UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 6, 2006
CADENCE RESOURCES CORPORATION
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(Exact name of registrant as specified in its charter)
UTAH 0-25170 87-0306609
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4110 Copper Ridge Drive, Suite 100, Traverse City, MI 49684
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (231) 941-0073
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(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.01 Completion of Acquisition or Disposition of Assets.
On January 31, 2006, Aurora Antrim North, L.L.C. ("North"), a wholly owned
borrowing subsidiary of Aurora Energy, Ltd ("Aurora"), which is a wholly owned
subsidiary of Cadence Resources Corporation ("the Company") closed its purchase
of the oil and gas leases, working interests, and interests in related pipelines
and production facilities located in the Hudson Township area of the Michigan
Antrim gas play, commonly known as the "Hudson Project", previously disclosed in
a Form 8-K filing dated January 20, 2006. The Hudson Project includes interests
in the Hudson 34, Hudson SW, Hudson NE, Hudson NW, Hudson West, Hudson 13,
Hudson 19, Hudson IV, Boyne Valley and Chandler projects. Also included in the
assets purchased is a membership interest in the Hudson Pipeline and Processing
Company, L.L.C. These assets are referred to in the attached financial
statements and pro forma financial statements as the "Hudson Properties".
As a result of closing on the purchase of the Hudson Properties, the Company
holds from 49% to 96% working interests in many fields, and will otherwise
generally control most of the gas producing assets in this area. The Hudson
Properties were purchased from NorAm Energy, L.L.C., Provins Family, L.L.C., and
O.I.L. Energy Corp (collectively "OIL"). The purchase price paid was
approximately $27,500,000. Aurora has replaced OIL as the operator of those
properties in the Hudson Properties that were previously operated by OIL.
Neither the Company nor any of its subsidiaries has a material relationship with
OIL other than their previous relationship as joint venture partners in
development of the assets in question.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation Under an
Off-Balance Sheet Arrangement of a Registrant.
On January 31, 2006, North also closed on a line of credit facility with BNP
Paribas ("BNP"). At closing, North was given an initial credit availability of
$40 million. Under the BNP documents, as the assets in North become proved, the
credit availability will be increased up to a $100 million maximum. However,
under an Intercreditor and Subordination Agreement between BNP and TCW Energy,
et al ("TCW"), the credit availability from BNP is limited to $50 million unless
TCW consents to an increase in the credit availability or TCW is paid off.
The credit facility that North previously had with TCW for up to $50 million
remains in place. However, TCW agreed to accept a subordination of its position
to a second place security interest behind BNP with respect to all of the assets
pledged as collateral except for the membership interest in North that is owned
by Aurora. In addition to a pledge of North's Michigan properties, Aurora and
the Company were required to guarantee North's payment of the BNP credit
facility. In connection with its guarantee, the Company was required to pledge
its stock in Aurora.
The BNP credit facility allows North to select from either of two interest
rates, (a) prime, or (b) LIBOR plus 1.25-2.0%, depending upon how much of the
credit availability has been advanced. Interest payments on prime loans is paid
quarterly in arrears on the last day of March, June, September and December.
Interest payments on LIBOR loans is paid in arrears on the last date of the term
of the LIBOR period selected, but no less frequently than every three months.
The BNP credit facility matures on the earlier of January 31, 2010 or 91 days
prior to the maturity of the TCW Second Lien Notes, which are currently due on
September 30, 2009 (assuming the TCW Second Lien Notes have not been prepaid).
Upon maturity, Aurora is required to pay all outstanding principal and interest
to BNP.
Prime notes issued to BNP may be prepaid at any time without any prepayment
penalty. LIBOR notes issued to BNP may be prepaid at any time without any
prepayment penalty, except that BNP is entitled to be compensated for any loss
or expense attributed to the early LIBOR note prepayment. North is required to
provide BNP with a semi-annual engineering report which may result in an
increase or decrease in credit availability. North is also required to pay to
BNP quarterly commitment fees of 0.375% calculated on the unused amount of the
credit availability.
The total principal amount outstanding on the TCW credit facility is $40
million, out of $50 million available. The additional $10 million remains
available at a fixed interest rate of 11.5% per annum payable quarterly in
arrears.
ITEM 9.01
(a) Financial Statements of Business Acquired
The financial statements relating to the acquired OIL properties
appear at pages F-1 to F-8.
(b) Pro Forma Financial Information
The pro forma financial statements showing the effects of the
acquisition of the OIL properties appear at pages PF-1 to PF-5.
(c) Exhibit Index
Exhibit No. Description
----------- -----------
23.1 Consent of Rachlin Cohen & Holtz LLP
23.2 Consent of Ryder Scott Company
SIGNATURES
According to the requirements of the Securities Exchange Act of 1939, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on April 14, 2006.
CADENCE RESOURCES CORPORATION
Date: April 14, 2006 /s/ William W. Deneau
-----------------------------
By: William W. Deneau
Its: President
CADENCE RESOURCES CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1
FINANCIAL STATEMENT
Statement of Combined Revenues and Direct Operating
Expenses of the Hudson Properties Purchased from Certain
Private Companies F-2
Notes to Statement of Combined Revenues and Direct
Operating Expenses F-3 - F-4
SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) F-5 - F-8
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
Introduction PF-1
Condensed Consolidated Balance Sheet PF-2
Notes to Condensed Consolidated Balance Sheet PF-3
PRO FORMA SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) PF-4 - PF-5
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Cadence Resources Corporation and Subsidiaries
Traverse City, Michigan
We have audited the accompanying Statement of Combined Revenues and Direct
Operating Expenses of the Hudson Properties Purchased from Certain Private
Companies for the year ended December 31, 2005 and from commencement of
operations in 2004 to December 31, 2004. This financial statement is the
responsibility of the Cadence Resources Corporation and Hudson Properties
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying financial statement was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission for
inclusion in Form 8-K of Cadence Resources Corporation and is not intended to be
a complete presentation of the properties described above.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the combined revenues and direct operating expenses of
the Hudson Properties as described in Note 2 for the year ended December 31,
2005 and from commencement of operations in 2004 to December 31, 2004 in
conformity with accounting principles generally accepted in the United States.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 11, 2006
F-1
CADENCE RESOURCES CORPORATION AND SUBSIDIARIES
STATEMENT OF COMBINED REVENUES AND DIRECT OPERATING EXPENSES OF
THE HUDSON PROPERTIES PURCHASED FROM CERTAIN PRIVATE COMPANIES
From
Commencement
Year of Operations
Ended in 2004 to
December 31, December 31,
2005 2004
------------ ------------
Revenues $ 4,192,385 $ 37,835
Direct operating expenses 1,451,429 25,250
------------ ------------
Excess of revenues over direct operating expenses $ 2,740,956 $ 12,585
============ ============
The accompanying notes are an integral part of this financial statement.
F-2
CADENCE RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO STATEMENT OF COMBINED REVENUES AND
DIRECT OPERATING EXPENSES OF THE HUDSON PROPERTIES
PURCHASED FROM CERTAIN PRIVATE COMPANIES
NOTE 1. THE PROPERTIES
On January 31, 2006, Aurora Antrim North, L.L.C. ("North"), a
wholly-owned subsidiary of Cadence Resources Corporation ("Cadence"
or "the Company"), completed the acquisition of oil and gas leases,
working interests, and interests in related pipelines and production
facilities that are located in the Hudson Township area of the
Michigan Antrim gas play, in accordance with the terms of the Asset
Purchase Agreement dated January 10, 2006. The interests acquired
are collectively referred to as the Hudson Properties. The interests
in the related pipelines and production facilities were acquired
through a membership interest in Hudson Pipeline and Processing Co.,
L.L.C. ("HPPC"). The Hudson Properties were acquired from NorAm
Energy LLC, Provins Family, LLC and O.I.L. Energy Corp
(collectively, "OIL") which are privately owned companies that are
affiliated by means of common ownership. HPPC and the other
properties acquired from OIL commenced operations on or about
November 30, 2004. The total purchase price for the Hudson
Properties was $27,500,000 subject to certain adjustments provided
for in the purchase agreement. Cadence previously owned a working
interest in the properties and a membership interest in HPPC. This
acquisition increased the Company's working interest in the project
area from an average of 49% to 96% and increased the membership
interest in HPPC from 48.75% to approximately 97.5%. In accordance
with the purchase agreement, the Company will replace OIL as
operator of the Hudson Properties.
NOTE 2. BASIS OF PRESENTATION
The statement of combined revenues and direct operating expenses has
been derived from OIL's historical financial records and has been
prepared on the accrual basis of accounting. The historical oil and
gas property records were maintained on the successful efforts
method of accounting. Cadence accounts for its oil and gas
activities on the full cost method of accounting, and it is
anticipated that the effects of converting OIL's basis of accounting
to the full cost method of accounting to conform with Cadence will
not be material. Revenues and direct operating expenses as set forth
in the accompanying statement include revenues from oil and gas
production and associated direct operating expenses related to the
working interest acquired by North in the Hudson Properties. The
accompanying statement also includes all of the transportation,
compression and processing revenues and direct operating expenses of
HPPC for the periods presented.
During the periods presented, the Hudson Properties were not
accounted for or operated as separate entities by OIL. Accordingly,
full separate financial statements prepared in accordance with
generally accepted accounting principles do not exist and are not
practicable to obtain in these circumstances.
This statement varies from an income statement in that it does not
show certain expenses which were incurred in connection with the
ownership of the Hudson Properties, such as general and
administrative expenses, and income taxes. These costs were not
separately allocated to the Hudson Properties in OIL's historical
financial records and any pro forma allocation would be both time
consuming and expensive and would not be a reliable estimate of what
these costs
F-3
CADENCE RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO STATEMENT OF COMBINED REVENUES AND
DIRECT OPERATING EXPENSES OF THE HUDSON PROPERTIES
PURCHASED FROM CERTAIN PRIVATE COMPANIES
(Continued)
NOTE 2. BASIS OF PRESENTATION (Continued)
would actually have been had the Hudson Properties been operated
historically as separate entities. In addition, these allocations,
if made using OIL's historical general and administrative structures
and tax burdens, would not produce allocations that would be
indicative of the historical performance of the Hudson Properties
had they been assets of North, due to the varying size, structure,
and operations between North and OIL. This statement does not
include provisions for depreciation, depletion and amortization
because such amounts would not be indicative of future costs which
would be incurred by North upon allocation of the purchase price.
Accordingly, this financial statement and other information
presented are not indicative of the financial condition or results
of operations of North going forward due to the changes in the
business and the omission of various operating expenses. For the
same reason, primarily the lack of segregated or easily obtainable
reliable data on asset values and related liabilities, a balance
sheet is not presented for North.
NOTE 3. CASH FLOWS
Cash flows from operating activities for the Hudson Properties were
$1,676,573 and $(29,065) for the periods ended December 31, 2005 and
2004, respectively. Cash used for investing activities amounted to
$12,956,208 and $3,185,887 for the periods ended December 31, 2005
and 2004, respectively, and was primarily used to drill and develop
wells and build facilities and pipelines during 2005 and 2004. These
investing activities were financed primarily through debt financing
and member contributions to HPPC for both years.
NOTE 4. COMMITMENTS AND CONTINGENCIES
Pursuant to the terms of the Asset Purchase Agreement dated January
10, 2006, North is obligated for any claims, costs, judgments or
expenses which may be incurred by OIL from or after the closing date
attributable to any breach of a representation or warranty made by
North and any OIL indemnified loss arising from ownership or
operation of the Properties from and after the closing date, and OIL
is obligated for certain specified indemnities to North. Neither
party is entitled to indemnification from the other party unless and
until the aggregate amount of indemnified losses exceeds $100,000,
in which case the indemnified party is entitled to the entire amount
of such claims. The Agreement further provides that the
indemnification obligations shall expire six months from the date of
the agreement, unless at that time an indemnification claim is
pending, in which case the indemnification obligations shall survive
the expiration date as to the pending claim.
F-4
CADENCE RESOURCES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS INFORMATION OF THE HUDSON PROPERTIES
PURCHASED FROM CERTAIN PRIVATE COMPANIES
(UNAUDITED)
Supplemental Reserve Information. The following information presents estimates
of the proved gas reserves for the Hudson Properties. OIL retained the services
of an independent petroleum consultant (Ryder Scott Company, Houston, Texas) to
estimate its proved natural gas reserves in Michigan at January 1, 2006 and
2005. Natural gas reserves at January 1, 2006 were estimated under the
Securities and Exchange Commission ("SEC") reporting standards. Natural gas
reserves at January 1, 2005 were not estimated under the SEC reporting standards
because OIL had not undertaken this independent study.
Estimates of Proved Reserves
Natural Gas
(MCF)
-----------
Proved reserves as of January 1, 2005 10,823,733
Revisions of previous estimates (1,209,387)
Extensions and discoveries 8,552,735
Production (432,780)
-----------
Proved reserves as of January 1, 2006 17,734,301
===========
Proved developed reserves:
January 1, 2005 2,439,056
January 1, 2006 12,316,681
The assumptions used for the estimated net proved natural gas reserves and the
PV-10 value of the reserves as of January 1, 2005 are as follows. The prices of
natural gas utilized in this study (for PV-10 calculations) were based on NYMEX
strip prices as of February 25, 2005 for the periods from 2005 through 2008 and
held constant thereafter. Each project has a specific price deck due to
financial hedges in place at the end of the year, transportation costs which
averaged $.38/mcf and basis premium adjustments which averaged $.115/mcf.
Michigan natural gas basis premium to NYMEX has been as high as $.25/MCF in the
past five years. The net average price after these deductions for all years
presented was approximately $5.36/mcf. Other revenue represents post production
cost credits. Deductions are comprised of production taxes, normal direct costs
of operating the wells, ad valorem taxes and development costs.
The average year-end prices (net of basis adjustments and transportation costs)
used to estimate natural gas reserves as of January 1, 2006 in accordance with
SEC guidelines was $9.61/mcf.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves
The following information has been developed utilizing procedures prescribed by
SFAS No. 69, "Disclosures about Oil and Gas Producing Activities," and are based
on natural gas reserve and production volumes estimated by OIL's independent
reserve engineers. It may be useful for certain comparison purposes, but should
not be solely relied upon in evaluating the Hudson Properties or their
performance. Further, information contained in the following table should not be
considered as representative of realistic assessments of future cash flows, nor
should the Standardized Measure of Discounted Future Net Cash Flows be viewed as
representative of the current value of the Hudson Properties.
F-5
CADENCE RESOURCES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS INFORMATION OF THE HUDSON PROPERTIES
PURCHASED FROM CERTAIN PRIVATE COMPANIES
(UNAUDITED)
(Continued)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves (Continued)
The future cash flows presented below are computed by applying year-end prices
to year-end quantities of proved natural gas reserves. Future production and
development costs are computed by estimating the expenditures to be incurred in
developing and producing the proved reserves based on year-end costs and
assuming continuation of existing economic conditions. It is expected that
material revisions to some estimates of natural gas reserves may occur in the
future, development and production of the reserves may occur in periods other
than those assumed, and actual prices realized and costs incurred may vary
significantly from those used.
The following table sets forth the Standardized Measure of Discounted Future Net
Cash Flows from projected production of the natural gas reserves from the Hudson
Properties as of January 1, 2006.
Future revenues (1) $ 171,366,212
Future production costs (2) (45,723,694)
Future development costs (2) (5,378,848)
-------------
Future net cash flows before income taxes 120,263,670
Future income tax expense (3) (33,095,558)
-------------
Future net cash flows after income taxes 87,168,112
Discount at 10% per annum (49,231,447)
-------------
Standardized measure of discounted future
net cash flows $ 37,936,665
=============
(1) Natural gas revenues are based on year-end prices with adjustments for
changes reflected in existing contracts. There is no consideration for
future discoveries or risks associated with future production of proved
reserves.
(2) Based on economic conditions at year-end. Does not include administrative,
general or financing costs. Does not consider future changes in
development or production costs.
(3) Future income taxes are computed by applying the statutory tax rate to
future net cash flows reduced by the tax basis of the properties, the
estimated permanent differences applicable to future oil and gas producing
activities and tax carry forwards.
F-6
CADENCE RESOURCES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS INFORMATION OF THE HUDSON PROPERTIES
PURCHASED FROM CERTAIN PRIVATE COMPANIES
(UNAUDITED)
(Continued)
Changes in Standardized Measure of Discounted Future Cash Flows
The following table sets forth the changes in Standardized Measure of Discounted
Future Net Cash Flows for the year ended December 31, 2005.
Beginning balance - January 1, 2005 $ 14,766,035
-------------
Revisions to proved reserves (6,820,941)
New discoveries and extensions, net of future
development and production costs 27,591,472
Sales of gas produced, net of production costs (2,396,800)
Previously estimated development costs incurred 3,762,524
Net change in income taxes (14,286,630)
Net changes in prices and production costs 35,275,097
Accretion of discount (1,476,610)
Changes in timing and other (18,477,482)
-------------
Net change in standardized measure of discounted
cash flows 23,170,630
-------------
Ending balance - January 1, 2006 $ 37,936,665
=============
Capitalized Costs Related to Oil and Gas Producing Activities
The following table sets forth the capitalized costs relating to the natural gas
producing activities for the Hudson Properties at December 31, 2005.
Proved properties $ 8,606,980
Unproved properties 82,960
Wells and related equipment and
facilities 5,243,322
------------
13,933,262
Accumulated depreciation, depletion
and amortization (439,675)
------------
Net capitalized costs $ 13,493,587
============
Costs Incurred in Oil and Gas Producing Activities
The acquisition, exploration and development costs disclosed in the following
table are in accordance with definitions in SFAS No. 19, "Financial Accounting
and Reporting by Oil and Gas Producing Companies." Acquisition costs include
costs incurred to purchase, lease or otherwise acquire property. Exploration
costs include exploration expenses, additions to exploration wells in progress,
and depreciation of support equipment used in exploration activities.
Development costs include additions to production facilities and equipment,
additions to development wells in progress and related facilities, and
depreciation of support equipment and related facilities used in development
activities.
F-7
CADENCE RESOURCES CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS INFORMATION OF THE HUDSON PROPERTIES
PURCHASED FROM CERTAIN PRIVATE COMPANIES
(UNAUDITED)
(Continued)
Costs Incurred in Oil and Gas Producing Activities (Continued)
The following table sets forth costs incurred related to natural gas activities
for the Hudson Properties for the year ended December 31, 2005.
Property acquisition costs $ 307,414
Exploration --
Development 10,629,475
------------
Total costs incurred $ 10,936,889
============
Results of Operations
The following table sets forth the results of operations related to natural gas
activities for the Hudson Properties for the year ended December 31, 2005.
Gas sales $ 3,539,023
Lease operating costs (570,800)
Severance taxes (160,966)
Transportation costs (308,580)
Depreciation and depletion (437,315)
-----------
2,061,362
Provision for income taxes (1) (721,477)
-----------
Results of producing activities $ 1,339,885
===========
(1) A 35% effective tax rate was used for computing the provision for income
taxes.
F-8
CADENCE RESOURCES CORPORATION AND SUBSIDIARIES
INTRODUCTION TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
The following unaudited pro forma condensed consolidated balance sheet and
related notes are presented to show effects of the acquisition of the Hudson
Properties purchased by Aurora Antrim North, L.L.C. ("North"), a wholly-owned
subsidiary of Cadence Resources Corporation ("Cadence" or "the Company"), on
January 31, 2006 from NorAm Energy LLC, Provins Family, LLC and O.I.L. Energy
Corp (collectively, "OIL") which are privately owned companies that are
affiliated by means of common ownership.
The pro forma condensed consolidated balance sheet is presented based on the
assumption that the acquisition occurred effective December 31, 2005.
Pro forma data are based on assumptions and include adjustments as explained in
the notes to the unaudited pro forma condensed consolidated balance sheet. The
pro forma data are not necessarily indicative of the financial results that
would have been attained had the acquisition occurred on the date referenced
above, and should not be viewed as indicative of the financial condition in
future periods. The unaudited pro forma condensed consolidated balance sheet
should be read in conjunction with the notes thereto, Cadence Resources
Corporation's Annual Report on Form 10-KSB for the year ended December 31, 2005
and the Statement of Combined Revenues and Direct Operating Expenses of the
Hudson Properties Purchased from Certain Private Companies included elsewhere
herein.
PF-1
CADENCE RESOURCES CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2005
(UNAUDITED)
Pro Forma Adjustments
--------------------------------
Hudson Other 2006
Properties Subsequent
Historical Acquisition Events Pro Forma
-------------- -------------- -------------- --------------
Current assets $ 19,256,000 $ (50,000) $ 15,870,000 $ 35,076,000
Oil and gas properties, using full
cost accounting 68,961,000 28,775,000 (303,000) 97,433,000
Deposit on purchase of oil and
gas properties 3,206,000 -- (3,206,000) --
Property and equipment, net 3,610,000 -- -- 3,610,000
Goodwill and other intangibles 19,171,000 -- -- 19,171,000
Other investments 1,856,000 (1,225,000) -- 631,000
Other assets 762,000 2,500,000 -- 3,262,000
-------------- -------------- -------------- --------------
Total assets $ 116,822,000 $ 30,000,000 $ 12,361,000 $ 159,183,000
============== ============== ============== ==============
Current liabilities $ 13,832,000 $ -- $ (2,130,000) $ 11,702,000
Deposit on sale of oil and gas properties 3,509,000 $ -- (3,509,000) --
Long-term liabilities 42,795,000 30,000,000 -- 72,795,000
-------------- -------------- -------------- --------------
Total liabilities 60,136,000 30,000,000 (5,639,000) 84,497,000
Redeemable preferred stock 60,000 -- -- 60,000
Shareholders' equity 56,626,000 -- 18,000,000 74,626,000
-------------- -------------- -------------- --------------
Total liabilities and shareholders' equity $ 116,822,000 $ 30,000,000 $ 12,361,000 $ 159,183,000
============== ============== ============== ==============
The accompanying notes to the unaudited pro forma condensed balance sheet are an
integral part of this statement.
PF-2
CADENCE RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
BASIS OF PRESENTATION
The unaudited pro forma balance sheet as of December 31, 2005 is based on the
audited financial statements of Cadence as of and for the year ended December
31, 2005, the audited statement of combined revenues and direct operating
expenses for the Hudson Properties purchased from certain private companies for
the periods ended December 31, 2005 and 2004, and the adjustments and
assumptions described below.
PRO FORMA ADJUSTMENTS
The unaudited pro forma balance sheet reflects the following adjustments:
Hudson Properties Acquisition
1. Record the purchase price of Hudson Properties, totaling $27,500,000
funded with borrowings under the senior secured credit facility with
BNP of $30,000,000.
2. Reclassify investment in HPPC from other investments to oil and gas
properties
3. Record transaction costs, primarily legal and auditing fees,
relating to the purchase of the Hudson Properties from OIL.
Other 2006 Subsequent Events
1. Record acquisition of 64,000 acres of New Albany Shale acreage in
the Wabash Project and sale of half interest in accumulated 95,000
acres, resulting in net acreage gain.
2. Record receipt of net proceeds from the exercise of certain options
and warrants.
3. Reference is made to Note 26 of financial statements included in
2005 Annual Report on Form 10-KSB of Cadence.
PF-3
CADENCE RESOURCES CORPORATION AND SUBSIDIARIES
PRO FORMA SUPPLEMENTAL OIL AND GAS INFORMATION
(UNAUDITED)
The following tables set forth certain unaudited pro forma information
concerning Cadence's proved oil and gas reserves as of December 31, 2005, giving
effect to the purchase of the Hudson Properties from OIL as if it had occurred
on January 1, 2005. There are numerous uncertainties inherent in estimating the
quantities of proved reserves and projection of future rates of production and
timing of development expenditures. The following reserve data represents
estimates only and should not be construed as being exact.
Estimates of Proved Reserves
Oil
------------------------------------------------
Cadence Acquisition Pro
MBbls MBbls Forma
-------------- -------------- --------------
Proved reserves as of December 31, 2004 -- -- --
Revisions of previous estimates 6 -- 6
Purchases of minerals in place 103 -- 103
Extensions and discoveries -- -- --
Production (10) -- (10)
-------------- -------------- --------------
Proved reserves as of December 31, 2005 99 -- 99
============== ============== ==============
Proved developed reserves:
December 31, 2004 -- -- --
December 31, 2005 70 -- 70
Natural Gas
------------------------------------------------
Cadence Acquisition Pro
MMcf MMcf Forma
-------------- -------------- --------------
Proved reserves as of December 31, 2004 34,949 10,823 45,772
Revisions of previous estimates 5,381 (1,209) 4,172
Purchases of minerals in place 1,572 -- 1,572
Extensions and discoveries 22,107 8,553 30,660
Production (688) (433) (1,121)
-------------- -------------- --------------
Proved reserves as of December 31, 2005 63,321 17,734 81,055
============== ============== ==============
Proved developed reserves:
December 31, 2004 12,520 2,439 14,959
December 31, 2005 45,205 12,317 57,522
The following information is a summary of pro forma standardized measure of
discounted future net cash flows from proved oil and gas reserves of Cadence as
of December 31, 2005, net of income tax expense and includes the effects of the
Acquisition. Future cash flows are computed by applying fiscal year-end prices
of natural gas and oil to year-end quantities of proved natural gas and oil
reserves. Future operating expenses and development costs were computed
primarily by management of OIL and reviewed by the Company's internal petroleum
engineers and are estimates of the expenditures to be incurred in developing and
producing the Acquisition's proved natural gas and oil reserves at the end of
the year, based on year-end costs and assuming continuation of existing economic
conditions. Future income taxes are based on currently enacted statutory rates.
PF-4
CADENCE RESOURCES CORPORATION AND SUBSIDIARIES
PRO FORMA SUPPLEMENTAL OIL AND GAS INFORMATION
UNAUDITED
(Continued)
The information should be viewed only as a form of standardized disclosure
concerning possible future cash flows that would result under the assumptions
used, but should not be viewed as indicative of fair market value nor be
considered indicative of any trends. Reference should be made to Cadence's
financial statements for the year ended December 31, 2005, and the Statement of
Combined Revenues and Direct Operating Expenses of the Hudson Properties
Purchased from Certain Private Companies included elsewhere herein, for a
discussion of the assumptions used in preparing the information presented.
Standardized Measure of Discounted Cash Flow
Cadence Acquisition Pro Forma
-------------- -------------- --------------
Future gross revenues $ 632,058,720 $ 171,366,212 $ 803,424,932
Future production costs (182,710,406) (45,723,694) (228,434,100)
Future development costs (15,073,590) (5,378,848) (20,452,438)
-------------- -------------- --------------
Future net cash flows before income taxes 434,274,724 120,263,670 554,538,394
Future income tax expense (101,521,160) (33,095,558) (134,616,718)
-------------- -------------- --------------
Future net cash flows after income taxes 332,753,564 87,168,112 419,921,676
Discount at 10% per annum (179,885,324) (49,231,447) (229,116,771)
-------------- -------------- --------------
Standardized measure of discounted future net cash
flows relating to proved oil and gas reserves $ 152,868,240 $ 37,936,665 $ 190,804,905
============== ============== ==============
The following table sets forth the principal sources of change in standardized
measure of discounted cash flows.
Change in Standardized Measure
Cadence Acquisition Pro Forma
-------------- -------------- --------------
Beginning balance $ 32,159,710 $ 14,766,035 $ 46,925,745
-------------- -------------- --------------
Revisions to reserves proved in prior years:
Net change in prices and production costs 85,425,515 35,275,097 120,700,612
Net change in future development costs 6,299,524 3,762,524 10,062,048
Net changes due to revisions in quantity estimates 33,335,739 (6,820,941) 26,514,798
Net change in accretion of discount (66,761,600) (1,476,610) (68,238,210)
Other 38,137,602 (18,477,482) 19,660,120
-------------- -------------- --------------
Total revisions to reserves proved in prior years 96,436,780 12,262,588 108,699,368
New discoveries and extensions, net of future
development and production costs 76,487,826 27,591,472 104,079,298
Purchases of minerals in place 11,834,500 -- 11,834,500
Sale of oil and gas produced, net of production costs (4,696,416) (2,396,800) (7,093,216)
Net change in income taxes (59,354,160) (14,286,630) (73,640,790)
-------------- -------------- --------------
Net change in standardized measure of
discounted cash flows 120,708,530 23,170,630 143,879,160
-------------- -------------- --------------
Ending balance $ 152,868,240 $ 37,936,665 $ 190,804,905
============== ============== ==============
PF-5