TROUTMAN SANDERS LLP
ATTORNEYS AT LAW
A LIMITED LIABILITY PARTNERSHIP
THE CHRYSLER BUILDING
405 LEXINGTON AVENUE
NEW YORK, NEW YORK 10174
www.troutmansanders.com
TELEPHONE: 212-704-6000
FACSIMILE: 212-704-6288
Timothy I. Kahler Direct Dial:212-704-6169
timothy.kahler@troutmansanders.com Fax: 212-704-5948
February 6, 2006
Via EDGAR Correspondence
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549-7010
Attn: Tangela S. Richter, Branch Chief
Mail Stop 7010
Re: Post-Effective Amendment No. 3 to Form SB-2
For Cadence Resources Corporation; File No. 333-110099
Dear Ms. Richter:
On behalf of Cadence Resources Corporation we are filing herewith
Post-Effective Amendment No. 3 to Cadence's registration statement on Form SB-2,
File No. 333-110099. This amendment incorporates changes made in response to
your letter dated January 25, 2006. Cadence has asked that we describe in this
letter its responses to the comments contained in your January 25, 2006 letter
with respect to the December 30, 2005 filing of post-effective amendment No. 2
to the registration statement. The comment numbers below in this letter
correspond to the comment numbers set forth in the comment letter. To facilitate
the staff's review, the text of each comment is set forth below and, where
appropriate, the descriptions of the responses are keyed to the page numbers of
the amendment.
For the staff's convenience, we will also be delivering to the Commission,
by express courier, paper copies of the amendment marked to show changes since
the December 30, 2005 filing of post-effective amendment No. 2.
Cadence is concurrently filing amendments to its registration statement on
Form SB-2 (SEC file No. 333-130769) and its annual report on Form 10-KSB for the
fiscal year ended September 30, 2005. In each of those filings Cadence is where
appropriate making changes that are parallel to the changes being made to the
registration statement on File No. 333-110099 being filed herewith and as
described below in this letter.
United States Securities and Exchange Commission February 6, 2006
Division of Corporation Finance
Tangela S. Richter, Branch Chief
Page 2
Comment No. 1: Please note that we will not be in a position to declare
either the pending post-effective amendment or the registration statement
effective until all comments have been addressed.
Response to Comment No. 1: Cadence believes that all of the comments have
been appropriately addressed either through additional disclosures in the
document filed herewith or as otherwise described in this letter. If the Staff
concurs, Cadence would therefore appreciate the Staff's assistance in making the
two registration statements effective at the earliest possible time.
Comment No. 2: We note that you did not include all applicable disclosures
required under SFAS 69 in your above pending registration statement on Form
SB-2. Please include such disclosure. Also, we note that this disclosure is
missing from your registration statement on Form S-4 that was declared effective
on September 22, 2005. In this regard, please advise us of your views on whether
this prospectus meets the requirements of Section 10 of the Securities Act. We
may have further comment.
Response to Comment No. 2: The applicable disclosures required under SFAS
69 have been included as supplemental, unaudited financial information beginning
on page F-30 of the amendment filed herewith.
For several reasons, Cadence believes that the omission of this
information from its registration statement on Form S-4 and the prospectus
contained therein does not disqualify that prospectus as a prospectus that meets
the requirements of Section 10 of the Securities Act of 1933.
o First, the SFAS 69 information that was omitted from the disclosures
concerning Cadence's oil and gas properties represents a relatively
small part of a thorough disclosure document. Cadence does not
dismiss the possible importance of the information to any particular
reader of the prospectus. However, in the overall context of a
prospectus containing substantial disclosures about the Cadence and
Aurora financial condition, results of operations, businesses,
properties, risks and management, Cadence believes that the absence
of the disclosures in question does not render the prospectus
materially misleading by any standard.
o Second, substantial information concerning Cadence's oil and gas
properties and reserves are included in the management discussion
and analysis section of the registration statement, as well as in
the notes to the financial statements included therein.
United States Securities and Exchange Commission February 6, 2006
Division of Corporation Finance
Tangela S. Richter, Branch Chief
Page 3
o Third, the registration statement and prospectus related to the
combination of Cadence with Aurora Energy, Ltd. Because Aurora was a
substantially larger company than Cadence by every relevant measure,
information pertaining to Cadence is less material than the material
pertaining to Aurora. This is especially true when comparing the oil
and gas properties controlled by the two companies. For example, as
shown in the Form S-4 registration statement and its prospectus:
|X| Cadence's proved oil and gas reserves had an estimated
undiscounted future net income of $3,346,900, while the
comparable amount for Aurora was $128,549,960, about
thirty-eight times greater than the amount for Cadence.
|X| Cadence had a total of 10,065 gross acres of oil and gas
properties, while the comparable amount of acreage for Aurora
was 416,335, about forty-one times greater than the acreage
for Cadence.
o Fourth, as discussed in the S-4, a major reason Aurora's board of
Directors decided to merge with Cadence was the improved access to
financial markets that Aurora anticipated due to being part of a
public company. This improved access to capital was important to
Aurora because so much of its acreage is undeveloped, and in order
to develop that acreage it will require additional financial
resources. Thus, Cadence's oil and gas reserves, while not
irrelevant, were not necessarily overriding factors in the decision
to acquire Cadence.
o Fifth, the acquisition of Aurora by Cadence was pursuant to a
negotiated, voluntary merger agreement. In the process of
negotiating the merger, each side conducted its due diligence and in
that connection Aurora and its Board of Directors obtained all the
information they believed they needed to evaluate Cadence and its
operations, assets and obligations.
o Sixth, contemporaneous with the execution of the merger agreement
with Cadence, Aurora completed a private placement. The private
placement investors required, as a condition to their investment,
that Aurora shareholders with the power to vote approximately 44% of
the outstanding Aurora shares sign an agreement to vote in favor of
the merger with Cadence. An additional 18% of the outstanding Aurora
shares were held by investors in the private placement who were not
signatories to the voting agreement. Thus, as a practical matter, a
favorable vote on the merger with Cadence was assured, because the
private placement investors intended to vote in favor of the merger.
United States Securities and Exchange Commission February 6, 2006
Division of Corporation Finance
Tangela S. Richter, Branch Chief
Page 4
Comment No. 3: Include the undertakings required by Item 512 of Regulation
S-K.
Response to Comment No. 3: The undertaking specified by paragraph (g)(ii)
of Item 512 of Regulation S-B has been added to Part II of the registration
statement attached hereto.
Comment No. 4: Identify the person who is signing as your principal
accounting officer.
Response to Comment No. 4: Lorraine M. King's dual capacities as principal
financial officer and principal accounting officer of Cadence have been duly
reflected on the signature page to the registration statement attached hereto.
Comment No. 5: To the extent applicable, please make all parallel changes
to your Form SB-2 filed on December 29, 2005.
Response to Comment No. 5: As noted above, Cadence is concurrently filing
amendments to the Form SB-2, File No. 333-110099, and to its Form 10-KSB, and is
where appropriate including parallel changes in each of those filings.
Comment No. 6: We note you presented the "Present Value" of your proved
reserves (or what is more commonly known as PV-10) as of September 30, 2005,
which differs from the standardized measure, as calculated and presented in
accordance with SFAS 69. Please be advised that this disclosure is considered a
non-GAAP measure. As such, you must remove the PV-10 disclosure or provide all
disclosures required by Item 10(h) of Regulation S-B.
Response to Comment No. 6: This information has been deleted.
United States Securities and Exchange Commission February 6, 2006
Division of Corporation Finance
Tangela S. Richter, Branch Chief
Page 5
Comment No. 7: Please provide an introductory paragraph to your unaudited
pro forma information. In your disclosure, please address all required elements
described in paragraph (b)(2) of Rule 11-02 of Regulation S-X.
Response to Comment No. 7: Appropriate introductory paragraphs have been
provided. Please refer to page 42 (approximately) of the prospectus contained
within the amendment to the registration statement filed herewith.
Comment No. 8: We note you purchased a commercial condominium unit in the
Copper Ridge Professional Center Five on September 19, 2005. Please tell us
where you reflected this purchase in the Statements of Cash Flows. Expand your
footnote and MD&A disclosures to provide additional details on the purchase
including the purchase price and any future obligations.
Response to Comment No. 8: Although the promissory note for this purchase
was signed on September 19, 2005, the closing of the transaction, and the
funding of the principal amount of that promissory note, occurred on October 4,
2006. This corrected date has been appropriately reflected at about pages 40 and
41 of the prospectus contained within the amendment to the registration
statement filed herewith. Because the transaction occurred after the September
30, 2005 date of the financial statements, the initial cash payment and the
promissory note associated with the purchase are not reflected in the financial
statements. However, a brief disclosure of the principal financial aspects of
the transaction has been added to the management discussion and analysis
relating to Aurora under the "Capital Resources and Liquidity" caption at about
pages 53 and 54 of the prospectus contained within the amendment to the
registration statement filed herewith.
Comment No. 9: Please provide disclosures of your critical accounting
policies and estimates. In your disclosure, please address the material
implications of the uncertainties that are associated with the methods,
assumptions, and estimates underlying your critical accounting estimates.
Specifically, you should provide the following:
(a) An analysis of the uncertainties involved in applying
the principle and the variability that is reasonably likely to
result from its application.
(b) An analysis of how you arrived at the measure and how
accurate the estimate or underlying assumptions have been in the
past.
(c) An analysis of your specific sensitivity to change
based on outcomes that are reasonably likely to occur and have a
material effect.
Please refer to FRC Section 501.14 for further guidance.
United States Securities and Exchange Commission February 6, 2006
Division of Corporation Finance
Tangela S. Richter, Branch Chief
Page 6
Response to Comment No. 9: Disclosure of critical accounting policies and
estimates has been provided with respect to Cadence at about page 54 of the
prospectus contained within the amendment to the registration statement filed
herewith.
Comment No. 10: We note you presented your "loss on disposition and
impairment of assets" as a component of "Other income (expense)" line item which
is excluded from income from operations. Please include your loss on disposition
and impairment of assets in your measure of income from operations, pursuant to
SFAS 144, paragraph 45.
Response to Comment No. 10: The requested change to the Cadence Statements
of Operations and Comprehensive Loss has been made. Please refer to page F-5 of
the prospectus contained within the amendment to the registration statement
filed herewith.
Comment No. 11: We note your securities are classified as available for
sale securities which are recorded at fair value on the balance sheet as
investments. Under SPAS 115, paragraph 3, the use of fair value accounting for
equity securities is generally limited to those that have readily determinable
fair values. Please tell us why you believe your investment in Aurora Energy, a
non-public company should be classified as an available for sale security and
recorded at fair value. Additionally, given the significance of the investment
in Aurora Energy, your discussion of investment securities appearing in this
footnote should include details on Aurora Energy.
Response to Comment No. 11: As discussed with Mr. Yong Choi of the Staff,
Cadence has revised its financial statement presentation and disclosure with
respect to this investment in Aurora stock by including it as a separate line
item on the balance sheet (see page F-3) and by adding an explanatory paragraph
regarding this investment at the end of note 5 to the Cadence financial
statements (see page F-18).
Comment No. 12: Please tell us and disclose how you accounted for the
500,000 stock options that were expired or forfeited during the year ended
September 30, 2005.
Response to Comment No. 12: The value attributable to these options
($464,310) has been transferred from the stock options line item to the
additional paid-in-capital line item in the stockholders' equity section of the
balance sheet. The corresponding line is also shown in the statement of
stockholders equity. Also, additional disclosure has been added to note 8 to the
Cadence financial statements. (See page F-20.)
United States Securities and Exchange Commission February 6, 2006
Division of Corporation Finance
Tangela S. Richter, Branch Chief
Page 7
Comment No. 13: Please provide all applicable disclosures required under
SFAS 69.
Response to Comment No. 13: As noted above, all applicable disclosures
required under SFAS 69 have been provided.
Comment No. 14: Item 304(a)(l)(ii) of Regulation S-K requires a statement
whether the accountant's report on the financial statements for either of the
past two years contained an adverse opinion or a disclaimer of opinion or was
qualified or modified as to uncertainty, audit scope or accounting principles;
and a description of the nature of each such adverse opinion, disclaimer of
opinion, modification or qualification. This would include disclosure of
uncertainty regarding the ability to continue as a going concern in the
accountant's report. Please revise as necessary.
Response to Comment No. 14: On January 30, 2006, Cadence's legal counsel
Tim Kahler discussed this comment with Mr. Ryan Milne of the Division of
Corporation Finance. As a result of that discussion, Mr. Milne has concluded
that no changes are necessary to Cadence's Form 8-K, as amended, or the related
accountants' letter, with respect to Comment Nos. 14, 15 and 16.
Comment No. 15: Your disclosure should also specifically state whether
during the registrant's two most recent fiscal years and any subsequent interim
period through the date of resignation, declination or dismissal there were any
disagreements with the former accountant on any mailer of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreement(s), if not. resolved to the satisfaction of the former
accountant, would have caused it to make reference to the subject mailer of the
disagreement(s) in connection with its reports. In the event of disagreement(s)
and/or reportable event(s), provide the specific disclosures required by Item
304(a)(l)(iv) and (v) of Regulation S-K.
Response to Comment No. 15: Please refer to the above response to comment
No. 14.
Comment No. 16: To the extent that you make changes to your Form 8-K to
comply with our comments, please obtain and file an updated Exhibit 16 letter
from the former accountants stating whether the accountant agrees with the
statements made in your revised Form 8-K.
Response to Comment No. 16: Please refer to the above response to comment
No. 14.
United States Securities and Exchange Commission February 6, 2006
Division of Corporation Finance
Tangela S. Richter, Branch Chief
Page 8
Cadence desires to make its registration statements effective as soon as
possible. Accordingly, please contact the undersigned at the earliest
opportunity to discuss any further comments or to coordinate Cadence's
submission of requests for acceleration of effectiveness. Thank you for your
assistance in this matter.
Very truly yours,
/s/Timothy I. Kahler
--------------------------------------
Timothy I. Kahler
cc: Mr. William W. Deneau