UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10QSB/A
Under Section 12(b) or Section 12(g) of
The Securities Exchange Act of 1934
For the quarter ended December 31, 2004
COMMISSION FILE NUMBER: 0-25170
CADENCE RESOURCES CORPORATION
(Name of Small Business Issuer in its Charter)
Utah 87-0306609
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6 East Rose Street, P.O. Box 2056
Walla Walla, WA 99362
(Address of principal executive office)
Issuer's telephone number: (509) 526-3491
Securities to be registered under Section 12(b) of the Act:
None
(Title of Class)
Securities to be registered under Section 12(g) of the Act:
Common
(Title of Class)
================================================================================
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes [X] No [ ]
Transitional Small Business Disclosure: Yes [ ] No [X]
The number of shares outstanding at December 31, 2004: 12,892,327 shares
CADENCE RESOURCES CORPORATION
Financial Statements
December 31, 2004
CADENCE RESOURCES CORPORATION
C O N T E N T S
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Statements of Operations and Comprehensive Loss. . . . . . . . . . . . . . . 3
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . . . . 6
Management Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . 8
CADENCE RESOURCES CORPORATION
BALANCE SHEETS
December 31, September 30,
2004 ----------------------------
(Unaudited) 2004 2003
----------- ------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 758,717 $ 1,922,993 $ 3,619,345
Oil & gas revenue receivable 644,361 335,407 84,575
Receivable from working interest owners - - 12,873
Notes receivable 23,720 8,720 3,720
Prepaid expenses 40,380 39,410 5,925
Other current assets 425 425 425
----------- ----------- -----------
TOTAL CURRENT ASSETS 1,467,603 2,306,955 3,726,863
----------- ----------- -----------
OIL AND GAS PROPERTIES, USING
SUCCESSFUL EFFORTS ACCOUNTING
Proved properties 5,958,997 5,731,108 590,747
Unproved properties 605,157 505,501 833,836
Wells and related equipment and facilities 906,625 855,562 202,886
Support equipment and facilities 506,427 506,427 151,963
Prepaid oil and gas leases 428,794 456,219 395,973
Less accumulated depreciation, depletion,
amortization and impairment (4,537,051) (3,911,939) (61,611)
----------- ----------- -----------
TOTAL OIL AND GAS PROPERTIES 3,868,950 4,142,878 2,113,794
----------- ----------- -----------
PROPERTY AND EQUIPMENT
Furniture and equipment 4,785 4,785 1,660
Less accumulated depreciation (2,118) (1,949) (1,451)
----------- ----------- -----------
TOTAL PROPERTY AND EQUIPMENT 2,668 2,836 209
----------- ----------- -----------
OTHER ASSETS
Investments 938,955 238,088 394,454
Mineral properties available for sale 197,406 197,406 246,757
----------- ----------- -----------
TOTAL OTHER ASSETS 1,136,361 435,494 641,211
----------- ----------- -----------
TOTAL ASSETS $ 6,475,581 $ 6,888,163 $ 6,482,077
=========== =========== ===========
1
CADENCE RESOURCES CORPORATION
BALANCE SHEETS
December 31, September 30,
2004 ----------------------------
(Unaudited) 2004 2003
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 681,004 $ 358,588 $ 584,866
Revenue distribution payable 30,000 32,387 68,929
Payable to related party 300,000 300,000 550,000
Accrued dividends payable 8,996 -- --
Accrued compensation 15,000 -- 94,920
Interest payable 152,466 4,781 15,752
Notes payable -- -- 460,000
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 1,187,466 695,756 1,774,467
------------ ------------ ------------
LONG-TERM LIABILITIES
Secured notes, net of discount 5,205,294 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,
12,892,327, 12,892,327 and 12,512,827 shares issued and
outstanding,
respectively 128,923 128,923 125,128
Additional paid-in capital 18,986,462 18,995,458 18,343,422
Stock options 1,642,614 1,642,614 1,210,704
Stock warrants 794,512 794,512 51,375
Accumulated deficit (21,077,032) (20,035,605) (14,863,687)
Accumulated other comprehensive income (loss) (452,583) (464,567) (219,257)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (22,896) 1,061,335 4,647,685
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 6,475,581 $ 6,888,163 $ 6,482,077
============ ============ ============
See accompanying condensed notes to interim financial statements.
2
CADENCE RESOURCES CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended
December 31,
--------------------------------------------
2004 2003 2002
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
REVENUES
Oil and gas sales net of production taxes $ 611,920 $ 559,384 $ 33,376
------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation, depletion and amortization 625,281 233,111 8,635
Officers' and directors' compensation 70,499 55,000 45,000
Consulting 56,633 58,413 78,230
Professional fees 142,086 290,047 8,035
Oil and gas lease expenses 182,395 109,386 20,352
Oil and gas consulting -- 15,000 --
Exploration & drilling 156,244 39,479 --
Lease operating expenses 28,367 1,248 36,516
Other general and administrative 212,103 134,980 36,203
------------ ------------ ------------
Total expenses 1,473,609 936,664 232,971
------------ ------------ ------------
OPERATING LOSS (861,689) (377,280) (199,595)
------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income 8,827 3,980 80
Interest expense (148,297) (2,181) (1,239)
Partnership loss -- -- (8,309)
Loss on sale of investments (40,267) -- (34,623)
------------ ------------ ------------
Total other income (expense) (179,737) 1,799 (44,091)
------------ ------------ ------------
LOSS BEFORE TAXES (1,041,426) (375,481) (243,686)
INCOME TAX BENEFIT -- -- --
------------ ------------ ------------
NET LOSS (1,041,426) (375,481) (243,686)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) on market value of
investments 11,984 (107,293) 8,677
------------ ------------ ------------
COMPREHENSIVE LOSS $ (1,029,442) $ (482,774) $ (235,009)
============ ============ ============
NET LOSS PER COMMON SHARE
BASIC AND DILUTED $ (0.08) $ (0.03) $ (0.03)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 12,892,327 12,602,175 8,411,936
============ ============ ============
See accompanying condensed notes to interim financial statements.
3
CADENCE RESOURCES CORPORATION
STATEMENTS OF CASH FLOWS
Three Months Ended
December 31,
------------------------------------------
2004 2003 2002
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,041,426) $ (375,481) $ (243,686)
Adjustments to reconcile net loss to net cash
used by operating activities:
Loss (gain) on sale of investments 40,267 -- 34,623
Amortization of deferred financing fees 134,147 -- --
Depreciation, depletion and amortization 625,281 233,111 8,635
Issuance of common stock for services -- 25,000 10,800
Investment given for services -- -- 7,200
Changes in assets and liabilities:
Oil & gas revenue receivable (308,954) (293,259) 3,275
Receivable from working interest owners -- -- 2,601
Note receivable (15,000) -- (18,994)
Other current assets -- (15,000) 1
Prepaid expenses (970) (9,518) 7,500
Deferred working interest -- -- 12,826
Accounts payable 322,416 137,029 31,494
Interest payable 147,685 -- --
Revenue distribution payable (2,387) 19,677 (4,140)
Accrued expenses 15,000 (99,150) 30,000
----------- ----------- -----------
Net cash provided (used) by operating activities (83,941) (377,591) (117,865)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (772,355) (6,250) (5,860)
Sale of investments 42,268 -- 4,389
Purchase and development of proved and
unproved properties (326,610) (1,598,752) (18,005)
Purchase of oil and gas leases -- (21,615) (47,500)
Purchase of fixed assets (23,638) (226,004) (4,466)
----------- ----------- -----------
Net cash provided (used) by investing activities (1,080,335) (1,852,621) (71,442)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable -- (360,000) --
Payments on payables to related parties -- (550,000) 50,000
Issuance of preferred stock for cash -- -- 30,000
Issuance of common stock and warrants for cash -- 275,000 110,000
----------- ----------- -----------
Net cash provided by financing activities -- (635,000) 190,000
----------- ----------- -----------
Net increase (decrease) in cash $(1,164,276) $(2,865,212) $ 693
----------- ----------- -----------
See accompanying condensed notes to interim financial statements.
4
CADENCE RESOURCES CORPORATION
STATEMENTS OF CASH FLOWS
Three Months Ended
December 31,
-----------------------------------------
2004 2003 2002
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
Net increase (decrease) in cash (balance forward) $(1,164,276) $(2,865,212) $ 693
Cash, beginning of period 1,922,993 3,619,345 40,011
----------- ----------- -----------
Cash, end of period $ 758,717 $ 754,133 $ 40,704
=========== =========== ===========
Supplemental cash flow disclosure:
Income taxes paid $ -- $ -- $ --
Interest paid $ -- $ -- $ --
Non-cash investing and financing activities:
Common stock issued for services rendered $ -- $ 25,000 $ 10,800
Investment given for consulting services $ -- $ -- $ 7,200
Accrued redeemable preferred stock dividends $ 8,996 $ -- $ --
See accompanying condensed notes to interim financial statements.
5
CADENCE RESOURCES CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 1 - BASIS OF PRESENTATION
The foregoing unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Regulation S-B as
promulgated by the Securities and Exchange Commission ("SEC"). Accordingly,
these financial statements do not include all of the disclosures required by
generally accepted accounting principles in the United States of America for
complete financial statements. These unaudited interim financial statements
should be read in conjunction with the audited financial statements for the year
ended September 30, 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 three month period ended December 31, 2004 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 2005.
NOTE 2 - STOCKHOLDERS' EQUITY
During the three months ended December 31, 2004, no shares of common stock were
issued.
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 December
31, 2004, $40,993 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,
6
CADENCE RESOURCES CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2004
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 December 31, 2004, $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.
NOTE 4 - REDEEMABLE PREFERRED STOCK
On April 23, 2001 the Company's board of directors authorized 20,000,000 shares
of preferred stock with a par value of $0.01 per share and rights and
preferences to be determined. No shares were issued and outstanding as of
September 30, 2002. During the year ended September 30, 2003, the Company issued
34,950 shares of its preferred stock to investors at prices ranging from $1.50
to $2.00 per share for aggregate proceeds of $59,925. The shares are convertible
to common stock at a price of $1.50 per share under certain terms and
conditions. At September 30, 2003 the shares carried a preferred dividend of 15%
per annum. 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 December 31, 2004, the Company had $8,996 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
7
CADENCE RESOURCES CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2004
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 shall 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 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.
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.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our
financial statements, together with the notes to those statements, included
elsewhere in this report. The following discussion contains forward-looking
statements that involve risks, uncertainties, and assumptions such as statements
of our plans, objectives, expectations, and intentions. Our actual results may
differ materially from those discussed in these forward-looking statements
because of the risks and uncertainties inherent in future events.
OVERVIEW
We were formed in 1969 as Royal Resources, Inc. to acquire and develop
mineral properties and we pursued mining operations under several different
names until mid-2001 when we changed our name to Cadence Resources Corporation,
split our stock on a 1-for-20 reverse basis, and changed our business to
acquiring, exploring and developing oil and gas properties. The current
management of Cadence, Mr. Crosby and Mr. Ryan, assumed control of Cadence in
1996, in connection with the acquisition of Cadence by an entity they
controlled. Although the management of Cadence has been reduced in size since
1996, our key executives, Mr. Crosby and Mr. Ryan, have remained with Cadence.
Following a corporate reorganization in May 2001 to shift our focus to
oil and gas exploration, we began to lease oil and gas properties in Louisiana
in the fall of 2001, and in both Texas and Louisiana in fiscal 2002, but did not
produce commercial quantities of oil and gas until the fourth quarter of the
fiscal year ended September 30, 2002, when production began from our properties
in Texas. During the fourth quarter of 2003, we began to produce gas from our
properties in Louisiana that we are exploring together with Bridas Energy USA,
Inc.
As a result of our change from a mineral exploration company to an oil
and gas exploration company, in 2001 our Board determined to write-off and
dispose of our inventory of mineral properties to the greatest extent possible.
Because mineral properties at the exploration stage have limited marketability,
and because the management of Cadence does not have the extensive time it would
take to attempt to reach the limited number of buyers for our properties, we
have not been successful at disposing of our properties in outright arms' length
sales, but have chosen to write-down the carrying value of a substantial
majority of our properties to zero, or to sell the properties to other entities
controlled by the management of Cadence in non-arms' length transactions.
RECENT DEVELOPMENTS
On November 19, 2004, Cadence issued a press release announcing that
Cadence signed a letter of intent establishing a 60 day exclusivity period in
order to conduct due diligence and negotiate terms for acquisition of all of the
outstanding shares of Aurora Energy, Ltd., a privately held company based in
Traverse City, Michigan in exchange for shares of common stock of Cadence. On
January 31, 2005, Cadence, Aurora Acquisition Corp., a wholly owned subsidiary
of Cadence, and Aurora entered into a definitive merger agreement providing for
the acquisition of all of the outstanding shares and options of Aurora by
Cadence. Upon consummation of the merger, (i) Cadence will issue two shares of
its common stock for each share of Aurora common stock, (ii) all options and
warrants to purchase Aurora common stock shall become options or warrants to
receive shares of Cadence common stock, and (iii) Aurora will become a wholly
owned subsidiary of Cadence.
On January 31, 2005, Cadence entered into a purchase agreement (the
"Purchase Agreement") with twenty two accredited investors (each of whom is
listed on the schedules of purchasers to the purchase agreement) pursuant to
which the investors purchased 7,810,000 shares of common stock and warrants to
purchase 14,050,000 shares of common stock at an exercise price of $1.75 per
share for $9,762,500. The Nathan A. Low Family Trust dated 4/12/96 and Bear
Stearns as Custodian for Nathan A. Low Roth IRA, both of which are controlled by
Nathan Low, a greater than 10% holder of Cadence's common stock, invested in
Cadence pursuant to the Purchase Agreement. Sunrise Securities Corporation, an
9
affiliate of Nathan Low, will receive a commission equal to $926,250 and a
warrant to purchase 2,186,000 shares of Cadence's common stock for services
rendered as the placement agent in the transaction.
CAPITAL RESOURCES AND LIQUIDITY
From our reorganization in mid-2001 until the date of this report, we
have funded our operations principally through the private sale of equity
securities, borrowings from officers, directors and shareholders, and borrowings
from third party individuals and we expect this to continue to be the case for
at least the remainder of 2005. In February 2004, we borrowed $410,000 in short
term notes from three directors of Cadence and a company of which two of
Cadence's officers and directors are also affiliated. These notes bore interest
at the rate of 12% per annum, and were repaid in full in April, 2004. On April
2, 2004, we issued $6,000,000 of senior secured notes to seven individual
investors. These notes are secured by substantially all of our assets are due
and payable on March 31, 2006 and bear interest at the rate of 10% per annum,
payable quarterly. Pre-payments of 10% of the principal are required on
September 30, 2005 and December 31, 2005 if the weighted average price of our
common stock is less than $5 per share. Each $50,000 principal amount of the
notes was accompanied by warrants to purchase 6,375 shares of our common stock,
or an aggregate of 765,000 shares, at a price of $4.00 per share. The warrants
expire on April 2, 2007. Subsequent to the end of this reporting period these
secured notes were repaid in full.
We realized net proceeds of $941,900 from the sale of our common stock
and warrants during fiscal year 2002, net proceeds of approximately $4,830,000
from the sale of our common stock, preferred stock and warrants during the year
ended September 30, 2003. Additionally, we received net proceeds of $288,500
from the sale of common stock and exercise of warrants during the year ended
September 30, 2004.
In the periods ended September 30, 2002, 2003 and 2004, we received
approximately $86,000, $16,000 and $14,000 respectively from the sale of
investments in various public companies. The sales of these investments were
made to fund our working capital needs. Prior to our refocus upon the
exploration and development of oil and gas properties, we would from time to
time make investments in public companies. These investments were passive in
nature and were generally relatively small. Given our focus on oil and gas,
future investments of this nature are likely to be limited to opportunities that
are of some strategic value to our core oil and gas business and are likely to
be less passive in nature.
In our 2001 fiscal year, we borrowed $125,000 from Howard Crosby, (an
officer and shareholder of Cadence) and $10,000 from Dotson Exploration, a
related party which is 48% owned by Messrs. Crosby and Ryan. These amounts were
repaid in fiscal 2002 for cash of $45,000, and 300,000 shares of our common
stock. In fiscal 2002, we had no net borrowings, and in the year ended September
30, 2003, we had total borrowings of $600,000, of which $140,000 was repaid in
cash. As of September 30, 2003, $50,000 was owed to Nathan Low Family Trust, a
shareholder of Cadence, $85,000 was owed to Mr. Crosby, $25,000 was owed to
Kevin Stulp and $300,000 was owed to CGT Management Ltd. All of such amounts
were repaid by in October of 2003. During the year ended September 30, 2004, we
borrowed $410,000 in short-term notes from officers, directors, and other
insiders of Cadence, as well as $1,000,000 of non-interest bearing short-term
notes received in late March 2004. These liabilities were repaid in full in
April 2004.
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. Furthermore, given our
capital constraints, we have been unable to employ full time technical and
professional people. Consequently, we have obtained services largely on a
consulting basis. We spent approximately $934,000 in fiscal 2002, $591,000 in
fiscal 2003 and $424,873 in fiscal 2004, for consulting services in various
disciplines.
During fiscal 2002, 2003 and 2004, we purchased fixed assets in the
amounts of $172,000, $183,000 and $980,000, respectively. These expenditures
10
were primarily related to the purchase of well equipment, including pipelines,
tanks, casings and pumping units.
As of December 31, 2004, we had cash and cash equivalents of
approximately $958,105. We anticipate funding most of our near-term operating
and administrative overhead out of revenues from the sale of our Texas oil
production and Louisiana and Michigan gas production.
RESULTS OF OPERATIONS
For the periods ended December 31, 2004 and 2003
Revenues
During the quarter ended December 31, 2004, revenues from the sale of oil and
gas totaled approximately $611,920, primarily from production from our wells in
Texas, Louisiana and Michigan. This revenue came from the sale of 3,744 net
barrels of oil at an average price of $47.27 from our wells in Texas and
approximately 68,095 mcf of natural gas at an average price of $5.74 per mcf
from our wells in Louisiana and Michigan.
Revenues from the sale of oil and gas totaling $559,384 were received in the
comparable period of fiscal 2003. Of our revenue during the quarter ended
December 31, 2003, approximately $243,000 came from the sale of oil produced
from our Texas properties at an average price of $29.96 per barrel. Revenues of
approximately $296,000 came from the sale of natural gas produced from our
Louisiana properties at an average price of $5.07 per mcf. During the 2003
quarter we also received our first revenues of approximately $20,000 from our
gas production in Michigan.
Expenses
Our expenses during this reporting period for 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.
The following table is a comparison of Cadence's two general categories
of expenses for the years ended September 30 2004 and 2003, and the percentages
each of these categories comprise of total expenses:
QUARTER ENDED DECEMBER 31,
------------------------------------------
% of 2004 % of 2003
Total Total
2004 Expenses 2003 Expenses
---------- -------- ---------- -------
Corporate and Administrative Overhead $ 481,321 32.7% $ 538,440 57.5%
Expenses from Oil and Gas Operations $ 992,287 67.3% $ 398,224 42.5%
---------- ----- ---------- -----
Total Expenses $1,473,608 100.0% $ 936,664 100.0%
========== ===== ========== =====
When comparing the same reporting periods on a year over year basis,
Cadence's general and administrative expenses increased from 2003 to 2004 by
approximately $77,123, principally because of increased travel and other
expenses associated with additional projects undertaken by the Company in Kansas
and an increased pace of operations in Louisiana. However, professional fees
decreased by $147,961 due to less legal and accounting work during 2004 as
compared with the same period in 2003 when the Company was preparing and filing
a registration statement with the S.E.C. Consulting fees paid out were uniform
when compared over the same reporting periods, and officer and director
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compensation rose by approximately $15,000 reflecting the addition of additional
personnel joining the Company due to the increased tempo of operations.
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.
QUARTERLY PERIOD ENDED DECEMBER 31,
---------------------------------------------
2004 2003
-------------------- ---------------------
% of Total % of Total
2004 Expenses 2003 Expenses
-------- ---------- -------- ---------
Exploration and drilling $156,244 15.7% $ 39,479 9.9%
Depreciation, depletion and amortization $625,281 63.0% $233,111 58.5%
Oil and gas lease expenses $182,395 18.4% $109,386 27.5%
Oil and gas lease operating expenses $ 28,367 2.9% $ 1,248 0.3%
Oil and gas consulting $ 0 $ 15,000 3.8%
-------- --------- -------- ---------
Total Expenses from oil and gas operations $992,287 100.0% $398,224 100.0%
======== ========= ======== =========
Although exploration and drilling expenses and oil and gas lease
expenses increased by $594,063 from the 2003 reporting period, by far the
largest increase in oil and gas related expenses came in the category of
depreciation, depletion and amortization, which increased by $392,170 from the
prior year, but as a percentage, only increased from 58.5% to 63.0% of the
total. This was due primarily to the decision by Cadence to impair the carrying
value of three of our gas wells in Louisiana.
RECENT ACCOUNTING PRONOUNCEMENTS
There have been no recently issued accounting pronouncements which we expect to
have a material effect on our consolidated financial position or results of
operations.
ITEM 3. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures. Within the 90 days prior
to the filing of this Quarterly Report on Form 10-Q (the "Evaluation Date"), the
Company carried out an evaluation, under the supervision and with the
participation of its management, including its Chief Executive Officer and its
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Exchange Act). Based upon that evaluation, the Company's
Chief Executive Officer and its Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective to ensure that
material information required to be disclosed by it in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission rules and forms. It should be noted, however, that the design of any
system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions,
regardless of how remote.
(b) Changes in internal controls. The Company evaluates its internal controls
for financial reporting purposes on a regular basis. Based upon the results of
these evaluations, the Company considers what revisions, improvements and/or
corrective actions are necessary in order to ensure that its internal controls
are effective. The Company is currently in the process of improving internal
controls relating to transmittal of its financial information to its accountants
in a more timely manner. To achieve this goal, the Company is implementing on a
company-wide basis a computerized system which will automate the process of
collection of financial data.
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The Company has not made any other significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their last evaluation.
FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains forward-looking statements that involve substantial
risks and uncertainties. Investors and prospective investors in our common stock
can identify these statements by forward-looking words such as "may," "will,"
"expect," "intend," "anticipate," believe," "estimate," "continue" and other
similar words. Statements that contain these words should be read carefully
because they discuss our future expectations, make projections of our future
results of operations or of our financial condition or state other
"forward-looking" information.
We believe that it is important to communicate our future expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or control. The factors listed in the section captioned
"Management's Discussion and Analysis or Plan of Operation," as well as any
cautionary language in this Form 10-QSB/A, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Investors
and prospective investors in our common stock should be aware that the
occurrence of the events described in the "Management's Discussion and Analysis
or Plan of Operation" section and elsewhere in this Form 10-QSB could have a
material adverse effect on our business, operating results and financial
condition.
PART II
ITEM 1. LEGAL PROCEEDINGS.
The management of the Company is unaware of any other pending or threatened
legal proceedings involving the Company at this time.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
We had 12,892,327 shares of common stock issued and outstanding as of December
31, 2004.
Common Stock
- -------------
Options
- -------
None issued during the reporting period.
Warrants
- --------
None issued during the reporting period.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
- -------------
(b) Reports on Form 8-K.
8-K Current report, items 8.01 2004-11-23 Press release announcing the
signing of a letter of letter of
intent establishing a 60 day
exclusivity period during which
the Company would negotiate the
terms of an acquisition of
Aurora Energy, Ltd. of Traverse
City, MI.
8-K Current report, items 7.01 2004-10-18 Press release announcing the and
9.01 successful production of natural gas from the Billingsley Well in
De Soto Parish, LA.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CADENCE RESOURCES CORPORATION
Dated: Feb. 18, 2005 By: /s/ Howard Crosby
-------------------------
Howard Crosby
President and Chief Executive Officer
(Principal Executive Officer)
Dated: Feb. 18, 2005 By: /s/ John P. Ryan
-------------------------
John P. Ryan
Chief Financial Officer
14