) -
--------- -------- ------------ -------- ------------ ------------- --------------
Balance,
September 30, 2000 1,199,607 11,996 11,767,998 - - (10,885,466) -
Shares issued to consultants and
others for services at prices
varying from $0.30 to $1.40
per share 174,375 1,744 95,656 - - - -
Shares issued to officers for
investments at $0.40 per share 310,000 3,100 120,900 - - - -
Shares issued to officers for
investment and cash at $0.25
per share 160,000 1,600 38,400 - - - -
Shares issued to officers and
directors for services at $0.25
to $0.30 per share 110,000 1,100 29,150 - - - -
Adjustment for fractional shares
issued 4,074 41 (41) - - - -
Shares issued for loan consideration
at $0.30 per share 62,500 625 18,125 - - - -
Shares issued for cash at $0.30
per share 393,334 3,933 114,067 - - - -
Shares issued for marketing services
at $0.30 per share 40,000 400 14,600 - - - -
Net loss for year ended
September 30, 2001 - - - - - (217,129) (658,086)
Unrealized loss on market value
of investments - - - - - - -
--------- -------- ------------ -------- ------------ ------------- --------------
Balance,
September 30, 2001 2,453,890 24,539 12,198,855 - - (11,102,595) (658,086)
Shares issued for cash at $0.24
to $0.30 per share 723,000 7,230 204,670 - - - -
Shares issued to officer for debt
at $0.30 per share 300,000 3,000 87,000 - - - -
Shares issued to officers,
consultants and others for services
and accrued compensation at
$0.30 to $0.38 per share 518,834 5,189 164,479 - - - -
Shares issued for cash with warrants
attached at $0.30 per share 2,333,336 23,333 443,333 - 233,334 - -
Shares issued to officer for
reimbursement of expenses
paid for Company at $1.03
per share 6,800 68 6,932 - - - -
Shares issued for investment at
$0.30 per share 400,000 4,000 116,000 - - - -
Options issued to consultants
for services - - - 324,000 - - -
Net loss for the period ended
June 30, 2002 (unaudited) - - - - - - (684,106)
Unrealized loss on market value
of investments - - - - - - -
--------- -------- ------------ -------- ------------ ------------- --------------
Balance
June 30, 2002 (unaudited) 6,735,860 $ 67,359 $13,221,269 $324,000 $ 233,334 $(11,102,595) $ (1,342,192)
========= ======== ============ ======== ============ ============= ==============
Accumulated
Other Total
Comprehensive Stockholders'
Income Equity
--------------- -----------
Balance, September 30, 1999 $ - $1,174,523
Shares issued to consultants
for services at $1.00
per share - 3,125
Shares issued to officers for
debt at $0.80 per share - 88,000
Shares issued to officers for
investment at $0.80 per share - 57,200
Net loss for the year ended
September 30, 2000 (34,389) (462,709)
--------------- -----------
Balance,
September 30, 2000 (34,389) 860,139
Shares issued to consultants and
others for services at prices
varying from $0.30 to $1.40
per share - 97,400
Shares issued to officers for
investments at $0.40 per share - 124,000
Shares issued to officers for
investment and cash at $0.25
per share - 40,000
Shares issued to officers and
directors for services at $0.25
to $0.30 per share - 30,250
Adjustment for fractional shares
issued - -
Shares issued for loan consideration
at $0.30 per share - 18,750
Shares issued for cash at $0.30
per share - 118,000
Shares issued for marketing services
at $0.30 per share - 15,000
Net loss for year ended
September 30, 2001 - (875,215)
Unrealized loss on market value
of investments (115,773) (115,773)
--------------- -----------
Balance,
September 30, 2001 (150,162) 312,551
Shares issued for cash at $0.24
to $0.30 per share - 211,900
Shares issued to officer for debt
at $0.30 per share - 90,000
Shares issued to officers,
consultants and others for services
and accrued compensation at
$0.30 to $0.38 per share - 169,668
Shares issued for cash with warrants
attached at $0.30 per share - 700,000
Shares issued to officer for
reimbursement of expenses
paid for Company at $1.03
per share - 7,000
Shares issued for investment at
$0.30 per share - 120,000
Options issued to consultants
for services - 324,000
Net loss for the period ended
June 30, 2002 (unaudited) - (684,106)
Unrealized loss on market value
of investments (8,909) (8,909)
--------------- -----------
Balance
June 30, 2002 (unaudited) $ (159,071) $1,242,104
=============== ===========
See accountant's review report and accompanying notes.
5
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Period from
July 1, 2001
(Inception of
For the Nine Months Ended (Exploration
June 30, Stage)
--------------------------------------- through
2002 2001 2000 June 30, 2002
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ----------- --------------
Cash flows from operating activities:
Net loss $ (684,106) $ (217,129) $(182,662) $ (1,342,192)
Discontinued operations - - - 439,609
Adjustments to reconcile net loss to net cash
used by operating activities:
Loss (gain) on sale of equipment - (115) 86,284 -
Loss (gain) on sale of investments (20,288) 43,399 - 18,769
Gain from mining operations (330,198) - - (330,198)
Gain on debt forgiveness 6,109 - - 6,109
Equipment traded for services - - 4,137 -
Depreciation and amortization - 402 7,948 -
Issuance of common stock for services 169,667 96,150 3,125 216,167
Issuance of common stock for
reimbursement of expenses 7,000 - - 7,000
Issuance of common stock for loan
consideration - 8,000 - 18,750
Issuance of stock options for
consulting fees 324,000 - - 324,000
Changes in assets and liabilities:
Receivable from working interest owners (18,830) - - (18,830)
Note receivable (40,000) - (14,628) (55,000)
Prepaid rent 1,275 - - 1,275
Deposit - (275) (150) -
Prepaid mineral leases (72,603) (2,550) - (153,483)
Accounts payable (43,940) 5,512 56,231 290
Deferred working interest 42,565 - - 42,565
Accrued compensation 30,261 - - 80,261
Payable to related parties - - (44,000) 8,231
------------ ------------ ----------- --------------
Net cash provided (used) by operating activities (629,088) (66,606) (83,715) (736,677)
------------ ------------ ----------- --------------
Cash flows from investing activities:
Purchase of investments (22,527) (4,400) (152,752) (26,035)
Purchase and development of proved and
unproved properties (124,424) - - (124,424)
Purchase of fixed assets (101,601) - - (101,601)
Sale of investments 80,499 54,330 144,622 123,041
Sale of fixed assets - 3,000 - -
------------ ------------ ----------- --------------
Net cash provided (used) by investing activities (168,053) 52,930 (8,130) (129,019)
------------ ------------ ----------- --------------
Cash flows from financing activities:
Issuance of common stock for cash 678,566 5,000 - 796,566
Issuance of warrants for cash 233,334 - - 233,334
Proceeds from notes payable - - - 135,000
Payments of notes payable (35,000) - - (35,000)
Issuance of common stock for payment to
related party - - 88,000 -
------------ ------------ ----------- --------------
Net cash provided by financing activities 876,900 5,000 88,000 1,129,900
------------ ------------ ----------- --------------
Net increase (decrease) in cash $ 79,759 $ (8,676) $ (3,845) $ 264,204
------------ ------------ ----------- --------------
See accountant's review report and accompanying notes.
6
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Period from
July 1, 2001
(Inception of
For the Nine Months Ended Exploration
June 30, Stage)
---------------------------------------- through
2002 2001 2000 June 30, 2002
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ --------------
Net increase (decrease) in cash (balance forward) $ 79,759 $ (8,676) $ (3,845) $ 264,204
Cash, beginning of period 191,684 15,915 28,147 7,239
------------ ------------ ------------ --------------
Cash, end of period $ 271,443 $ 7,239 $ 24,302 $ 271,443
============ ============ ============ ==============
Supplemental cash flow disclosure:
Income taxes paid $ - $ - $ - $ 350
Interest paid $ - $ - $ - $ 25,655
Non-cash investing and financing activities:
Common stock issued for services rendered
and accrued compensation $ 169,667 $ 96,150 $ 3,125 $ 216,167
Common stock issued for mineral properties $ - $ - $ - $
Common stock issued for exchange of debt $ 90,000 $ - $ 88,000 $ -
$ - $ - $ - $ 18,750
Common stock issued in exchange for -
investments $ 120,000 $ 159,000 $ - $ 120,000
Common stock issued for reimbursement of
expenses paid $ 7,000 $ - $ - $ 7,000
Investment received for mining claims $ 350,198 $ - $ - $ 350,198
Investment given for related party payable $ 8,231 $ - $ - $ 8,231
Investment received for note receivable $ 15,000 $ - $ - $ 15,000
Stock options issued for services $ 324,000 $ - $ - $ 324,000
See accountant's review report and accompanying notes.
7
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Cadence Resources Corporation (formerly Royal Silver Mines, Inc.) hereinafter
("Cadence" or "the Company") was incorporated in April of 1969 under the laws of
the State of Utah primarily for the purpose of acquiring and developing mineral
properties. The Company changed its name from Royal Silver Mines, Inc. to
Cadence Resources Corporation on May 2, 2001 upon obtaining approval from its
shareholders and filing an amendment to its Articles of Incorporation. The
Company shall be referred to as "Cadence" or "Cadence Resources Corporation"
even though the events described may have occurred while the Company's name was
"Royal Silver Mines, Inc." The Company has elected a September 30 fiscal
year-end.
On July 1, 2001, Cadence developed a plan for acquisition, exploration and
development of oil and gas properties and accordingly began a new exploration
stage as an energy project development company. Prior to this, Cadence
conducted its business as a "junior" mineral resource company, meaning that it
intended to receive income from property sales or joint ventures of its mineral
projects with larger companies. The Company continues to hold several mineral
properties, which are described in Note 3. The Company intends to either sell
or lease these projects to third parties, but there is no guarantee that the
Company will be successful in this endeavor.
Celebration Mining Company ("Celebration"), currently a wholly owned subsidiary
of Cadence, was incorporated for the purpose of identifying, acquiring,
exploring and developing mining properties. Celebration was organized on
February 17, 1994 as a Washington corporation. Celebration has not yet realized
any revenues from its planned operations.
On August 8, 1995, Cadence and Celebration completed an agreement and plan of
reorganization whereby the Company issued 207,188 shares of its common stock and
72,750 warrants in exchange for all of the outstanding common stock of
Celebration. Pursuant to the reorganization, the name of the Company was
changed to Royal Silver Mines, Inc. Immediately prior to the agreement and plan
of reorganization, the Company had 118,773 common shares issued and outstanding.
The acquisition was accounted for as a purchase by Celebration of Cadence,
because the shareholders of Celebration controlled the Company after the
acquisition. Therefore, Celebration is treated as the acquiring entity. There
was no adjustment to the carrying value of the assets or liabilities of Cadence
in the exchange as the market value approximated the net carrying value.
Cadence is the acquiring entity for legal purposes and Celebration is the
surviving entity for accounting purposes.
8
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)
As a result of the Company's entering a new exploration stage as an energy
project development company on July 1, 2001, the Company has elected to dispose
of its mineral properties and has accordingly reclassified these properties,
which total $246,757 at June 30, 2002, as net assets of discontinued operations.
The Company has not determined whether these mineral exploration properties
contain ore reserves that are economically recoverable, and is in the process of
disposing of these properties. The ultimate realization of the Company's
investment in these properties cannot be determined at this time and,
accordingly, no provision for any asset impairment that may result in the event
the Company is not successful in selling these properties has been made in the
accompanying financial statements. See Note 3.
The $140,358 and $82,155, respectively, cost of prepaid mineral leases included
in the accompanying balance sheet as of June 30, 2002 and September 30, 2001 are
related to natural gas properties. The Company has not determined whether the
properties contain economically recoverable gas reserves. The ultimate
realization of the Company's investment in oil and gas properties is dependent
upon finding and developing economically recoverable reserves, the ability of
the Company to obtain financing or make other arrangements for development and
upon future profitable production. The ultimate realization of the Company's
investment in oil and gas properties cannot be determined at this time and,
accordingly, no provision for any asset impairment that may result in the event
the Company is not successful in developing these properties, has been made in
the accompanying financial statements.
The Company is seeking additional capital through a private placement of its
stock, or debt. Management plans to use the majority of such financing proceeds
for landhold acquisition, and on drilling and possible completion of an oil well
project in Texas. Management also plans to conduct a second financing, larger
than the first, the proceeds of which will be used for drilling of wells on the
Company's leased oil and gas property in Louisiana. Management believes that
such financing proceeds will enable the Company to continue its operations.
However, there are inherent uncertainties in fund raising and in the sales of
excess assets and management cannot provide assurances that it will be
successful in these endeavors. Furthermore, the Company is in the exploration
stage, as it has not realized any significant revenues from its planned
operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Cadence Resources Corporation
is presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to accounting principles generally accepted in the United
States of America and have been consistently applied in the preparation of the
financial statements.
9
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting Method
- ------------------
The Company's financial statements are prepared using the accrual method of
accounting.
Exploration Stage
- ------------------
The Company began a new exploration stage concerning the exploration of oil and
gas leases on July 1, 2001 and has not commenced the sale of any products.
Estimates
- ---------
The process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated amounts.
Loss Per Share
- ----------------
Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the year. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time they were outstanding. Outstanding warrants were not
included in the computation of diluted loss per share because the exercise price
of the outstanding warrants is higher than the market price of the stock,
thereby causing the warrants to be antidilutive.
Cash Equivalents
- -----------------
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Mineral Properties
- -------------------
Costs of acquiring, exploring and developing mineral properties are capitalized
by project area. Costs to maintain the mineral rights and leases are expensed
as incurred. When a property reaches the production state, the related
capitalized costs will be amortized, using the units of production method on the
basis of periodic estimates of ore reserves. At June 30, 2002 and September 30,
2001, the cost of the Company's mineral properties is included in net assets of
discontinued operations in the accompanying financial statements, as the Company
has changed its focus from minerals exploration to oil and gas.
Mineral properties are periodically assessed for impairment of value and any
losses are charged to operations at the time of impairment.
10
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Mineral Properties (Continued)
- --------------------------------
Should a property be abandoned, its capitalized costs are charged to operations.
The Company charges to operations the allocable portion of capitalized costs
attributable to properties sold. Capitalized costs are allocated to properties
sold based on the proportion of claims sold to the claims remaining within the
project area.
Oil and Gas Properties
- -------------------------
The Company uses the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves, and
to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not find proved reserves, geological and geophysical
costs, and costs of carrying and retaining unproved properties are expensed.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the Company's experience of successful
drilling and average holding period. Capitalized costs of producing oil and gas
properties, after considering estimated dismantlement and abandonment costs and
estimated salvage values, are depreciated and depleted by the unit-of-production
method. Support equipment and other property and equipment are depreciated over
their estimated useful lives. Property leases are expensed ratably over the
life of the lease.
On the sale or retirement of a complete unit of a proven property, the cost and
related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On
the retirement or sale of a partial unit of proven property, the cost is charged
to accumulated depreciation, depletion, and amortization with a resulting gain
or loss recognized in income.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any unrecorded impairment if the property had been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
Provision For Taxes
- ---------------------
Income taxes are provided based upon the liability method of accounting pursuant
to SFAS No. 109 "Accounting for Income Taxes." Under this approach, deferred
income taxes are recorded to reflect the tax consequences on future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year end. A valuation allowance is recorded against
deferred tax assets if management does not believe the Company has met the "more
likely than not" standard imposed by SFAS No. 109 to allow recognition of such
an asset.
11
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Provision For Taxes (Continued)
- ----------------------------------
At June 30, 2002, the Company had net deferred tax assets of approximately
$1,420,000, principally arising from net operating loss carryforwards for income
tax purposes. During the nine months ending June 30, 2002, the Company utilized
$66,040 of the net deferred taxes from previous net operating losses in the
offset of the gain associated with the sale of mining property. As management
of the Company cannot determine that it is more likely than not that the Company
will realize the benefit of the net deferred tax asset, a valuation allowance
equal to the net deferred tax asset has been established at June 30, 2002.
At June 30, 2002, the Company has net operating loss carryforwards of
approximately $7,100,000, which expire in the years 2002 through 2022.
Additionally, the Company has capital loss carryovers of approximately
$4,830,000.
Environmental Remediation and Compliance
- -------------------------------------------
Expenditures for ongoing compliance with environmental regulations that relate
to current operations are expensed or capitalized as appropriate. Expenditures
resulting from the remediation of existing conditions caused by past operations
that do not contribute to future revenue generations are expensed. Liabilities
are recognized when environmental assessments indicate that remediation efforts
are probable and the costs can be reasonably estimated. Estimates of such
liabilities are based upon currently available facts, existing technology and
presently enacted laws and regulations taking into consideration the likely
effects of inflation and other societal and economic factors, and include
estimates of associated legal costs. These amounts also reflect prior
experience in remediating contaminated sites, other companies' clean-up
experience and data released by The Environmental Protection Agency (EPA) or
other organizations. Such estimates are by their nature imprecise and can be
expected to be revised over time because of changes in government regulations,
operations, technology and inflation. Recoveries are evaluated separately from
the liability and, when recovery is assured, the Company records and reports an
asset separately from the associated liability. At June 30, 2002, the Company
had no accrued liabilities for compliance with environmental regulations.
Investments
- -----------
Investments, consisting of equity securities of private and small public
companies, are stated at current market value.
Revenue Recognition
- --------------------
As noted in its statement of operations, Cadence has not produced any revenue in
the periods ended June 30, 2002 or 2001. When the Company does produce revenue,
sales will be recognized at the point of passage of title specified in the
underlying contract.
12
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impaired Asset Policy
- -----------------------
The Company adopted financial Accounting Standard Board statement SFAS No. 121
titled "Accounting for Impairment of Long-Lived Assets," which has been replaced
by SFAS No. 144, "Accounting for Impairment of Disposal of Long-Lived Assets."
In complying with this standard, the Company reviews its long-lived assets
quarterly to determine if any events or changes in circumstances have transpired
which indicate that the carrying value of its assets may not be recoverable.
The Company determines impairment by comparing the undiscounted future cash
flows estimated to be generated by its assets to their respective carrying
amount whenever events or changes in circumstances indicate that an asset may
not be recoverable. Because of write-downs and write-offs taken in fiscal years
1999, 2000, and 2001, the Company does not believe any further adjustments are
needed to the carrying value of its assets at June 30, 2002. See Note 3.
Fair Value Standards
- ----------------------
The Company has adopted the fair value accounting rules to record all
transactions in equity instruments for goods or services.
Principles of Consolidation
- -----------------------------
The financial statements include those of Cadence Resources Corporation and
Celebration Mining Company. All significant inter-company accounts and
transactions have been eliminated. The financial statements are not considered
consolidated statements since Cadence Resources Corporation was the successor by
merger to Celebration Mining Company.
Reclassifications
- -----------------
Certain amounts from prior periods have been reclassified to conform with the
current period presentation. This reclassification has resulted in no changes
to the Company's accumulated deficit and net losses presented.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts for cash, receivables, deposits, payables, and advances
from related parties approximate their fair value.
Derivative Instruments
- -----------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB No.
133", and SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities", which is effective for the Company as of January 1,
2001. This standard establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value.
13
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative Instruments (Continued)
- ------------------------------------
If certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.
Historically, the Company has not entered into derivatives contracts to hedge
existing risks or for speculative purposes.
At June 30, 2002, the Company has not engaged in any transactions that would be
considered derivative instruments or hedging activities.
Accounting Pronouncements
- -------------------------
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections", which
updates, clarifies and simplifies existing accounting pronouncements. FASB No.
4, which required all gains and losses from the extinguishment of debt to be
aggregated and, if material, classified as an extraordinary item, net of related
tax effect was rescinded, as a result, FASB 64, which amended FASB 4, was
rescinded as it was no longer necessary. FASB 145 amended FASB 13 to eliminate
an inconsistency between the required accounting for sale-leaseback transaction
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. Management has not yet
determined the effects of adopting this Statement on the financial position or
results of operations, except for the need to reclassify debt extinguishments
previously reported as extraordinary.
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144). SFAS 144 replaces SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of." This new standard establishes a single accounting model for
long-lived assets to be disposed of by sale, including discontinued operations.
Statement 144 requires that these long-lived assets be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in continuing
operations or discontinued operations. This statement is effective beginning
for fiscal years after December 15, 2001, with earlier application encouraged.
The Company adopted SFAS 144 and does not believe that the adoption will have a
material impact on the financial statements of the Company at June 30, 2002.
14
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting Pronouncements (Continued)
- -------------------------------------
In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities and also
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 140 is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000, and is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. The Company believes that the adoption of this standard will not have a
material effect on the Company's results of operations or financial position.
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" (SFAS No. 143). SFAS No. 143 establishes guidelines related to the
retirement of tangible long-lived assets of the Company and the associated
retirement costs. This statement requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived assets. This statement is effective for financial statements issued
for the fiscal years beginning after June 15, 2002 and with earlier application
encouraged. The Company adopted SFAS No. 143 and does not believe that the
adoption will have a material impact on the financial statements of the Company
at June 30, 2002.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets". SFAS No. 141 provides for the
elimination of the pooling-of-interests method of accounting for business
combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142
prohibits the amortization of goodwill and other intangible assets with
indefinite lives and requires periodic reassessment of the underlying value of
such assets for impairment. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001. An early adoption provision exists for companies with
fiscal years beginning after March 15, 2001. The adoption of these standards is
not anticipated to have any material effect on the Company's financial
statements.
Interim Financial Statements
- ------------------------------
The interim financial statements as of and for the nine months ended June 30,
2002 included herein have been prepared for the Company without audit. They
reflect all adjustments, which are, in the opinion of management, necessary to
present fairly the results of operations for these periods. All such
adjustments are normal recurring adjustments. The results of operations for the
periods presented are not necessarily indicative of the results to be expected
for the full fiscal year.
15
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Going Concern
- --------------
As shown in the accompanying financial statement, the Company has no revenues,
has incurred a net loss of $684,106 for the period ended June 30, 2002, has a
pre-exploration stage accumulated deficit of $11,102,595 and a deficit
accumulated during exploration stage of $1,342,192. These factors indicate that
the Company may be unable to continue in existence. The financial statements do
not include any adjustments related to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities that might be
necessary in the event the Company cannot continue in existence.
The Company's management has strong beliefs that significant and imminent
private placements will generate sufficient cash for the Company to operate for
the next few years. The Company also believes that the occasional sale of its
equity investments will provide cash as needed for operations.
Concentration of Credit Risk for Cash Held at Banks
- ---------------------------------------------------
The Company maintains cash balances at several banks. Accounts are insured by
the Federal Deposit Insurance Corporation up to $100,000. At June 30, 2002 the
cash balance exceeded this insured amount by $25,734.
NOTE 3 - MINERAL PROPERTIES
The Company's mineral properties are being disposed of as discontinued
operations pursuant to the Company's adoption of the plan for a new development
stage concerning natural resource properties on July 1, 2001.
Mineral Properties in North Idaho
- -------------------------------------
The Company, directly and through its subsidiary Celebration Mining Company,
holds forty-three unpatented mining claims in the Coeur d'Alene Mining District
in four distinct groups called the Kil Group, West Mullan Group, South Galena
Group, and Palisades Group. The Company has undertaken only minimal exploration
and development work on these properties, such as general geological
reconnaissance and claim-staking activities. The majority of these claims were
written off as permanently impaired at September 30, 2001.
In September 2000, the Company, through its wholly owned subsidiary Celebration
Mining Company, entered into a five-year lease agreement with an affiliated
company, Oxford Metallurgical, Inc. on its eight-claim Palisades Group property.
The lease calls for a semi-annual payment of $3,000, or alternatively, the
semi-annual payment of 10,000 shares of the common stock of Oxford. Oxford has
the right to explore and potentially develop the property under certain
conditions.
16
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 3 - MINERAL PROPERTIES (CONTINUED)
Mineral Properties in North Idaho (Continued)
- --------------------------------------------------
On October 31, 2001, the Company sold its Kil Group and West Mullan Group claims
to Caledonia Silver-Lead Mines, Inc., an affiliated company. The combined sale
price for these claims was 3,501,980 shares of the common stock of Caledonia,
having an estimated market value of $0.10 per share and valued at $350,198. The
net effect of the transaction was a gain of $330,198. See Note 5.
In October 1994 the Company entered into a lease agreement with Fausett
International, Inc. ("Fausett") covering the Crescent Mine located in Shoshone
County, Idaho. The validity of this lease was challenged by both the
Environmental Protection Agency and Shoshone County who claimed to have an
ownership interest in the property. After considerable legal deliberation, in
June 2001, the Company delivered a quitclaim deed to the Crescent Mine to
Fausett, which disposed of its interest in the mine. See Note 14.
Other Domestic Properties
- ---------------------------
In the fourth quarter of the year ended September 30, 2001, the Company elected
to write off all of its interests in mineral properties except for the ViPont
Mine, Kil Group Claims and West Mullan Group Claims. The net effect of this
write down was to record a loss on asset impairment of $432,090 during the year
ended September 30, 2001.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major additions and improvements
are capitalized. Minor replacements, maintenance and repairs that do not
increase the useful life of the assets are expensed as incurred. Depreciation
of property and equipment is determined using the straight-line method over the
expected useful lives of the assets of five years. Depreciation expense for the
periods ended June 30, 2002, 2001 and 2000 was $-0-, $402 and $7,948,
respectively.
NOTE 5 - INVESTMENTS
The Company's securities investments are classified as available for sale
securities which are recorded at fair value on the balance sheet as investments.
The change in fair value during the period is excluded from earnings and
recorded net of tax as a component of other comprehensive income. The Company
has no securities which are classified as trading securities.
At June 30, 2002 and September 30, 2001, the market values of investments were
as follows:
17
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 5 - INVESTMENTS (CONTINUED)
June 30, September 30,
2002 2001
--------- --------------
Elite Logistics, Inc. $ 5,245 $ 35,632
Integrated Pharmaceuticals, Inc. - 4,444
Ashington Mining Company 5,709 7,200
Oxford Metallurgical, Inc. - 600
Sterling Mining Co. 4,859 6,300
Metalline Mining Co., Inc. 5,512 -
Enerphaze Corporation 70,450 -
Caledonia Silver-Lead Mines, Inc. 350,198 -
Trend Mining Company 54,567 50,167
--------- --------------
$ 496,540 $ 104,343
========= ==============
Other information regarding the Company's investments follows:
Envirogold, LLC
- ----------------
During January 2000, the Company announced that together with Nuvotec, Inc., it
had formed Envirogold LLC ("Envirogold"). Envirogold was 50% owned by each and
had signed a technology licensing agreement with Integrated Environmental
Technologies ("Integrated") for the development and use of certain patented
technology for applications in the mining and mineral processing industries.
The Company received notification on February 27, 2001 that the technology
license assigned by Integrated had been withdrawn. After further investigation,
it was mutually determined by all parties that Envirogold had no ongoing
business without the license and a determination was made to dissolve Envirogold
LLC.
Enerphaze Corporation
- ----------------------
During October 2001, the Company received 8,000 shares of Enerphaze Corporation
common stock in payment of a $15,000 note receivable. During January and
February 2002, the Company received 65,000 shares of Enerphaze Corporation
common stock for 400,000 shares of the Company's common stock. No gain or loss
was recognized on these transactions.
Caledonia Silver-Lead Mines, Inc.
- ------------------------------------
The Company, on October 31, 2001, received 3,501,980 shares of the $0.10 par
value common stock of Caledonia Silver-Lead Mines, Inc. (an affiliated company)
in exchange for its Kil Group and West Mullan Group claims. The stock received
was recorded at its par value of $350,198 which in the opinion of management,
approximates its fair value. The carrying value of these shares will be
reevaluated at each reporting period and adjustments, if appropriate, will be
made to the carrying value of these securities. The net effect of the
transaction resulted in a gain of $330,198. See Note 3.
18
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 6 - COMMON STOCK
During the year ended September 30, 2001, the Company issued 284,375 shares of
common stock to officers, directors, consultants and others for services and
532,500 shares of common stock were issued to officers for loan consideration,
investments and cash. The Company also issued 40,000 shares of its common stock
pursuant to terms of a marketing agreement (Note 12) and sold 393,334 shares of
its common stock for cash. The shares were valued at their fair market value at
the date of issuance, which ranged from $0.25 to $1.40.
On April 23, 2001, the Company's board of directors authorized a 1-for-20
reverse stock split of the Company's $0.01 par value common stock. All
references in the accompanying financial statements and notes, to the number of
common shares and per-share amounts, have been restated to reflect the reverse
stock split. The Company also approved an increase in the number of its
authorized common stock to 100,000,000 shares.
During the nine months ended June 30, 2002, the Company issued 518,834 shares of
its common stock to officers, consultants and others for services valued at
$169,667, and also issued 400,000 shares of its common stock for an investment
and 300,000 shares of its common stock to an officer in payment of a note
payable. These transactions were valued in accordance with a plan for stock
issuance previously approved by the board of directors. The Company also sold
723,000 shares of its common stock for $211,900.
During the nine months ended June 30, 2002, the Company also sold 2,333,336
"units" to investors, two officers of the Company and another entity under
common control at $0.30 per unit in a private placement. Each unit consists of
one share of common stock and one warrant exercisable at $0.30 per common share
for five years. Sales of these units generated cash proceeds of $700,000. Two
officers of the Company and another entity under common control invested $50,000
in these common stock units. (See Note 9.)
NOTE 7 - PREFERRED STOCK
On April 23, 2001, the Company's board of directors authorized 20,000,000 shares
of preferred stock with a par value of $0.01 per share and rights and
preferences to be determined. No shares were issued and outstanding as of June
30, 2002.
NOTE 8 - COMMON STOCK OPTION AND AWARD PLAN
In January 1992, the shareholders of Cadence approved a 1992 Stock Option and
Stock Award Plan under which up to ten percent of the issued and outstanding
shares of the Company's common stock could be awarded based on merit of work
performed. As of June 30, 2002, only 638 shares of common stock had been
awarded under the Plan.
19
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 8 - COMMON STOCK OPTION AND AWARD PLAN (CONTINUED)
The Company has a stock-based compensation plan whereby the Company's board of
directors may grant common stock to its employees and directors. At September
30, 2001, a total of 72,750 options have been granted under the plan, of which
12,750 options have been forfeited and none have been exercised through the
period ending June 30, 2002. The old existing options are attributed to the
merger of Celebration Mining Company with Royal in August 1995.
Following is a summary of the stock options during the period ended June 30,
2002 and the year ended September 30, 2001.
Weighted
Number Average
of Exercise
Options Price
--------- ---------
Outstanding at 10/1/2000 60,000 $ 18.60
--------- ---------
Granted - -
Exercised - -
Expired or forfeited - -
--------- ---------
Outstanding at 9/30/2001 60,000 $ 18.60
--------- ---------
Options exercisable at 9/30/2001 60,000 $ 18.60
--------- ---------
Weighted average fair value of options granted during
the year ended 9/30/2001 $ -
=========
Outstanding at 10/1/2001 60,000 $ 18.60
Granted 400,000 .75
Exercised - -
Expired or forfeited 60,000 18.60
--------- ---------
Outstanding at 6/30/2002 400,000 $ .75
========= =========
Options exercisable at 6/30/2002 400,000 $ .75
========= =========
Weighted average fair value of options granted
during the period ended 6/30/2002 $ 0.81
=========
Weighted Average
Exercise Date Number of Shares Price per Share
-------------- ---------------- ---------------
On or before January 22, 2007 400,000 $0.75
Stock Award Plan
- ------------------
During the year ended September 30, 2001, the Company's board of directors
approved the issuance of 15,000 shares of the Company's common stock per quarter
to each entitled director as compensation for service to the Company and 5,000
shares of the Company's common stock per quarter to officers in addition to the
salaried compensation for services.
20
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 9 - WARRANTS
During the nine months ended June 30, 2002, the Company issued 2,333,336 shares
of stock with 2,333,336 warrants attached. These warrants were valued at
$233,334 using the Black-Scholes Option Price Calculation. The following
assumptions were made in estimating fair value: risk free interest is 5%,
volatility is 100% and expected life is 5 years. These warrants may be used to
purchase 2,333,336 shares of the Company's common stock at $0.30 per share. The
warrants remain exercisable through 2007.
The Company also issued a warrant to a Consultant of the Company in the amount
of 25,000 shares at $1.50 exercisable until June 21, 2005.
NOTE 10 - OIL AND GAS PROPERTIES
The Company's oil and gas producing activities are subject to laws and
regulations controlling not only their exploration and development, but also the
effect of such activities on the environment. Compliance with such laws and
regulations may necessitate additional capital outlays, affect the economics of
a project, and cause changes or delays in the Company's activities. The
Company's oil and gas properties are valued at the lower of cost or net
realizable value.
Louisiana
- ---------
During the fourth quarter of the year ended September 30, 2001, the Company
began leasing acreage in a natural gas field in Desoto Parish, Louisiana. At
least 51 drilled wells were previously commercially successful in adjacent
acreage. As of the dates of these financial statements, the Company has leased
a total of 1,920 acres. At June 30, 2002 and September 30, 2001, $140,358 and
$82,155, respectively, of leases in Louisiana are included in the attached
financial statements as prepaid mineral leases. Management has estimated a cost
of $1,100,000 to drill the initial test well on this property.
Texas
- -----
Subsequent to the year ended September 30, 2001, the Company acquired an
exploration permit and lease option agreement for an oil well project in
Wilbarger County, Texas known as Pinnacle Reef. During the period ended March
31, 2002, the Company drilled its initial test well to a total depth of 4,237
feet and encountered four pay zones. The two lowest pay zones were completed
and initial drill stem tests and flow tests were run. At March 31, the decision
had been made to run electricity to the site, install a pump jack and commence
commercial production. At June 30, 2002, $14,400 is included in the attached
financial statements as prepaid mineral leases relating to Texas property.
During the nine months ended June 30, 2002, the Company sold a partial interest
in a portion of its Pinnacle Reef prospect for $210,000. The Company's cost in
the portion of the prospect sold totaled $3,200. The Company anticipates
incurring over $230,000 in exploration and
21
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 10 - OIL AND GAS PROPERTIES (CONTINUED)
Texas (Continued)
- ------------------
development costs relating to the interest retained in the prospect. Because the
Company has received proceeds from the sales of the working interests in excess
of exploration and development costs attributable to those working interests,
the Company has recorded a deferred credit of $44,396. As exploration and
development costs of $175,263 during the nine months ended June 30, 2002 were
incurred on this prospect, they were charged against the deferred credit. At
June 30, 2002, the Company recorded a receivable in the amount of $18,830 to
reflect some sales of the prospect's partial interest, which were collected by
the Company subsequent to June 30, 2002.
NOTE 11 - OIL AND GAS PRODUCING ACTIVITIES
The Securities and Exchange Commission defines proved oil and gas reserves as
those estimated quantities of crude oil, natural gas, and natural gas liquids
which geological and engineering data demonstrate with reasonable certainty to
be recovered in future years from known reservoirs under existing economic and
operating conditions. Proved developed oil and gas reserves are reserves that
can be expected to be recovered through existing wells with existing equipment
and operating methods.
THE COMPANY HAS NOT RETAINED THE SERVICES OF AN INDEPENDENT GEOLOGIST TO
ESTIMATE ITS OIL AND GAS RESERVES. NATURAL GAS RESERVES (OF WHICH THERE ARE
NONE AT THIS TIME) AND PETROLEUM RESERVES ARE ESTIMATED BY MANAGEMENT. THE
ESTIMATES INCLUDE RESERVES IN WHICH CADENCE HOLDS AN ECONOMIC INTEREST UNDER
LEASE AND OPERATING AGREEMENTS.
Reserves attributable to certain oil and gas discoveries are not considered
proved as of June 30, 2002 due to geological, technical or economic
uncertainties. Proved reserves do not include amounts that may result from
extensions of currently proved areas or from application of enhanced recovery
processes not yet determined to be commercial in specific reservoirs.
Cadence has no supply contracts to purchase petroleum or natural gas from
foreign governments.
The Company had no proven reserves at September 30, 2001. The changes in proved
reserves for the nine months ended June 30, 2002 were as follows:
Petroleum Liquids Natural Gas
(barrels) (cubic feet)
United States United States
-------------- --------------
Reserves at October 1, 2001 - -
Purchases 100,485 -
-------------- --------------
Reserves at June 30, 2002 100,485 -
============== ==============
22
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
The aggregate amounts of capitalized costs relating to oil and gas producing
activities and the related accumulated depreciation, depletion and amortization
as of June 30, 2002 and September 30, 2001 were as follows:
NOTE 11 - OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
June 30, September 30,
2002 2001
--------- --------------
Proved properties $ 45,427 $ -
Unproved properties 78,997 -
Wells and related equipment
and facilities 89,914 -
Support equipment and
facilities 11,687 -
Prepaid mineral leases 154,758 82,155
Accumulated depreciation,
depletion and amortization - -
--------- --------------
Total capitalized costs $ 380,783 $ 82,155
========= ==============
Costs both capitalized and expensed, incurred in oil and gas-producing
activities during the period ended June 30, 2002 and the year ended September
30, 2001 are set forth below. Property acquisition costs represent costs
incurred to purchase or lease oil and gas properties. Exploration costs include
costs of geological and geophysical activity and drilling exploratory wells.
Development costs include costs of drilling and equipping development wells and
construction of production facilities to extract, treat and store oil and gas.
June 30, September 30,
2002 2001
--------- --------------
Property acquisition costs:
Proved properties $ 4,000 $ -
Unproved properties 200,973 84,503
Exploration costs 271,441 -
Development costs 168,827 -
--------- --------------
Total expenditures $ 645,241 $ 84,503
========= ==============
There were no results of operations for oil and gas producing activities
(including operating overhead) for the year ended September 30, 2001 since
exploration and development activities had not commenced. Results of operation
for oil and gas activities (including operating overhead) for the nine months
ended June 30, 2002 were as follows:
23
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 11 - OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
Revenues $ -
Exploration costs 271,441
Depreciation, depletion
and amortization -
Other operating expenses -
------------
Results before income taxes (271,441)
Income tax expense -
------------
Results of operation from
oil and gas producing
activities $ (271,441)
============
The standardized measure of discounted estimated future net cash flows related
to proved oil and gas reserves at June 30, 2002 was as follows:
Future cash flows $1,748,439
Future development and production costs 1,100,000
Future income tax expense -
----------
Future net cash flows 648,439
10% annual discount 303,832
----------
Standardized measure of discounted
future net cash flows $ 344,607
==========
Future net cash flows were computed using year-end prices and gas to year-end
quantities of proved reserves. Future price changes are considered only to the
extent provided by contractual arrangements. Estimated future development and
production costs are determined by estimating the expenditures to be incurred in
developing and producing the proved oil and gas reserves at the end of the year,
based on year-end costs and assuming continuation of existing economic
conditions. Estimated future income tax expense is calculated by applying
year-end statutory tax rates (adjusted for permanent differences and tax
credits) to estimated future pretax net cash flows related to proved oil and gas
reserves, less the tax basis of the properties involved.
These estimates are furnished and calculated in accordance with requirements of
the Financial Accounting Standards Board and the SEC. Estimates of future net
cash flows presented do not represent management's assessment of future
profitability or future cash flows to Cadence. Management's investments and
operating decisions are based on reserve estimated that include proved reserves
prescribed by the SEC as well as probable reserves, and on different price and
cost assumptions from those used here.
24
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
It should be recognized that applying current costs and prices and a 10%
standard discount rate does not convey absolute value. The discounted amounts
arrived at are only one measure of the value of proved reserves.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Litigation
- ----------
The Company was a defendant in a lawsuit alleging that the Company failed to
transfer common stock in exchange for a mining property interest. In June 1999,
Box Elder County Superior Court rejected the plaintiff's lawsuit and let stand
the Company's countersuit alleging fraudulent misrepresentation. Although the
plaintiff filed an appeal (regarding the originally filed lawsuit), the Utah
Supreme Court rejected the appeal in a judgment rendered on July 31, 2001.
In its countersuit, the Company is seeking both full title to the aforementioned
mineral property and compensatory damages as well as punitive damages. The
Company believes its countersuit will prevail.
Environmental Issues
- ---------------------
The Company is engaged in oil and gas exploration and may become subject to
certain liabilities as they relate to environmental cleanup of well sites or
other environmental restoration procedures as they relate to the drilling of oil
and gas wells and the operation thereof. In the Company's acquisition of
existing or previously drilled well bores, the Company may not be aware of what
environmental safeguards were taken at the time such wells were drilled or
during such time the wells were operated.
The Company was previously engaged in exploration of mineral properties. These
properties are classified as assets from discontinued operations or were
previously written off as permanently impaired. Although the Company has
discontinued the exploration of mineral properties, the possibility exists that
environmental cleanup or other environmental restoration procedures could cause
certain liabilities to arise. The Company is not aware of any environmental
issues related to any of its assets from discontinued operations.
Capital Commitments
- -------------------
At June 30, 2002, the Company has estimated capital and investment commitments
of $1,100,000 to drill its initial test well in Louisiana. In Texas, future
capital commitments are dependent upon the Company's decision to proceed with
additional well development. See Note 9. No accruals have been made in the
accompanying financial statements for these amounts.
Other Commitments
- ------------------
During September 2001, the Company entered into a consulting agreement with
American Financial Group for promotion to investors. The agreement calls for
monthly payments of $2,000 to cover all expenses, 20,000 shares of the Company's
common stock (which were issued in October 2001) and an override of 2.5% of
monies raised in private placements from referrals or directed business.
25
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Other Commitments (Continued)
- -------------------------------
The Company leased office facilities in Walla Walla, Washington from Coldwell
Banker Commercial commencing in June 2001. The agreement is a three-year
lease with monthly payments of $400. Total rent paid for this office space
during the period ended June 30, 2002 was $3,600.
NOTE 13 - NOTES PAYABLE
At June 30, 2002 and September 30, 2001, notes payable consisted of the
following:
June 30, September 30,
Creditor and Conditions 2002 2001
- ------------------------------------------- --------- --------------
Howard Crosby, (an officer and shareholder
of the Company), unsecured, interest at 6%,
due on January 1, 2003. $ - $ 125,000
Dotson Exploration, (a related party),
unsecured, interest at 6%, due on
January 1, 2003. 10,000 10,000
--------- --------------
Total $ 10,000 $ 135,000
========= ==============
NOTE 14 - SETTLEMENT AGREEMENT
Fausett International, Inc.
- -----------------------------
During June 2001, the Company entered into a settlement agreement wherein the
Company relinquished all claims to the Crescent Mine (located in Shoshone
County, Idaho) under a previously executed lease and delivered to counsel for
Fausett International, Inc. (hereinafter "Fausett"), a quitclaim deed to the
Crescent Mine. Upon receipt of the quitclaim deed, Fausett transferred all
interest in the Crescent Mine to Shoshone County and delivered to the Company
for cancellation certificates for 8,600 shares of the Company's common stock
held by Fausett and an officer of Fausett. The settlement agreement released
the Company from further obligations under the lease agreement. It also
contained a general release in favor of the Company from the Environmental
Protection Agency and from Shoshone County.
26
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 15 - RELATED PARTY TRANSACTIONS
The Company sublet office space on a month-to-month basis from one of its
officers in Walla Walla, Washington for $400 per month through May 2001. Total
rent paid for this office space during the period ended June 30, 2001 was
$3,600.
The Company entered into a mineral lease agreement with Oxford Metallurgical,
Inc. for the five-year period ending September 1, 2005. Under this agreement,
Oxford receives a leasehold interest in certain mining properties in Kootenai
County, Idaho in exchange for semi-annual lease payments of $300 and the
maintenance of property and liability insurance on the lease properties.
During the period ended June 30, 2002, the Company sold several mineral
properties located in Shoshone County, Idaho to Caledonia Silver-Lead Mines,
Inc. See Note 5.
Because both Oxford Metallurgical, Inc. and Caledonia Silver-Lead are controlled
by two officers of Cadence, these transactions cannot be considered to be the
product of an arms-length negotiation.
Other related party transactions are disclosed in Notes 5, 6, 11 and 13.
NOTE 16 - GAIN ON DEBT FORGIVENESS
During the period ended June 30, 2002, an accounts payable vendor chose to
reverse interest charges on its delinquent account. This transaction resulted
in the recognition of other income of $6,109.
NOTE 17 - SUBSEQUENT EVENTS
Oil and Gas Leases
- ---------------------
Subsequent to the date of these financial statements, the Company has completed
the logging and commenced production of its initial well in north Texas.
Initial results have estimated proven and recoverable reserves at 100,485
barrels of crude oil. This estimate of reserves is an estimates of the
Company's management and consultants and not an estimate of an independent
petroleum engineer. The Company intends to obtain an independent estimate if at
such time in the future the Company has sufficient oil wells in Texas to justify
the cost of such a study. The Company expects to receive its initial revenue
check from production in August or September 2002, and to continue to receive
such checks on a monthly basis so long as its wells in Texas remain in
production.
Subsequent to the end of the reporting period the Company issued a warrant to a
Consultant of the Company in the amount of 200,000 shares at $1.35 exercisable
until July 8, 2007.
27
CADENCE RESOURCES CORPORATION
(FORMERLY ROYAL SILVER MINES, INC.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 17 - SUBSEQUENT EVENTS (CONTINUED)
Credit Facility
- ----------------
Subsequent to the date of these financial statements, the Company secured a
credit facility of up to $20,000,000 for drilling of its oil and gas properties
in Texas and Louisiana. Under terms of the agreement with investors, the
facility is structured as a limited partnership and may be funded in traunches.
The credit facility will begin with an initial traunche of $250,000, with
priority payback of funds to the investor and an 11% preferred return, among
other non-equity terms.
28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company has not had revenues from operations during the last two years.
The Company intends to spend its existing cash on exploration on its existing
oil and gas lease in Texas. The Company does not intend to acquire substantial
additional oil and gas leases until it completes further exploration operations
on its existing leases in Texas and Louisiana. The Company has drilled and
completed three oil wells in Texas. Two of these are commercial oil wells, while
the third was non-commercial and completed as a salt-water disposal well. The
Company has recently taken a $250,000 draw-down of funding from its Limited
Partnership facility for the purpose of drilling two more oil wells in Texas,
one to be drilled by the end of the month of August.
As noted, the Company will need additional capital to continue to drill its
wells. The amount of capital required is dependant on the success it has on its
current projects because the Company anticipates funding some future drilling of
wells from cash flow from its existing wells and current targets. The Company
hopes to reduce its dependence on new finances by completing sufficient wells to
fund most of its new wells out of cash flow. Due to the declining nature of oil
& gas production, the Company must continue to explore and drill new wells to
maintain its sources of revenue. There is no assurance, however, the Company's
current wells and target wells will provide sufficient revenue to fund other
future wells. If they do not prove successful, the Company will have to rely
upon future new finances from outside sources in order to both continue
exploring for new oil and gas deposits, and to continue its operations.
The Company sold 40% of the working interest in its first and third wells to
raise funds to drill and complete these wells. It may sell a portion of the
working interest in future wells to investors in order to raise the capital to
drill such wells. The first well is in production while the third well was
non-commercial and is used as a disposal well. The second well of the Company
was funded 100% by the Company and should be in production by the end of the
month of August, 2002.
Selling a portion of the working interest enables the Company to raise some of
the risk capital to drill wells from outside investors and thus the "dry hole
risk" to the Company is reduced and may be totally eliminated. The major
disadvantage is that the Company will give up a percentage of its future cash
flow to the working interest investors which will reduce Company revenues and
profits in the future from successful wells.
The Company's auditors have issued a going concern opinion. This means that the
Company's auditors believe there is substantial doubt that the Company can
continue as an on-going business for the next twelve months unless it obtains
additional capital. This is because the Company has not generated sufficient
from its producing oil well to fully fund the cash requirements if the Company
and execute its business plan. Accordingly, the Company must raise cash from
sources other than from the sale of oil or gas found on its property. That cash
must be raised from other outside sources. The Company's only other source for
cash at this time are investments or loans by others to the Company, as well as
draw-downs of funds from its Limited Partnership funding facility. There are
certain constraints on the Limited Partnership facility which disallow the use
of these funds from any other activity other than exploration and development of
oil or gas wells. Other constraints and covenants also limit the use of these
funds.
Therefore, the Company has inadequate cash to maintain operations during the
next twelve months. In order to meet its cash requirements the Company may have
to raise additional capital through the sale of securities or loans. The Company
is actively pursuing additional equity capital at the time of this report. The
terms of such equity fundings, if successful, may be dilutive to existing
shareholders. However, as of the date hereof, the Company has no firm
commitments for loans or for purchases of additional securities and there is no
assurance that it will be able to raise additional capital through loans or the
sale of securities in the future. In the event that the Company is unable to
raise additional capital, it may have to suspend or cease operations.
The Company does not intend to conduct any research or development during the
next twelve months other than as described herein. See "Business." The Company
does not intend to purchase a plant or significant equipment. The Company will
hire employees on an as needed basis, however, the Company does not expect any
significant changes in the number of employees.
FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains forward-looking statements that involve substantial
risks and uncertainties. Investors and prospective investors in our common
stock can identify these statements by forward-looking words such as "may,"
"will," "expect," "intend," "anticipate," believe," "estimate," "continue"
and other similar words. Statements that contain these words should be read
carefully because they discuss our future expectations, make projections of our
future results of operations or of our financial condition or state other
"forward-looking" information.
We believe that it is important to communicate our future expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or control. The factors listed in the section captioned
"Management's Discussion and Analysis or Plan of Operation," as well as any
cautionary language in this Form 10-QSB, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Investors
and prospective investors in our common stock should be aware that the
occurrence of the events described in the "Management's Discussion and Analysis
or Plan of Operation" section and elsewhere in this Form 10-QSB could have a
material adverse effect on our business, operating results and financial
condition.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is a party to a lawsuit regarding the Vipont mining property located
in Box Elder County, Utah. A lawsuit was initially filed by the plaintiff
alleging breach of contract and various other causes of action against the
Company. In June 1999, Box Elder County Superior Court rejected the plaintiff's
lawsuit and let stand the Company's counter-suit alleging fraudulent
misrepresentation and other claims. The plaintiffs then filed an appeal of this
dismissal with the Utah Supreme Court. On July 31, 2001, the Utah Supreme Court
found in favor of the Company and against the plaintiffs. The Company has
elected to continue to pursue its counter-suit against the plaintiffs and is
seeking full and clear title to the disputed mining property as well as monetary
damages. The Company cannot predict, however, the outcome of its countersuit and
there is no assurance that the Company will be successful.
ITEM 2. CHANGES IN SECURITIES.
Common Stock
- ------------
During the nine months ended June 30, 2002, the Company issued 518,834 shares of
its common stock to officers, consultants and others for services valued at
$169,667, and also issued 400,000 shares of its common stock for an investment
and 300,000 shares of its common stock to an officer in payment of a note
payable. These transactions were valued in accordance with a plan for stock
issuance previously approved by the board of directors. The Company also sold
723,000 shares of its common stock for $211,900.
During the nine months ended June 30, 2002, the Company also sold 2,333,336
"units" to investors, two officers of the Company and another entity under
common control at $0.30 per unit in a private placement. Each unit consists of
one share of common stock and one warrant exercisable at $0.30 per common share
for five years. Sales of these units generated cash proceeds of $700,000. Two
officers of the Company and another entity under common control invested $50,000
in these common stock units.
The Company had 6,735,860 shares of common stock issued and outstanding as of
June 30, 2002. The issuances discussed under this section are exempted from
registration under Rule 506 of the Securities Act ("Rule 504") or Section 4(2)
of the Securities Act ("Section 4(2)"), as provided. All purchasers of the
securities acquired the shares for investment purposes only and all stock
certificates reflect the appropriate legends. No underwriters were involved in
connection with the sales of securities referred to in this section.
Options and Warrants
- --------------------
In the nine month period ended June 30, 2002 the Company issued the following
stock options and warrants:
The Company issued an option pursuant to its stock option plan to a Director of
the Company in the amount of 200,000 shares at $.75 exercisable until January
22, 2007.
The Company issued an option pursuant to its stock option plan to a Consultant
of the Company in the amount of 200,000 shares at $.75 exercisable until January
22, 2007.
The Company issued a warrant to a Consultant of the Company in the amount of
25,000 shares at $1.50 exercisable until June 21, 2005.
The Company issued 2,333,336 shares of stock with 2,333,336 warrants attached.
Such warrants grant the holder the right to purchase 2, 333,336 shares of common
stock at $0.30 per share. The warrants are exercisable as a cashless
transaction if and only if the common stock of the Company trades at or above
$1.50 per share. The warrants remain exercisable through 2007.
Subsequent to the end of the reporting period the Company issued a warrant to a
Consultant of the Company in the amount of 200,000 shares at $1.35 exercisable
until July 8, 2007.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated this 19th day of August, 2002.
CADENCE RESOURCES CORPORATION
By: /s/ Howard Crosby
-----------------
Howard Crosby
Its: Chief Executive Officer
By: /s/ John Ryan
-------------
John Ryan
Its: Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying 10-QSB of Cadence Resources Corporation for
the period beginning April 01, 2002 and ending June 30, 2002, Howard M. Crosby,
Chief Executive Officer, and John P. Ryan, Chief Financial Officer of Cadence
Resources Corporation Company, hereby certify pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to
my knowledge, that:
(1) such Form 10-QSB of Cadence Resources Corporation, for the period
beginning April 01, 2002 and ending June 30, 2002, fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) the information contained in such Form 10-QSB of Cadence Resources
Corporation for the period beginning April 01, 2002 and ending June 30,
2002, fairly presents, in all material respects, the financial condition
and results of operations of Cadence Resources Corporation.
/s/Howard M. Crosby
-------------------------
Howard M. Crosby
Chief Executive Officer
/s/John P. Ryan
-------------------------
John P. Ryan
Chief Financial Officer