U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                   FORM 10-KSB

|_|   Annual report under Section 13 or 15 (d) of the Securities Exchange Act of
      1934 for the fiscal year ended September 30, 2004

|_|   Transition report under Section 13 or 15 (d) of the Securities Exchange
      Act of 1934 for the transition period from _____________to _____________

                        Commission File Number 000-25170

                          CADENCE RESOURCES CORPORATION
                 (Name of Small Business Issuer in Its Charter)

                                                               87-0306609
                                                           -------------------
                                                            (I.R.S. Employer
                                                           Identification No.)

                                             6 East Rose Street
           Utah                            Walla Walla, Washington
-------------------------------        --------------------------------
(State or Other Jurisdiction of        (Address of Principal Executive
Incorporation or Organization)                     Offices)

                                                                   99362
                                                              ------------------
                                                                 (Zip code)

                                 (509) 526-3491
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code.)

Securities registered under Section 12(b) of the Exchange Act:
                                                        Name of Each Exchange
Title of Each Class                                      on Which Registered
-------------------                                      -------------------
        NONE                                                     N/A

         Securities registered under Section 12(g) of the Exchange Act:
                         Common Stock, par value, $0.01
                         ------------------------------
                              (Title of class)

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 past 90 days. Yes |X|
No |_|

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.

State issuer's revenues for its most recent fiscal year: $2,554,320

The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant as of January 3, 2005, was approximately
$6,643,732. For purposes of this computation, all executive officers, directors
and 10% stockholders were deemed affiliates. Such a determination should not be
construed as an admission that such 10% stockholders are affiliates.

      As of January 3, 2005, there were 12,813,327 shares of the common stock,
$0.01 par value, of the registrant issued and outstanding. Documents
Incorporated by Reference: the information required by Part III, Items 9, 10,
11, 12, and 14 are incorporated by reference to the registrant's Proxy Statement
for the registrant's 2005 annual meeting of stockholders.

Transitional Small Business Disclosure Format: Yes |_| No |X|
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Item                                                                                                             Page
----                                                                                                             ----

                                     PART I
<S>                                                                                                                <C>
Item 1.  Description of Business....................................................................................1
Item 2.  Description of Properties.................................................................................16
Item 3.  Legal Proceedings.........................................................................................16
Item 4.  Submission of Matters to a Vote of Security Holders.......................................................16

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters..................................................17
Item 6.  Management's Discussion and Analysis or Plan of Operations................................................22
Item 7.  Financial Statements..................................................................................F1-F33
Item 8.  Changes in and Disagreements with Accountants.............................................................25
Item 8A.  Controls and Procedures..................................................................................25

                                    PART III

Item 9.    Directors, Executive Officers, Promoters and Control Persons............................................25
Item 10.  Executive Compensation...................................................................................25
Item 11.  Security Ownership of Certain Beneficial Owners and Management...........................................25
Item 12.  Certain Relationships and Related Transactions...........................................................26
Item 13.  Exhibits and Reports on Form 8-K.........................................................................26
Item 14.  Principal Accountant Fees And Services...................................................................26

Supplemental Information on Oil and Gas Activities ................................................................27

Financial Statements
Independent Auditor's Report......................................................................................F-1
         Balance Sheets as of September 30, 2004, 2003 and 2002...................................................F-2
         Statements of Operations and Comprehensive Loss for the years ended September 30, 2004, 2003
                  and 2002........................................................................................F-4
         Statement of Stockholder's Equity.......................................................................F-5a
         Statements of Cash Flows for the years ended September 30, 2004, 2003 and 2002...........................F-8
         Notes to the Financial Statements ......................................................................F-10
</TABLE>

<PAGE>
                                     PART I

      This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or anticipated results, including those set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in, or incorporated by reference into, this report.

Item 1.  Description of Business

The Company

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

      We have operations in Wilbarger County, Texas, DeSoto Parish, Louisiana,
Eddy County, New Mexico and Alpena County, Michigan. We also have leased
interests in western Kansas and southern Texas. We are engaged in acquiring,
exploring, developing, and producing oil and gas properties.

      During the year ended September 30, 2004, substantially all of our
revenues were derived from our interests in five producing oil wells in
Wilbarger County, TX and eleven producing natural gas wells in DeSoto Parish,
LA. We received small revenues from our interest in nine producing gas wells in
Alpena County, MI and in September received our first production revenue from
our minority interest in a producing well in Eddy County, NM.

      At the completion of our 2004 fiscal year in September, we were continuing
to evaluate the performance of our natural gas wells in DeSoto Parish. Along
with our partner, Bridas Energy, as of the date of this report, we had not made
plans to drill additional wells at that location. In the first fiscal quarter of
2005, we drilled three new wells on our West Electra Lake Unit, in Wilbarger
County, TX, completed the seismic evaluation process on the north block of our
Kansas acreage, participated for a working interest in development wells being
drilled in Eddy County, NM and participated for a working interest in an
exploratory well in Tennessee.

      On November 19, 2004, the Company issued a press release announcing that
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.
Please see the press release attached as an Exhibit to the Current Report on
Form 8-K filed with the SEC on November 23, 2004. The Company and Aurora Energy,
Ltd. are now in the process of negotiating the terms of the proposed transaction
and reviewing the books and records of the respective companies. It is
anticipated that the definitive merger agreement will be finalized in the second
fiscal quarter of 2005. For additional information on Aurora Energy, parties are
invited to review the website maintained by Aurora at the URL of
www.auroraenergy.com. It is contemplated by the parties that if this effort is
successfully consummated, the Company will relocate its operational headquarters
to Aurora's offices in Traverse City, MI and the Board of Directors and
management of the Company will be significantly restructured.


                                       1
<PAGE>

Oil and Natural Gas Operations

DeSoto Parish, Louisiana

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

      Under the terms of our joint exploration agreement with Bridas Energy, we
assigned Bridas Energy a 55% working interest in all of the acreage constituting
the area of mutual interest of our DeSoto Parish leases in return for a cash
payment of $50,000. Bridas Energy agreed to fund all costs of drilling,
completing and bringing to production the initial test well, the Ardis-Martin
Timber #27-1, drilled during June 2003, in Section 27 of this prospect. Upon
successful completion of this test well, we conveyed an additional 20% working
interest to Bridas Energy in that well and all other leases covering acreage in
Section 27, leaving us a 25% working interest in Section 27. We retain a 45%
working interest in all other wells on the leased acreage in this prospect and a
lesser working interest in any wells drilled in the area of mutual interest
around the leased acreage, depending upon the amount of acreage leased by each
respective party in that particular section. Our ninth well, the Eva Gamble #4-1
was drilled in March 2004 in the area of mutual interest to the south of Section
27. We have a 22.5% working interest in this well.

      As of September 30, 2004 we had eleven producing wells in this field, one
of which had just begun producing at the end of May, 2004. During the month of
September 2004, these wells produced natural gas at an aggregate average rate
per well of 2,196 Mcf per day. The sixth, seventh, and eighth wells in this
field were drilled to the shallower Hosston sand formation to test these
formations, but we have been generally disappointed at the rate of production
from these wells. We decided to impair the carrying value of one of these wells
as of June 30, 2004, and made the election to impair the carrying value of three
more wells at September 30, 2004. The twelfth well in the field, the Billingsley
well, is a Cotton Valley well which was placed on production in October of 2004.
Through November 7, 2004, this well had averaged 850 McF per day. The thirteenth
well, called the JB Barr #2, is a shallow Puluxy test which was completed in
June of 2004, and although it initially produced a high flow rate of gas, it has
declined very rapidly over its first three months.

      As of September 30, 2004, all but three of our producing wells in DeSoto
Parish were from the Cotton Valley formation. During the quarter ended March 31,
2004, we drilled one more well to the Cotton Valley formation and three wells
solely to the shallower Hosston sand formation, which lies generally between
about 6,450 and 8,950 feet, and is a sand and shale sequence with tight
gas-bearing sands in thick intervals. The Cotton Valley formation lies
immediately below the Hosston, with the best sands typically extending to about
10,300 feet. [Of the eleven producing wells as of September 30, 2004, we have a
25% working interest and an approximate 20% net revenue interest in three of
them and a 45% working interest and an approximate 36% net revenue interest in
seven of them. Of the four wells drilled during the second quarter of fiscal
2004, we have a 45% working interest and an approximate 36% net revenue interest
in two of them, a 25% working interest and an approximate 20% net revenue
interest in one of them, and a 22.5% working interest and approximate 18% net
revenue interest in the final well, known as the Eva Gamble 4-1, which was
drilled in the area of mutual interest.

                                       2
<PAGE>

      The six wells in this project completed to the Cotton Valley formation
produced at an aggregate rate of approximately 418 Mcf/day during September
2004. The seventh well drilled to the Puluxy Formation, the JB Barr #2, produced
36,675 mcf of gas during fiscal 2004. Also, excluding the Leon Gamble #33-1,
which is a sub-economic well, the six other wells drilled to the Cotton Valley
formation produced at an average rate of approximately 393 mcf/day during the
fourth quarter of fiscal 2004.

      During the second fiscal quarter of 2004, we began to focus on the
development of the Hosston sand formation. The first well completed to the
Hosston sand, the Adelle Thomas #28-1, was drilled to a total depth of
approximately 8,100 feet and, as of September 30, 2004, was not producing
commercial quantities of gas. We have elected to take an impairment charge on
this well at September 30, 2004. We have a 45% working interest and an
approximate 36% net revenue interest in this well. The second well initially
drilled solely to the Hosston sand, the Eva Gamble #4-1, has also produced only
small commercial quantities of natural gas. As of November 7, this well was only
producing at a rate of 10 mcf per day, and we have elected to take an impairment
charge on the carrying value of this well as of September 30, 2004. We have a
22.5% working interest and approximate 18% net revenue interest in this well.
The third well drilled to the Hosston sand, the Sampson #33-1, was completed as
of mid-May, 2004 to a depth of approximately 9300 feet and to date has produced
28,800 mcf of gas. As of September 30, this well was producing at a rate of 119
mcf per day. We have a 45% working interest and approximate 36% net revenue
interest in this well.

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

      In May 30, 2004, we had drilled, completed and logged our eleventh well,
the Martin Timber #27-2 to the Cotton Valley formation, The well had begun
producing as of May 31, 2004 at good flush rates of production and to date,
through November 7, 2004, has produced 78,815 mcf of gas. We have a 25% working
interest and an approximate 20% net revenue interest in the Martin-Timber #27-2

      The twelfth well, the Billingsley #28-1 was drilled in Section 28, to a
depth of approximately 10,300 feet. Well logs indicated commercial pay zones in
the Cotton Valley and Hosston formations. This well was placed into production
in October of 2004 at an initial flow rate of 1451mcf per day, and through
November 7,, 2004 had produced 22,943 mcf of gas. We have a 45% working interest
and approximate 36% net revenue interest in the Billingsley #28-1.

      In May, 2004, Bridas Energy began drilling a new well in Section 28, the
Barr #28-2 well, to the shallower Paluxy and Rodessa sand formations. This well
was drilled to intersect shallower pay which was revealed in the deeper Barr
#28-1 well previously drilled in November, 2003. The well was completed in the
Paluxy formation and began producing in early July. Although the initial flow
rates for this Puluxy well were encouraging, the decline over the first three
months was very dramatic, and as of September 30, 2004 the well was not
producing economic quantities of gas.

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

      Our drilling and completion costs for these DeSoto Parish wells drilled to
the Cotton Valley formation, to the 8/8ths interest, are approximately $1.25
million to $1.3 million per well. Ready access points to both interstate and
intrastate gas pipelines are available. We have been generally disappointed by
the performance of these wells and will continue to evaluate the substandard
performance of our Hosston formation wells and formulate future development
plans in this field. In fact, it should be noted that we may not proceed to
develop any further wells in this area and may elect to dispose of our interest
therein or write-down the carrying cost of the project entirely.

                                       3
<PAGE>

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

Wilbarger County, Texas

      Our property in Texas is located on the Waggoner Ranch, a large,
privately-held ranch in Wilbarger County from which oil and gas has been
produced since 1910, approximately 50 miles northwest of Wichita Falls, Texas,
and 15 miles south of the Oklahoma border. Since October 2001, we have conducted
exploration activities on the Waggoner Ranch,. The W.T. Waggoner Estate is the
operator of all of our wells on the Waggoner Ranch and the sole purchaser of all
production from these properties. We logged our first productive well in this
field in January 2002. During the month of September 2004, we owned interests in
five wells on these properties, producing an aggregate of approximately 98 net
working interest barrels per day, to the 8/8ths interest, of 35(degree) API
sweet crude oil.

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

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

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

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

                                       4
<PAGE>

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

      In December of 2004, subsequent to the end of our fiscal year, we
commenced a program to drill three more wells on the West Electra Lake unit. The
first well was logged on December 7th, and indicated the expected Milham pay
interval, as well as an unexpected 12 feet of pay in the Saddle Creek formation
at about 1700 feet. The second new well was logged on December 18, 2004 and
encountered some ten feet of net pay in the Upper Milham formation. Both of
these wells are scheduled for completion in early January, 2005. A third new
well is scheduled for drilling in January, 2005.

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

Alpena County, Michigan

      In December 2002, we began participating in a natural gas drilling program
in Alpena County, Michigan with Aurora Energy, Ltd. As of September 30, 2004, we
had a 22.5% working interest (before payout, 20% after payout), 18% net revenue
interest (before payout, 16% after payout), in ten producing wells in Alpena
County. Production commenced from this field in June 2003 and our ten producing
wells produced at an average aggregate rate of approximately 80 Mcf/day during
September 2004 and received an average price of $4.51per Mcf. Aurora is the
operator of all our properties in Alpena County.

      The target of this prospect is the well-known Antrim shale formation that
has yielded natural gas production from more than 7,500 wells along a 30 mile
thick trend stretching from Lake Michigan to Lake Huron. Antrim shale wells
typically cost approximately $180,000 to $200,000 per well to drill and complete
and typically pay out in approximately three to four years. Production typically
peaks at approximately six to 18 months and then follows a slow decline curve of
approximately 30 to 40 years. Our participation agreement with Aurora Energy,
Ltd., originally gave us participation rights in up to 200 wells to be drilled
by Aurora into the Antrim shale to depths of approximately 800 to 1,000 feet,
but effective as of May 15, 2004, we waived our rights to participate in future
wells in this prospect in order to focus on our Louisiana, Texas and Kansas
projects.

      As noted above, in November, 2004 we signed a letter of intent to acquire
100% of the outstanding shares of Aurora Energy, subject to further negotiations
and completion of due diligence.

New Mexico

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

      Earlier in the year, the Company announced that it had signed an agreement
with SDX Resources for an option to participate for up to a 25% working
interest, 20% net revenue interest, in up to 17 development wells in a project

                                       5
<PAGE>

called the Sparkplug Unit. These wells will be offsetting existing production in
the San Andreas and Yeso formations to a maximum depth of about 5,000 feet.
Drilling on the initial development well, in which the company elected to take a
20% working interest, commenced on December 16, 2004. Results are expected to be
reported in January 2005.

Tennessee

      In August, 2004 the Company acquired a 25% equity ownership in TN Oil
Company, which owns leases covering some 1500 acres prospective for oil in
central and north central Tennessee. Subsequent to the end of the fiscal year,
the Company elected to participate for 100% of the working interest in a well
being drilled by TN Oil, as operator, to a depth of some 1700 feet. This well
targeted oil production from the Murfreesboro and Knox formations. The well was
spudded on December 17, 2004. Based upon the well logs, the geologists of the
Company determined that this well was non-commercial and elected to plug the
well.

Western Kansas

      Our newest oil exploration project is in the Anadarko Basin in Lane and
Ness Counties, Kansas. In June 2004, we completed our first leasing program in
the area, consisting of approximately 26,000 acres. We have a 100% working
interest and an approximate 83% net revenue interest in these leases. During
September and October of 2004, the Company completed a three dimensional seismic
shooting program on the 13,000 acres which constitute the Cadence North Block.
We will acquire 3-D seismic data on the remainder of the acreage prior to making
a decision to drill any test wells. We plan to use a local third-party operator
to develop these prospects and we currently expect to begin drilling on the
acquired acreage during the 2005 fiscal year. As the project moves into the
exploratory drilling and operational phases, we expect to contract out drilling
and operations to experienced local operators in the State of Kansas.

Southern Texas

      We have completed leasing of 58 acres in Matagorda County, Texas, on a
salt dome prospect. We have identified one drilling target on this lease and
expect to begin drilling the first test well sometime in the second fiscal
quarter of 2005 (somewhat later than we first anticipated due to the complexity
of obtaining a drill site title opinion for this lease). We expect the drilling
and completion costs on this well to range from approximately $200,000 to
$215,000. Operations will be contracted for with third parties experienced in
this part of Texas.

Oil Reserves

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

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

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

                                       6
<PAGE>

<TABLE>
<CAPTION>
                                                                                            Combined Oil & Gas Future Net
                                                                                                        Income
                                                                                           ---------------------------------
                           Estimated Net Reserves (M/Bbls,           Weighted Average
  Proved Reserves                      MMcf)                          Price ($/BBl)            Undiscounted           PV-10
--------------------    ----------------------------------      ----------------------     ----------------      -----------
<S>                                   <C>                               <C>                  <C>               <C>
Producing Oil                         29.9                              $49.51
Producing Gas                        585.7                               $5.44
Producing Oil & Gas                                                                           $3,346,900       $2,803,100
</TABLE>

Production Information

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

         Oil Production

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


         Gas Production

                                                  ------------------------------
                                                       Year Ended September 30,
                                                  ------------------------------
                                                     2004             2003
Total Net Revenues                                $   1,717,015    $           0
Net Sales Volume (mcf)                                   37,571                0
Average Sales Price (permcf.)                     $        5.69    $           0
Average Production Cost (per mcf.)                $        1.12    $           0


Oil and Gas Wells

The following table sets forth our gross and net productive wells as of
September 30, 2004 and 2003:

<TABLE>
<CAPTION>
                                        Oil Wells                     Gas Wells                 Total Wells
                                --------------------------    --------------------------    ---------------------
<S>                                          <C>                           <C>                        <C>
September 30, 2004
       Gross1                                6                             18                         24
       Net2                                  3.7                            5.45                       9.15
September 30, 2003
       Gross1                                5                              0                          5
       Net2                                  3.5                            0                          3.5
</TABLE>


                                       7
<PAGE>

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

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

Oil and Gas Acreage

 [The following table sets forth our acreage position as of September 30, 2004.

<TABLE>
<CAPTION>
                                                 Developed 1                               Undeveloped 2
                                           Gross               Net                 Gross                   Net
<S>                                          <C>                 <C>                <C>                   <C>
Louisiana                                    1280                320                2970                  1336
Texas                                         625                392                1000                   500
Michigan                                      640                144                   0                     0
Kansas                                          0                  0                2270                  2270
Tennessee
New Mexico                                     80                 16                1200                   300
                                     ------------------    -------------    ---------------------   ------------------
             Total                           2545                856                6240                  4106
         ---------------
</TABLE>

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

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

Drilling Activities

The following table sets forth our drilling results for the years ended
September 30, 2004, and 2003:

<TABLE>
<CAPTION>
Fiscal                                             Gross Wells                                         Net Wells
 Year          Type of Well       Total    Productive2    Dry3      Abandoned4        Total     Productive      Dry      Abandoned
----------    ----------------    ------- -------------- -------- ---------------   ---------- -------------- -------- ------------
<S>                      <C>         <C>          <C>      <C>          <C>           <C>           <C>         <C>         <C>
2004          Exploratory1           2            1        1            0             1.2           .2          1           0
              Development1          11            7        2            2             4.525        2,5          0,9         0.9
2003          Exploratory1           2            1        1            0             1             .5           .5         0
              Development1          13           12        1            0             3.8          3.8           .5         0
</TABLE>

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

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

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

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

Competition and Markets

      We face competition from other oil and natural gas companies in all
aspects of our business, including acquisition of producing properties and oil
and gas leases, marketing of oil and gas, and obtaining goods, services and
labor. Many of our competitors have substantially larger financial and other

                                       8
<PAGE>

resources. Factors that affect our ability to acquire producing properties
include available funds, available information about prospective properties and
our limited number of employees. Gathering systems are the only practical method
for the intermediate transportation of natural gas. Therefore, competition for
natural gas delivery is presented by other pipelines and gas gathering systems.
Competition is also presented by alternative fuel sources, including heating oil
and other fossil fuels.

      The availability of a ready market for and the price of any hydrocarbons
produced will depend on many factors beyond our control, including but not
limited to the amount of domestic production and imports of foreign oil and
liquefied natural gas, the marketing of competitive fuels, the proximity and
capacity of natural gas pipelines, the availability of transportation and other
market facilities, the demand for hydrocarbons, the effect of federal and state
regulation of allowable rates of production, taxation, the conduct of drilling
operations and federal regulation of natural gas. In addition, the restructuring
of the natural gas pipeline industry virtually eliminated the gas purchasing
activity of traditional interstate gas transmission pipeline buyers. Producers
of natural gas have therefore been required to develop new markets among gas
marketing companies, end users of natural gas and local distribution companies.
All of these factors, together with economic factors in the marketing arena,
generally may affect the supply of and/or demand for oil and gas and thus the
prices available for sales of oil and gas.

      Proposals and proceedings that might affect the oil and gas industry are
pending before Congress, the Federal Energy Regulatory Commission, or "FERC",
the Minerals Management Service, or "MMS", state legislatures and commissions
and the courts. We cannot predict when or whether any such proposals may become
effective. In the past, the natural gas industry has been heavily regulated.
There is no assurance that the regulatory approach currently pursued by various
agencies will continue indefinitely. Notwithstanding the foregoing, we currently
do not anticipate that compliance with existing federal, state and local laws,
rules and regulations will have a material or significantly adverse effect upon
our capital expenditures, earnings or competitive position. No material portion
of our business is subject to re-negotiation of profits or termination of
contracts or subcontracts at the election of the federal government.

      The following discussion contains summaries of certain laws and
regulations and is qualified in its entirety by the foregoing.

Regulation of Natural Gas and Oil Exploration and Production

      Our operations are subject to various types of regulation at the federal,
state and local levels. Such regulation includes requiring permits for drilling
wells, maintaining bonding requirements in order to drill or operate wells and
regulating the location of wells, the method of drilling and casing wells, the
surface use and restoration of properties upon which wells are drilled, the
plugging and abandoning of wells and the disposal of fluids used or generated in
connection with operations. Our operations are also subject to various
conservation laws and regulations. These include the regulation of the size of
drilling and spacing units or proration units and the density of wells which may
be drilled and the unitization or pooling of oil and gas properties. In
addition, state conservation laws establish maximum rates of production from oil
and gas wells, generally prohibit the venting or flaring of gas and impose
certain requirements regarding the ratability of production. The effect of these
regulations may limit the amount of oil and gas we can produce from our wells in
a given state and may limit the number of wells or the locations at which we can
drill.

Federal Regulation of Sales Prices and Transportation

      Currently, there are no federal, state or local laws that regulate the
price for our sales of natural gas, NGLs, crude oil or condensate. However, the
rates charged and terms and conditions for the movement of gas in interstate
commerce through certain intrastate pipelines and production area hubs are
subject to regulation under the Natural Gas Policy Act of 1978 ("NGPA").
Pipeline and hub construction activities are, to a limited extent, also subject
to regulations under the Natural Gas Act of 1938 ("NGA"). While these controls
do not apply directly to us, their effect on natural gas markets can be
significant in terms of competition and cost of transportation services, which
in turn can have a substantial impact on our profitability and costs of doing
business. Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, FERC, state regulatory
bodies and the courts. We cannot predict when or if any such proposals might
become effective and their effect, if any, on our operations. We do not believe
that we will be affected by any action taken in any materially different respect
from other natural gas producers, gatherers and marketers with whom we compete.

                                       9
<PAGE>

Gathering Regulations

      State regulation of gathering facilities generally includes various
safety, environmental and, in some circumstances, nondiscriminatory take
requirements. Such regulation has not generally been applied against gatherers
of natural gas, although natural gas gathering may receive greater regulatory
scrutiny in the future.

Environmental Regulations

      Public interest in the protection of the environment has increased
dramatically in recent years. Our oil and natural gas production and saltwater
disposal operations and our processing, handling and disposal of hazardous
materials, such as hydrocarbons and naturally occurring radioactive materials
are subject to stringent regulation. We could incur significant costs, including
cleanup costs resulting from a release of hazardous material, third-party claims
for property damage and personal injuries fines and sanctions, as a result of
any violations or liabilities under environmental or other laws. Changes in or
more stringent enforcement of environmental laws could also result in additional
operating costs and capital expenditures.

      Various federal, state and local laws regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, directly impact oil and gas exploration, development and production
operations, and consequently may impact the Company's operations and costs.
These regulations include, among others, (i) regulations by the EPA and various
state agencies regarding approved methods of disposal for certain hazardous and
nonhazardous wastes; (ii) the Comprehensive Environmental Response,
Compensation, and Liability Act, Federal Resource Conservation and Recovery Act
and analogous state laws which regulate the removal or remediation of previously
disposed wastes (including wastes disposed of or released by prior owners or
operators), property contamination (including groundwater contamination), and
remedial plugging operations to prevent future contamination; (iii) the Clean
Air Act and comparable state and local requirements which may result in the
gradual imposition of certain pollution control requirements with respect to air
emissions from the operations of the Company; (iv) the Oil Pollution Act of 1990
which contains numerous requirements relating to the prevention of and response
to oil spills into waters of the United States; (v) the Resource Conservation
and Recovery Act which is the principal federal statute governing the treatment,
storage and disposal of hazardous wastes; and (vi) state regulations and
statutes governing the handling, treatment, storage and disposal of naturally
occurring radioactive material ("NORM").

      In the course of our routine oil and natural gas operations, surface
spills and leaks, including casing leaks, of oil or other materials occur, and
we incur costs for waste handling and environmental compliance. It is also
possible that our oil and natural gas operations may require us to manage NORM.
NORM is present in varying concentrations in sub-surface formations, including
hydrocarbon reservoirs, and may become concentrated in scale, film and sludge in
equipment that comes in contact with crude oil and natural gas production and
processing streams. Some states, including Texas, have enacted regulations
governing the handling, treatment, storage and disposal of NORM. Moreover, we
are able to control directly the operations of only those wells for which we act
as the operator. Despite our lack of control over wells owned by us but operated
by others, the failure of the operator to comply with the applicable
environmental regulations may, in certain circumstances, be attributed to us
under applicable state, federal or local laws or regulations.

      Management believes that we are in substantial compliance with all
currently applicable environmental laws and regulations. To date, compliance
with such laws and regulations has not required the expenditure of any material
amounts, and management does not currently anticipate that future compliance
will have a materially adverse effect on our consolidated financial position or
results of operations. Since these laws and regulations are periodically
amended, we are unable to predict the ultimate cost of compliance. To our
knowledge, there are currently no material adverse environmental conditions that
exist on any of our properties and there are no current or threatened actions or
claims by any local, state or federal agency or by any private landowner against
us pertaining to such a condition. Further, we are not aware of any currently
existing condition or circumstance that may give rise to such actions or claims
in the future.

                                       10
<PAGE>

      We maintain insurance against some, but not all, potential risks and
losses associated with our industry and operations. We do not carry business
interruption insurance. For some risks, we may not obtain insurance if we
believe the cost of available insurance is excessive relative to the risks
presented. In addition, pollution and environmental risks generally are not
fully insurable. If a significant accident or other event occurs and is not
fully covered by insurance, it could adversely affect us.

Employees

      As of December 31, 2004, we have two part-time employees, both of whom are
officers of Cadence, and no one who works for Cadence on a full time basis.
Because the Officers of the Company perform consulting services for other
companies, for tax purposes the Company has treated both of these officers as
consultants.

Risks Related to our Business

We continue to experience significant operating losses.

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

We have no full-time employees and are dependent on our directors, officers and
third-party contractors.

      We have no full time employees and are wholly dependent upon the personal
efforts and abilities of our officers, directors and our consulting geologist,
each of whom devotes less than all of his time and efforts to our operations.
The loss of any one of these individuals could adversely affect our business. We
do not have employment agreements with any of our officers or directors and must
rely on consultants paid on a monthly basis. There is no assurance that we will
be able to hire and retain such personnel in the future.

We lack experience in the oil and gas industry and must rely on third parties to
conduct our oil and gas exploration activities.

      We have limited expertise in the area of oil and gas exploration. Our
management does not have significant technical training or experience in the oil
and gas industry and only devotes a small percentage of their time to our
business. Accordingly, we have engaged third party geologists and landmen who
have been largely responsible for the evaluation, recommendation, and
acquisition of our existing leases. We have historically retained, and plan to
continue in the future to retain, drilling contractors, technicians, landmen,
additional geologists, and engineers to direct the drilling and completion of
oil and gas wells on our leases, and to aid in the acquisition and evaluation of
other properties.

Our drilling activities may be unsuccessful.

      We cannot predict prior to drilling and testing a well whether the well
will be productive or whether we will recover all or any portion of our
investment in the well. Our drilling for oil and natural gas may involve
unprofitable efforts, not only from dry holes but from wells that are productive
but do not produce sufficient quantities to cover drilling and completion costs
thus which are not economically viable. Our efforts to identify commercially
productive reservoirs, such as studying seismic data, the geology of the area
and production history of adjoining fields, do not conclusively establish that
oil and gas is present in commercial quantities. If our drilling efforts are
unsuccessful we may never achieve profitability.

We do not operate any of our oil and gas properties

      We do not operate any of the properties in which we have an interest. As a
result, we have a limited or no control over:

                                       11
<PAGE>

      o     the timing of drilling and recompleting of wells;

      o     the timing and amounts of production;

      o     the approval of other participants in drilling wells;

      o     development and operating costs; and

      o     negative gas balance conditions.

These and other aspects of the operation of our properties and the success of
our drilling and development activities are entirely dependent on the expertise
and financial resources of our third-party operators.

We may be unable to make acquisitions of producing properties or prospects or
successfully integrate them into our operations.

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

The failure to develop reserves could adversely affect our production and cash
flows.

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

We may have difficulty financing our planned growth.

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

Oil and gas prices are volatile. A substantial decrease in oil and natural gas
prices could adversely affect our business.

                                       12
<PAGE>

      Our revenues, profitability and future growth depend in part on prevailing
natural gas and crude oil prices. Prices also affect the amount of cash flow
available for capital expenditures and our ability to borrow and raise
additional capital. Lower prices may also reduce the amount of natural gas and
crude oil that we can economically produce.

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

      o     the level of consumer product demand;

      o     weather conditions;

      o     domestic and foreign governmental regulations;

      o     the price and availability of alternative fuels;

      o     political conditions in oil and gas producing regions;

      o     the domestic and foreign supply of oil and gas;

      o     market uncertainty; and

      o     worldwide economic conditions.

We may not have good and marketable title to our properties.

      It is customary in the oil and gas industry that upon acquiring an
interest in a non-producing property, that only a preliminary title
investigation be done at that time and that a drilling title opinion be done
prior to the initiation of drilling, neither of which can substitute for a
complete title investigation. We have followed this custom to date and intend to
continue to follow this custom in the future. If the title to our prospects
should prove to be defective, we could lose the costs that we have incurred in
their acquisition, or incur substantial costs for curative title work.

Competition in our industry is intense, and we are smaller and have a more
limited operating history than most of our competitors.

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

Oil and natural gas operations involve various risks.

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

      Federal and state regulation of oil and gas production and transportation,
tax and energy policies, changes in supply and demand and general economic
conditions all could adversely affect our ability to produce and market our
natural gas and crude oil. Production from gas wells in many geographic areas of

                                       13
<PAGE>

the United States, including Louisiana and Texas, has been curtailed or shut-in
for considerable periods of time due to a lack of market demand, and such
curtailments may continue for a considerable period of time in the future. There
may be an excess supply of gas in areas where the Company's operations will be
conducted. In such event, it is possible that there will be no market or a very
limited market for the Company's production.

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

We lack insurance that would lower risks to our investors.

      We do not maintain any insurance against certain losses or liabilities
which may arise from operations, including some pollution and environmental
risks. We also do not have "key man" life insurance, or errors and omissions
coverage. In addition to the operational risks that this poses for us, it may
make it more difficult to recruit or maintain executive officers and directors.

We are subject to complex federal, state and local laws and regulations that
could adversely affect our business.

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

      o     discharge permits for drilling operations;

      o     drilling bonds;

      o     reports concerning operations;

      o     spacing of wells;

      o     unitization and pooling of properties;

      o     environmental protection; and

      o     taxation.

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

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

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

Risks Related to the Ownership of our Stock

We may experience volatility in our stock price, which could negatively affect
your investment, and you may not be able to resell your shares at or above the
offering price.

                                       14
<PAGE>

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

      o     quarterly variations in operating results;

      o     changes in financial estimates by securities analysts;

      o     changes in market valuations of other similar companies;

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

      o     additions or departures of key personnel;

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

      o     future sales of common stock.

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

Because our securities trade on the OTC Bulletin Board, your ability to sell
your shares in the secondary market may be limited.

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

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

A large number of shares will be eligible for future sale and may depress our
stock price.

      Our shares that are eligible for future sale may have an adverse effect on
the price of our stock. As of January 3, 2005, there were 12,813,327 shares of
our common stock outstanding. As of the date of this annual report, over five
million shares of our common stock will be freely tradeable without substantial

                                       15
<PAGE>

restriction or the requirement of future registration under the Securities Act
of 1933. The remainder of our outstanding shares, most of which are held by our
officers, directors and greater than 5% shareholders, may be sold without
registration under the exemption from registration provided by Rule 144 under
the Securities Act. In addition, as of January 3, 2005, an additional 2,457,624
shares were subject to outstanding options or warrants or were issuable upon the
conversion of our Class A Preferred Shares.

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

We do not have cumulative voting and a small number of existing shareholders
control our company, which could limit your ability to influence the outcome of
shareholder votes.

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

      Our executive officers and directors, together with our two largest
shareholders, beneficially own as of January 3, 2005 approximately 53% of our
common stock. As a result, these entities and individuals will be able to
control the outcome of shareholder votes, including votes concerning the
election of directors, the adoption or amendment of provisions in our charter or
bylaws and the approval of mergers and other significant corporate transactions.

Our Articles of Incorporation contain provisions that discourage a change of
control.

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

Item 2.  Description of Properties

      The Company's oil and gas leasehold properties, as well as its mineral
properties are described above in Item 1. In addition to the properties
described above, our principal executive offices are located in leased office
space at 6 East Rose Street, Walla Walla, WA 99362. This lease provides for a
monthly rental rate of $400 and expired in June, 2004. We have continued to
lease space in this office on a month-to-month basis since then, and expect to
continue to be able to do so for the foreseeable future. We also have mineral
rights in a number of properties, although we do not presently consider them to
be material to our business on a going forward basis.

Item 3.  Legal Proceedings

      There are no currently threatened or pending claims against Cadence.

Item 4.  Submission of Matters to a Vote of Security Holders

      There were no matters submitted to a vote of security holders for the
quarter ended September 30, 2004. The Company undertook its annual meeting of
shareholders on April 20, 2004. At that meeting the shareholders voted upon and
approved a slate of Directors to serve until the next annual meeting and also
approved a proposed equity compensation plan for the benefit of its officers,
directors, employees, and consultants.

                                       16
<PAGE>

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

Market for Our Common Stock

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

 Quarter Ended     High Bid Quotation Low Bid Quotation
------------------    -------------    -------------
December 31, 2001     $         .87    $         .65
March 31, 2002        $        1.01    $         .90
June 30, 2002         $        1.35    $        1.15
September 30, 2002    $        1.65    $        1.30

December 31, 2002     $        1.90    $        1.51
March 31, 2003        $        1.75    $        1.40
June 30, 2003         $        1.85    $        1.40
September 30, 2003    $        3.55    $        1.75

December 31, 2003     $        3.60    $        2.75
March 31, 2004        $        4.60    $        3.25
June 30, 2004         $        3.40    $        1.62
September 30, 2004    $        2.50    $        0.88

Equity Compensation Plan Information

      The Board of Directors in February, 2004 adopted an equity compensation
plan which was approved by the shareholders at the Company annual meeting on
April 20, 2004. The table below sets forth certain information as of Cadence's
fiscal year ended September 30, 2004 regarding the shares of Cadence's common
stock (i) available for grant or granted under outstanding stock options or (ii)
issuable upon exercise of warrants granted as compensation for services.

<TABLE>
<CAPTION>
                                                                                      Number of securities remaining
                             Number of securities to be       Weighted-average        available for future issuance
                             issued upon exercise of          exercise price of       under equity compensation
                             outstanding options, warrants    outstanding options,    plans (excluding securities in
                             and rights                       warrants and rights     the first column of this table)
---------------------------- -------------------------------- ----------------------- --------------------------------
<S>                                      <C>                          <C>                         <C>
Compensatory warrants or                 400,000                      $3.73                       600,000
options approved by
security holders

Compensatory warrants or
options  not approved by
security holders                        1,030,140                     $1.66                         -0-
</TABLE>


                                       17
<PAGE>

Holders

         As of January 3, 2005, there were 430 holders of record of our common
stock, although we believe that there are additional beneficial owners of our
common stock who own their shares in "street name."

Dividends

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

Recent Sales of Unregistered Equity Securities

         At the time of issuance, each investor or recipient of unregistered
securities was either an accredited investor or a sophisticated investor. Each
investor had access to Cadence's most recent Form 10-K, all quarterly and
periodic reports filed subsequent to such Form 10-K and Cadence's most recent
proxy materials.

         Between August 2001 and February 2002, Cadence sold an aggregate of
1,716,834 units to 25 accredited investors, each unit consisting of one share of
common stock and a warrant to purchase one share of common stock, for an
aggregate of $515,050.20. No sales commissions were paid in connection with this
transaction. The units were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

         In October 2001, Cadence sold 200,000 shares of its common stock to an
accredited investor, for $60,000. No sales commissions were paid in connection
with this transaction. The shares were issued in reliance upon the exemption
from registration provided by Section 4 (2) of the Securities Act.

         Between October 15, 2001 and October 26, 2001 Cadence issued an
aggregate of 110,000 shares of its common stock to three sophisticated investors
in consideration of certain consulting services provided to Cadence. No sales
commissions were paid in connection with this transaction. The shares were
issued in reliance upon the exemption from registration provided by Section 4(2)
of the Securities Act.

         On November 30, 2001, Cadence issued 800,000 shares of its common stock
to three sophisticated investors in consideration of certain consulting services
provided to Cadence. No sales commissions were paid in connection with this
transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act.

         On November 30, 2001, Cadence issued 12,500 shares of its common stock
to one sophisticated investor in consideration of certain services provided to
Cadence. No sales commissions were paid in connection with this transaction. The
shares were issued in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act.

         In January 2002, (i) Cadence issued 100,000 shares of its common stock
to one accredited investor in payment of $30,000 of principal and interest on a
note made by Cadence in favor of the investor, (ii) Cadence issued 113,500
shares of its common stock to two of its executive officers in payment of
salaries that were past due, aggregating $34,000, and (iii) Cadence issued
300,000 shares of its common stock to three accredited investors and received
marketable securities of Enerphaze Corporation valued at $90,000. No sales
commissions were paid in connection with these transactions. The shares were
issued in reliance upon the exemption from registration provided by Section 4(2)
of the Securities Act

         On January 15, 2002, Cadence issued 10,000 shares of its common stock
to one sophisticated investor in consideration of certain consulting services
provided to Cadence. No sales commissions were paid in connection with this
transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

         Between April and June 2002, Cadence sold an aggregate of 1,932,802
units to 5 accredited investors, each unit consisting of one share of common
stock and a warrant to purchase one share of common stock, for an aggregate of
$579,840.60. Each warrant was exercisable at a price of $.15 per share and have
all been exercised. No sales commissions were paid in connection with this
transaction. The Units were issued in reliance upon the exemption from

                                       18
<PAGE>

registration provided by Section 4 (2) of the Securities Act. On October 23,
2002, Cadence issued 1,815,316 shares of common stock to four accredited
investors upon the cashless exercise of the warrants granted in the April
through June 2002 offering. On September 15, 2003, Cadence issued 141,668 shares
of its common stock to three accredited investors upon the cashless exercise of
the warrants granted in the April through June 2002 offering. No sales
commissions were paid in connection with the exercise of the warrants. The
shares were issued in reliance upon the exemption from registration provided by
Section 4 (2) of the Securities Act.

         On June 5, 2002, Cadence issued an aggregate of 85,000 shares of its
common stock to three of its officers and/or directors in consideration of
services provided to Cadence. No sales commissions were paid in connection with
this transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

         On June 5, 2002, Cadence issued 20,000 shares of its common stock to
one sophisticated investor in consideration of certain consulting services
provided to Cadence. No sales commissions were paid in connection with this
transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

         On July 1, 2002, Cadence issued 100,000 shares of its common stock to
one sophisticated investor in consideration of certain consulting services
provided to Cadence. No sales commissions were paid in connection with this
transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

         From July through October 2002, Cadence sold an aggregate of 212,500
units to 7 accredited investors, each unit consisting of one share of common
stock and a warrant to purchase one share of common stock, for an aggregate of
$140,625. Each warrant is exercisable at a price of $1.35 per share and expires
three years from the date of issuance. No sales commissions were paid in
connection with this transaction. The units were issued in reliance upon the
exemption from registration provided by Section 4 (2) of the Securities Act.

         On August 28, 2002, Cadence issued 60,000 shares of its common stock to
one sophisticated investor in consideration of certain services provided to
Cadence. No sales commissions were paid in connection with this transaction. The
shares were issued in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act.

         On August 30, 2002, Cadence issued 10,150 shares of its common stock to
one sophisticated investor in consideration of certain consulting services
provided to Cadence. No sales commissions were paid in connection with this
transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

         On October 17, 2002, Cadence issued 13,500 shares of its common stock
to one sophisticated investor in consideration of certain consulting services
provided to Cadence. No sales commissions were paid in connection with this
transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

         Between November 2002 and March 2003, Cadence issued 34,950 shares of
Class A Preferred Shares to 8 investors who were not US persons under Regulation
S of the Securities Act for an aggregate of $52,425. No sales commissions were
paid in connection with this transaction. The shares were issued in reliance
upon the exemption from registration provided by Regulation S of the Securities
Act.

         During fiscal 2003, Howard M. Crosby made two loans to Cadence. One
loan in December 2002 was in the principal amount of $70,000, bearing interest
at 5% and the other loan made in February 2003 in the principal amount of
$50,000 bearing interest at a rate of 8%. Cadence issued 14,000 shares of its
common stock as an inducement to making the $70,000 loan and 20,000 shares as an
inducement to making the $50,000 loan. Cadence repaid $60,000 and has agreed to
issue 4,000 shares of its common stock in repayment of the remaining $10,000
principal amount outstanding on the $70,000 loan. Cadence repaid $25,000 of the
$50,000 loan in cash and issued 25,000 shares of its common stock to repay the
remaining $25,000 principal amount outstanding. No sales commissions were paid
in connection with these transactions. The shares were issued in reliance upon
the exemption from registration provided by Section 4(2) of the Securities Act.

                                       19
<PAGE>

         In February 2003, Kevin Stulp, one of Cadence's directors, made a
bridge loan to Cadence in the principal amount of $50,000, bearing interest of
8% per annum. Cadence issued 20,000 shares of its stock to Mr. Stulp as an
inducement to making the loan. In July 2003, Cadence issued 25,000 shares of its
stock in repayment of $25,000 of the principal amount of such loan and 100,000
shares of common stock upon the exercise of a warrant at $.75 per share. At
September 30, 2004, the Company issued another 25,000 shares of its stock in
full payment of the remaining loan principal of $25,000. No sales commissions
were paid in connection with these transactions. The shares were issued in
reliance upon the exemption from registration provided by Section 4 (2) of the
Securities Act.

         On February 4, 2003, Cadence issued an aggregate of 150,000 shares of
its common stock to four of its officers and/or directors in consideration of
services provided to Cadence. No sales commissions were paid in connection with
this transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

         On February 19, 2003, Cadence issued 5,000 shares of its common stock
to one sophisticated investor in consideration of certain consulting services
provided to Cadence. No sales commissions were paid in connection with this
transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

         On February 19, 2003, Cadence issued 40,000 shares of its common stock
to an accredited investor as an inducement for making a loan to Cadence of
$100,000. No sales commissions were paid in connection with this transaction.
The shares were issued in reliance upon the exemption from registration provided
by Section 4 (2) of the Securities Act.

         Between April and May 2003, Cadence issued an aggregate of 44,000
shares of its common stock to two sophisticated investor in consideration of
certain consulting services provided to Cadence. No sales commissions were paid
in connection with this transaction. The shares were issued in reliance upon the
exemption from registration provided by Section 4 (2) of the Securities Act.

         On May 7, 2003, Cadence issued an aggregate of 75,000 shares of its
common stock to four of its officers and/or directors in consideration of
services provided to Cadence. No sales commissions were paid in connection with
this transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

         On May 7, 2003, Cadence issued 10,000 shares of its common stock to one
sophisticated investor in consideration of certain consulting services provided
to Cadence. No sales commissions were paid in connection with this transaction.
The shares were issued in reliance upon the exemption from registration provided
by Section 4 (2) of the Securities Act.

         Between May and August 2003, Cadence sold an aggregate of 730,000
shares of its common stock to 16 accredited investors for an aggregate of
$710,000. No sales commissions were paid in connection with this transaction.
The shares were issued in reliance upon the exemption from registration provided
by Section 4 (2) of the Securities Act.

         On February 19, 2003, Cadence issued 6,000 shares of its common stock
to one sophisticated investor in consideration for a loan of $30,000, which was
subsequently repaid.

         In June 2003, Nathan Low loaned $300,000 to Cadence Resources
Corporation Limited Partnership, of which Cadence was the sole general partner
and Mr. Low was the sole limited partner. As partial inducement for making this
loan, Cadence issued Mr. Low 120,000 shares of common stock. No sales
commissions were paid in connection with this transaction. The shares were
issued in reliance upon the exemption from registration provided by Section 4
(2) of the Securities Act.

         In July 2003, CGT Management, Ltd. loaned Cadence $300,000 at 10%
interest. See "Related Parties Transactions." As an inducement for making the
loan, Cadence issued 120,000 shares to CGT Management. No sales commissions were
paid in connection with this transaction. The shares were issued in reliance
upon the exemption from registration provided by Section 4 (2) of the Securities
Act.

                                       20
<PAGE>

         On July 1, 2003, Cadence issued an aggregate of 95,000 shares of its
common stock to four of its officers and/or directors in consideration of
services provided to Cadence. No sales commissions were paid in connection with
this transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

         In August 2003, Cadence issued 102,000 shares of its common stock to
four sophisticated investors in consideration of certain consulting services
provided to Cadence. No sales commissions were paid in connection with this
transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

         On September 15, 2003, Cadence issued an aggregate of 95,000 shares of
its common stock to four of its officers and/or directors in consideration of
services provided to Cadence. No sales commissions were paid in connection with
this transaction. The shares were issued in reliance upon the exemption from
registration provided by Section 4 (2) of the Securities Act.

         Between September and October 2003, Cadence sold an aggregate of
1,721,400 shares of its common stock to 29 accredited investors for an aggregate
of $4,303,500. Sales commissions consisting of (i) $376,565 in cash, (ii) 11,000
shares of common stock valued at $2.90 per share or $31,900 in the aggregate and
(iii) options to purchase 162,140 shares of common stock at $2.50 per share to
one finder or an entity controlled by such finder, and additional fees totaling
$11,250 to two other finders. All finders are accredited investors. The shares
and warrant were issued in reliance upon the exemption from registration
provided by Section 4 (2) of the Securities Act.

         On January 23, 2004, Cadence issued 5,000 shares of its common stock
and an option to purchase 75,000 shares of its common stock to each of Glenn
DeHekker and Jeffrey M. Christian in consideration of their becoming directors
of Cadence. The shares and options were issued in reliance upon the exemption
from registration provided by Section 4 (2) of the Securities Act.

         On January 23, 2004, Cadence issued an option to purchase 250,000
shares of its common stock to Douglas Newby in consideration of his becoming a
Vice President of Cadence. The options were issued in reliance upon the
exemption from registration provided by Section 4 (2) of the Securities Act.

         On February 25, 2004, Cadence issued 15,000 shares to David Nahmias and
15,000 shares to Lyons Capital, LLC in consideration of services provided to
Cadence. The shares were issued in reliance upon the exemption from registration
provided by Section 4 (2) of the Securities Act.

         On April 2, 2004, Cadence sold 120 units consisting of a note in the
principal amount of $50,000 and a warrant to purchase 6,375 shares of Common
Stock, exercisable at $4.00 per share, to seven accredited investors for an
aggregate sales price of $6,000,000. As compensation for his services in
connection with this private placement, Cadence paid Nathan A. Low, an
accredited investor, $300,000 and issued him a warrant to purchase 76,500 shares
of Common Stock, exercisable at $4.00 per share. All the warrants described in
this paragraph expire on April 2, 2007. The shares and warrant were issued in
reliance upon the exemption from registration provided by Section 4 (2) of the
Securities Act.

         On April 15, 2004 Cadence issued 10,000 shares each to Glenn DeHekker,
Jeff Christian, and Kevin Stulp for Director services for two quarters. On the
same date Cadence also issued 5,000 shares each to Howard Crosby and John Ryan
for Director services for one quarter, and 5,000 shares each to Howard Crosby,
John Ryan, and Doug Newby for Officer services for one quarter. The shares were
issued in reliance upon the exemption from registration provided by Section 4
(2) of the Securities Act.

         On June 2, 2003, Cadence issued 6,000 shares to Proteus Capital Corp.
in consideration of services rendered to the Company. On the same date Cadence
issued 10,000 shares to Robert Denison upon exercise of warrants at $1.35. The
shares were issued in reliance upon the exemption from registration provided by
Section 4 (2) of the Securities Act.

         On August 20, 2004 Cadence issued 25,000 shares to Howard Schraub and
17,500 shares to Lyons Capital LLC for professional services rendered. On the
same date Cadence issued 5,000 shares to Glenn DeHekker, Kevin Stulp and Jeff
Christian for quarterly services as Directors to the Company, and issued 5,000
shares to Doug Newby for quarterly services as an Officer of the Company. Also
on the same date Cadence issued 15,000 shares to RMB International (Dublin),
Limited as a break-up fee for a proposed debt financing. In each case the shares
were issued in reliance upon the exemption from registration provided by Section
4 (2) of the Securities Act.

                                       21
<PAGE>

Item 6.  Management's Discussion and Analysis or Plan of Operations

         You should read the following discussion in conjunction with our
financial statements, together with the notes to those statements, included at
pages F-1 to [F-39] of this Form 10-KSB. 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, particularly those identified in "Risk Related to our Business."

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 the Company in non-arms' length transactions.

Recent Developments

         On November 19, 2004, the Company issued a press release announcing
that 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. Please see the press release attached as an Exhibit to the Current
Report on Form 8-K filed with the SEC on November 23, 2004. The Company and
Aurora Energy, Ltd. are now in the process of negotiating the terms of the
proposed transaction and reviewing the books and records of the respective
companies. It is anticipated that the definitive merger agreement will be
finalized in the second fiscal quarter of 2005.


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 of 2004, the Company borrowed
$410,000 in short term notes from three directors of the Company and a company

                                       22
<PAGE>

of which two of the Company'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.

         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 our fiscal years 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 the Company, 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
were primarily related to the purchase of well equipment, including pipelines,
tanks, casings and pumping units.

         As of December 28, 2004, we had cash and cash equivalents of
approximately $585,000. We anticipate funding most of our near-term operating
and administrative overhead out of revenues from the sale of our Texas oil
production and our recently added Louisiana gas production.

Results of Operations

Years ended September 30, 2004 and 2003

         Revenues

         During the year ended September 30, 2004, revenues from the sale of oil
and gas totaled approximately $2,554,320, primarily from production from our
wells in Texas and Louisiana, and Michigan. This revenue came from the sale of
25,887 net barrels of oil at an average price of $36.11 per barrel from our
wells in Texas and 37,517 mcf of natural gas at an average price of $5.83 per
mcf from our wells in Louisiana and Michigan. Revenues from oil and gas

                                       23
<PAGE>

exploration of $337,355 were received in the comparable period of fiscal 2003.
This revenue came from the sale of 11,447 net barrels of oil at an average price
of $29.47 per barrel. There was no production from our wells in Louisiana or
Michigan in fiscal 2003. We also realized a cash receipt of $50,000 in April
2003 from Bridas Energy upon transfer of drilling and production rights in our
leasehold acreage in DeSoto Parish, Louisiana that we are currently exploring
with them on a joint basis.

         Expenses

         Our expenses during fiscal 2003 and 2004 break into two general
categories: corporate and administrative overhead and expenses from oil and gas
operations. Our overall general and administrative expenses include officer
compensation, rent, travel, audits and legal fees associated with SEC filings,
directors fees, investor relations and related consulting fees, stock transfer
fees and other items associated with the costs of being a public entity.
Expenses from oil and gas operations include consulting fees for technical and
professional services related to oil and gas activities, leases, drilling
expenses, exploration expenses, depletion, depreciation and amortization of oil
and gas properties and related equipment, and other expenses related to the
procurement and development of oil and gas properties.

         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:

<TABLE>
<CAPTION>
                                                         Year Ended September 30,
                                         ------------------------------------------------------
                                                         % of 2004                 % of 2003
                                                          Total                       Total
                                           2004          Expenses         2003       Expenses
                                         ----------    ----------     ----------    ----------
<S>                                      <C>                 <C>      <C>                 <C>
Corporate and Administrative Overhead    $2,478,615          40.7%    $1,732,756          74.8%
Expenses from Oil and Gas Operations     $3,601,889          59.3%       583,393          25.2%
                                         ----------    ----------     ----------    ----------
Total Expenses                           $6,080,504           100%    $2,316,149         100.0%
                                         ==========    ==========     ==========    ==========
</TABLE>

         The Company's general and administrative expenses increased from fiscal
2003 to fiscal 2004 by approximately $1,032,000, principally because of
increased legal costs paid to outside counsel in connection with the filing of
two separate SB-2 registration statements during the course of the fiscal year.
These registration statements also substantially increased the amounts paid to
outside accountants as well.



The comparable year to year increases in oil
and gas related expenditures are summarized in
the following table, which reflects the major
expense categories for expenses from oil and
gas operations for fiscal 2004 and 2003 These
expenses increased over sixfold 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.

<TABLE>
<CAPTION>
                                                                Year Ended September 30,
                                                 -----------------------------------------------------
                                                          2004                           2003
                                                 ------------------------     ------------------------
                                                              % of Total                   % of Total
                                                   Amount       Expenses       Amount       Expenses
                                                 ----------    ----------     ----------    ----------
<S>                                              <C>                  <C>     <C>                 <C>
     Exploration and drilling                    $  134,452           3.7%    $  109,968          18.8%
     Depreciation, depletion and amortization    $2,648,899          73.6%        57,310           9.8%
     Oil and gas lease expenses                  $  538,167          14.9%       302,204          51.8%
     Oil and gas production costs                $  174,836           4.9%        34,577           6.0%
     Oil and gas lease operating expenses                 0           0.0%        19,334           3.3%
     Oil and gas consulting                      $  105,535           2.9%        60,000          10.3%
                                                 ----------    ----------     ----------    ----------
Total Expenses from oil and gas operations       $3,601,889           100%    $  583,393         100.0%
                                                 ----------    ----------     ----------    ----------
                                                 ==========    ==========     ==========    ==========
</TABLE>


                                       24
<PAGE>

Although exploration and drilling expenses and oil and gas lease expenses
increased by some $261,000 from the 2003 fiscal year, by far the largest
increase in oil and gas related expenses came in the category of depreciation,
depletion and amortization, which increased by over $2,550,000 from the prior
year, and as a percentage increased from 9.8% to 73.6% of the total. This was
due primarily to the decision by the Company to impair the carrying value of two
De Soto Parish gas wells at June 30th, and to impair the value of three more De
Soto Parish gas wells as of September 30, as well as a downward adjustment in
the total gas reserves as determined by Ralph E Davis and Associates, the
independent petroleum engineers.

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 7.  Financial Statements

      The Financial Statements of the Company appear at pages F-1 to F-33.

Item 8.  Changes in and Disagreements with Accountants.

      There have been no disagreements with accountants on accounting and
financial disclosures from the inception of the Company through the date of this
Annual Report.

Item 8A.  Controls and Procedures.

      The Company conducted an evaluation, under the supervision and with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures, as defined in rules promulgated under the
Securities Exchange Act of 1934, as amended, as of September 30, 2004. Based
upon the evaluation, the Chief Executive Officer and the Chief Financial Officer
have concluded that these disclosure controls and procedures are effective.

      There have been no changes in the Company's internal controls over
financial reporting that has materially affected or is reasonably likely to
materially affect the Company's internal controls over financial reporting.


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons

The Company incorporates by reference herein the sections entitled "ELECTION OF
DIRECTORS" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" in the
Company's Proxy Statement to be mailed to stockholders in connection with the
Company's 2005 annual meeting.

Item 10. Executive Compensation

The Company incorporates by reference herein the section entitled "EXECUTIVE
COMPENSATION" in the Company's Proxy Statement to be mailed to stockholders in
connection with the Company's 2005 annual meeting.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The Company incorporates by reference herein the section entitled "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" in the Company's Proxy Statement to be
mailed to stockholders in connection with the Company's 2005 annual meeting.

                                       25
<PAGE>

Item 12. Certain Relationships and Related Transactions

The Company incorporates by reference herein the section entitled "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" in the Company's Proxy Statement to be
mailed to stockholders in connection with the Company's 2005 annual meeting.

Section 16(a)     Exhibits

<TABLE>
<CAPTION>

<S>               <C>
      3.1        Restated Articles of Incorporation of Cadence Resources Corporation filed with the Utah Secretary
                 of State on November 24, 2003*
      3.2        Bylaws of Cadence Resources Corporation, a Utah corporation, adopted June 14, 2001*
      4          Articles of Amendment to the Articles of Incorporation, relating to the Class A Preferred Stock*
     10.1        Joint Exploration Agreement with Bridas Energy USA, Inc. dated April 30, 2003*
     10.2        Lease Acquisition and Participation Agreement with Aurora Energy, Ltd. dated December 8, 2002*
     10.3        Consulting Agreement with Lucius C. Geer dated August 1, 2003*
     10.4        Agreement dated effective September 30, 2003 with Nathan A. Low, Sunrise Securities Corporation and
                 Cadence Resources Corporation Limited Partnership*
     14          Code of Ethics*
     23.1        Consent of Ralph E. Davis Associates, Inc.
     23.2        Consent of Independent Auditors
     31.1        Certification of Chief Executive Officer
     31.2        Certification of Vice President (Principal Financial and Accounting Officer)
     32          Certificate of Chief Executive Officer and Principal Accounting Officer as required by 18 U.S.C.
                 Section 1350
</TABLE>

----------
* Filed as an Exhibit to the Company's 10-KSB for the fiscal year ended
September 30, 2003, filed January 13, 2004, and incorporated by reference
herein.

Item 13. Reports on Form 8K

Filed on 10/21/03 relating to filing of news release
Filed on 03/01/04 relating to filing of news release
Filed on 04/05/04 relating to filing of news release
Filed on 06/29/04 relating to filing of news release

Item 14. Principal Accountant Fees And Services

The Company incorporates by reference herein the section entitled "INDEPENDENT
AUDITORS" in the Company's Proxy Statement to be mailed to stockholders in
connection with the Company's 2005 annual meeting.


                                       26
<PAGE>

         CADENCE RESOURCES CORPORATION
         SUPPLEMENTAL INFORMATION
         For report period ending September 30, 2004

         Oil and Gas Producing Activies

         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 retained the services of an independent petroleum
consultant to estimate its oil reserves in Texas and natural gas reserves in
Louisiana at September 30, 2004. The oil and gas reserve estimates include
reserves in Texas and Louisiana and in which Cadence holds an economic interest
under lease and operating agreements. Natural gas reserves have not been
estimated for Michigan because the operator of the property has not undertaken
an independent study to S.E.C. reportable standards of the reserves of natural
gas in the wells in which the Company has an interest.

         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 changes in proved reserves for the years ended September 30, 2004,
2003 and 2002 are shown below. The reserves at September 30, 2002 were estimated
by the management of Cadence. Oil and gas reserves shown at September 30, 2003
and September 30, 2004 are estimated by Ralph E. Davis Associates, Houston, TX.
Of the oil reserves estimated at September 30, 2003, all were in a developed
producing category. Of the oil reserves estimated at September 30, 2004,
approximately 30,000 barrels were in a developed producing category and
approximately 12,000 were in an undeveloped category. Of the gas reserves
estimated at September 30, 2004, all were in a developed producing category.

<TABLE>
<CAPTION>
                                                           Oil Reserves                       Gas
                                                            (m/bbls)                     Reserves (MMcf)
                                                      ------------------------         ----------------------
<S>                                                            <C>                              <C>
         Reserves at October 1, 2001                           -                                -
         Extensions and discoveries                            101                              -
         Production/sales                                      (3)                              -
                                                      ---------------------            ----------------------
         Reserves at September 30, 2002                        98                               -
                                                      =====================            ======================

         Reserves at October 1, 2002                           98                               -
         Revision of previous estimate                         (19)                             -
         Production/sales                                      (11)                             -
                                                      ---------------------            ----------------------
                                                      ---------------------            ----------------------
         Reserves at September 30, 2003                        68                               -

         Reserves at October 1, 2003                           68                               -
         Production/sales                                      (26)                             (37.5)
         Extensions and discoveries                            -                                623.2
         Reserves at September 30, 2004                        42                               585.7
                                                      ---------------------            ----------------------
</TABLE>

         The aggregate amounts of capitalized costs relating to oil and gas
producing activities and the related accumulated depreciation, depletion and
amortization as of September 30, 2003 and 2002 were as follows:


                                       27
<PAGE>

<TABLE>
<CAPTION>
                                                                         9/30/04           9/30/03
                                                                     -------------     -------------
                                                                     -------------     -------------
<S>                                                                  <C>               <C>
         Proved properties                                           $   5,731,108     $     290,747
         Unproved properties                                               505,501         1,133,836
         Wells and related equipment                                       855,522           202,886
and facilities
         Support equipment and                                             506,427           151,963
facilities
         Prepaid oil and gas leases                                        456,219          395,971,
         Accumulated depreciation,
         depletion and amortization                                     (2,725,306)          (61,611)
                                                                     -------------     -------------
         Total capitalized costs                                     $   5,329,511     $   2,113,792
                                                                     =============     =============
</TABLE>

         Costs both capitalized and expensed, which were incurred in oil and
gas-producing activities during the years ended September 30, 2004, 2003 and
2002, 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.

                           09/30/04           09/30/03            09/30/02
                        ---------------    ---------------    ---------------
         Property
acquisition costs:
         Proved         $            --    $            --    $         8,000
properties
         Unproved             4,592,649            319,188            245,483
properties
         Exploration            134,452            139,010            456,086
costs
         Development                 --          1,479,030            306,761
costs
         Operating              538,167            281,143             12,279
expenses
                        ---------------    ---------------    ---------------
         Total          $     5,265,268    $     2,218,371    $     1,028,609
expenditures
                        ===============    ===============    ===============

         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 operations for oil and gas producing activities (including
operating overhead) for the year ended September 30, 2004 were as follows:

<TABLE>
<CAPTION>
<S>                                                                  <C>
         Revenues                                                    $       2,541,447
                                                                     -----------------
         Depreciation, depletion and amortization                           (2,663,695)
         Oil & gas lease expenses                                             (565,148)
         Exploration and drilling                                             (134,452)
         Oil and gas production expenses                                      (174,836)
         Other operating expenses                                              (95,535)
                                                                     -----------------
              Total expenses                                                (3,633,666)
                                                                     -----------------
         Results before income taxes                                        (1,092,219)
         Income tax expense                                                         --
                                                                     -----------------
         Results of operations from oil and gas producing            $      (1,092,219)
activities
                                                                     =================

         Standardized Measure of Future Net Cash Flows
         Future cash flows                                           $       1,930,539
         Future development and production costs                              (469,039)
         Future income tax expense                                                  --
                                                                     -----------------
         Future net cash flows                                               1,461,500
         10% annual discount                                                   213,000
                                                                     -----------------
         Standardized measure of discounted future net cash flows    $       1,248,500
                                                                     =================
</TABLE>


                                       28
<PAGE>

         Future net cash flows were computed using fiscal year-end prices of
West Texas Intermediate crude. 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
fiscal year, based on year-end costs and assuming continuation of existing
economic conditions. Estimated future income tax expense is normally calculated
by applying fiscal 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 reserves 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.

         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.


                                       29
<PAGE>

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this annual report on Form 10-KSB to be
signed on its behalf by the undersigned thereto duly authorized.

                                                Cadence Resources Corporation
                                                (Registrant)



Date: January 7, 2005                           By: /s/ Howard M. Crosby
                                                    ----------------------------
                                                    Howard M. Crosby, President

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report on Form 10-KSB has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
    SIGNATURE                                                   OFFICE                          DATE
    ---------                                                   ------                          ----
<S>                                                     <C>                                      <C>
 /s/Howard M. Crosby
--------------------------------                       President and  Director (Principal      January 7, 2005
 Howard M. Crosby                                      Executive Officer)

                                                       Vice President (Principal Financial     January 7, 2005
 /s/ John P. Ryan                                      and Principal Accounting Officer) and
--------------------------------                       Director
 John P. Ryan

 /s/ Kevin Stulp                                       Director                                January 7, 2005
 -------------------------------
 Kevin Stulp
                                                       Director                                January 7, 2005
 /s/ Glenn DeHekker
 -------------------------------
 Glenn DeHekker

 /s/ Jeffrey M. Christian                              Director                                January 7, 2005
 -------------------------------
 Jeffrey M. Christian
</TABLE>

<PAGE>

                          CADENCE RESOURCES CORPORATION
                              FINANCIAL STATEMENTS
                               September 30, 2004


<PAGE>

                          CADENCE RESOURCES CORPORATION

                               September 30, 2004

                                    CONTENTS

Independent Auditor's Report                                                 1

Financial Statements:

         Balance Sheets                                                      2

         Statements of Operations                                            4

         Statement of Stockholders' Equity                                   5

         Statements of Cash Flows                                            6

Notes to Financial Statement                                                 8

<PAGE>

The Board of Directors
Cadence Resources Corporation
Walla Walla, Washington

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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

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

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




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


                                       1
<PAGE>

                          CADENCE RESOURCES CORPORATION
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      September 30,
                                                       -----------------------------------------
                                                          2004            2003           2002
                                                       -----------    -----------    -----------
<S>                                                    <C>            <C>            <C>
ASSETS

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

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

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

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

      TOTAL ASSETS                                     $ 6,888,163    $ 6,482,077    $ 1,291,768
                                                       ===========    ===========    ===========
</TABLE>

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

                                       2
<PAGE>

                          CADENCE RESOURCES CORPORATION
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                         September 30,
                                                                          --------------------------------------------
                                                                              2004           2003             2002
                                                                          ------------    ------------    ------------
<S>                                                                       <C>             <C>             <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

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

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

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

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

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

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

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


                                       3
<PAGE>

                          CADENCE RESOURCES CORPORATION
                 STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                               Years Ended September 30,
                                                    --------------------------------------------
                                                        2004           2003              2002
                                                    ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>
REVENUES
     Oil and gas sales                              $  2,541,447    $    337,355    $     56,608
     Sale of drilling and production rights                   --          50,000              --
                                                    ------------    ------------    ------------
            Total Revenues                             2,541,447         387,355          56,608
                                                    ------------    ------------    ------------

OPERATING AND ADMINISTRATIVE EXPENSES
     Depreciation, depletion and amortization          2,663,695          57,310           4,312
     Officers' and directors' compensation               725,485         528,727         152,510
     Consulting                                          319,338         531,137         934,254
     Oil and gas lease expenses                          565,148         302,204         131,812
     Oil and gas consulting                              105,535          60,000              --
     Exploration and drilling                            134,452         109,968         128,974
     Oil and gas production costs                        174,836          34,577           5,305
     Lease operating expenses                                 --          19,334          12,279
     Other general and administrative                  1,506,446         386,892         144,192
                                                    ------------    ------------    ------------
         Total Expenses                                6,194,935       2,030,149       1,513,638
                                                    ------------    ------------    ------------

LOSS FROM OPERATIONS                                  (3,653,488)     (1,642,794)     (1,457,030)
                                                    ------------    ------------    ------------

OTHER INCOME (EXPENSE)
     Interest income                                      18,874             136           1,034
     Interest expense and loan fees                     (302,955)       (227,978)         (5,872)
     Partnership income (loss)                                --         (15,200)         10,000
     Gain (loss) on debt forgiveness                          --          (4,699)          6,109
     Other income                                         11,172              --              --
     Loss on sale of investment                           (9,156)             --              --
     Loss on disposition and impairment of assets     (1,236,365)        (67,020)        (29,890)
                                                    ------------    ------------    ------------
         Total Other Income (Expense)                 (1,518,430)       (314,761)        (18,619)
                                                    ------------    ------------    ------------

LOSS BEFORE TAXES                                     (5,171,918)     (1,957,555)     (1,475,649)

INCOME TAXES BENEFIT                                          --              --          66,040
                                                    ------------    ------------    ------------

LOSS FROM CONTINUING OPERATIONS                       (5,171,918)     (1,957,555)     (1,409,609)

GAIN (LOSS) FROM DISCONTINUED OPERATIONS
     Gain (loss) from mining operations (net of
         income taxes)                                        --              --         264,158
                                                    ------------    ------------    ------------

NET LOSS                                              (5,171,918)     (1,957,555)     (1,145,451)

OTHER COMPREHENSIVE INCOME (LOSS)
     Unrealized gain (loss) in market value of
         investments                                    (245,311)         29,297         (98,392)
                                                    ------------    ------------    ------------

COMPREHENSIVE LOSS                                  $ (5,417,228)   $ (1,928,258)   $ (1,243,843)
                                                    ============    ============    ============

LOSS PER COMMON SHARE BASIC AND DILUTED:
     Net loss from continuing operations            $      (0.41)   $      (0.21)   $      (0.28)
     Net gain (loss) from discontinued operations             --              --            0.05
                                                    ------------    ------------    ------------
NET LOSS PER COMMON SHARE                           $      (0.41)   $      (0.21)   $      (0.23)
                                                    ============    ============    ============

WEIGHTED AVERAGE NUMBER OF
     COMMON SHARES OUTSTANDING,
     BASIC AND DILUTED                                12,715,619       9,348,374       4,965,179
                                                    ============    ============    ============
</TABLE>

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

                                       4
<PAGE>

                          CADENCE RESOURCES CORPORATION
                       STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                              Common Stock
                                       ----------------------------      Additional
                                          Number                           Paid-in          Stock           Stock
                                        of Shares         Amount           Capital         Options         Warrants
                                       ------------    ------------     ------------    ------------    ----------
<S>                                       <C>            <C>            <C>             <C>             <C>
Balance,
     September 30, 2001                   2,453,890      $   24,539     $ 12,198,855    $         --    $       --

Shares issued for cash at $0.24
     to $0.50 per share                     783,000           7,830          234,070              --            --

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, accrued
     compensation and prepaid
     expenses at $0.30 to $0.38
     per share                              589,184           5,892          205,775              --            --

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 directors and
     consultants for services                    --              --               --         626,790            --

Net loss for the year ended
     September 30, 2002                          --              --               --              --            --

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

Balance
     September 30, 2002                   6,866,210      $   68,662     $ 13,291,965    $    626,790    $  233,334

<CAPTION>

                                                               Accumulated
                                                                  Other             Total
                                           Accumulated         Comprehensive    Stockholders'
                                             Deficit              Loss             Equity
                                          ------------         -------------   -------------
<S>                                       <C>                   <C>            <C>
Balance,
     September 30, 2001                   $(11,760,681)         $  (150,162)   $   312,551

Shares issued for cash at $0.24
     to $0.50 per share                             --                   --        241,900

Shares issued to officer for debt
     at $0.30 per share                             --                   --         90,000

Shares issued to officers, consultants
     and others for services, accrued
     compensation and prepaid
     expenses at $0.30 to $0.38
     per share                                      --                   --        211,667

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 directors and
     consultants for services                       --                   --        626,790

Net loss for the year ended
     September 30, 2002                     (1,145,451)                  --     (1,145,451)

Unrealized loss on market value
     of investments                                 --              (98,392)       (98,392)
                                          ------------       --------------    -----------

Balance
     September 30, 2002                   $(12,906,132)         $  (248,554)   $ 1,066,065
</TABLE>

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


                                       5
<PAGE>

                          CADENCE RESOURCES CORPORATION
                       STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                Common Stock
                                         ------------------------      Additional
                                           Number                        Paid-in         Stock            Stock
                                          of Shares      Amount          Capital        Options          Warrants
                                         ----------     ---------    ------------     ------------     ------------
<S>                                       <C>           <C>          <C>              <C>              <C>
Balance
     September 30, 2002                   6,866,210     $ 68,662     $ 13,291,965     $    626,790     $    233,334

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

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

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

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

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

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

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

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

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

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

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

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

Net loss for the year ended
     September 30, 2003                          --           --               --               --               --

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

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

<CAPTION>

                                                           Accumulated
                                                              Other            Total
                                          Accumulated      Comprehensive    Stockholders'
                                            Deficit           Loss             Equity
                                          ------------     -------------    -------------
<S>                                       <C>              <C>              <C>
Balance
     September 30, 2002                   $(12,906,132)    $ (248,554)      $  1,066,065

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

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

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

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

Shares issued from exercise of
     warrants                                       --             --                 --

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

Options issued for financing                        --             --                 --

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

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

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

Miscellaneous adjustment                            --             --                 --

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

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

Unrealized gain on market value of
     investments (unaudited)                        --         29,297             29,297
                                          ------------     ------------     ------------
     Balance, September 30, 2003          $(14,863,687)    $ (219,257)      $  4,647,685
                                          ============     ============     ============
</TABLE>

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

                                       6
<PAGE>


                          CADENCE RESOURCES CORPORATION
                       STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                               Common Stock
                                        ----------------------------     Additional
                                           Number                         Paid-in           Stock            Stock
                                          of Shares         Amount        Capital          Options          Warrants
                                        ------------    ------------    ------------     ------------    ------------
<S>                                       <C>           <C>             <C>              <C>             <C>
Balance
     September 30, 2003                   12,512,827    $    125,128    $ 18,343,422     $  1,210,704    $     51,375

Issuance of common stock for cash
     at $2.50 per share                      110,000           1,100         273,900               --              --

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

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

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

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

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

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

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

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

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

Net loss for the year ended
     September 30, 2004                           --              --              --               --              --

Unrealized loss on market value
     of investments                               --              --              --               --              --
                                        ------------    ------------    ------------     ------------    ------------
     Balance September  30, 2004          12,892,327    $    128,923    $ 18,995,458     $  1,642,614    $    794,512
                                        ============    ============    ============     ============    ============

<CAPTION>

                                                         Accumulated
                                                            Other            Total
                                          Accumulated    Comprehensive    Stockholders'
                                            Deficit         Loss             Equity
                                        ------------     ------------     -------------
Balance
<S>                                     <C>              <C>              <C>
     September 30, 2003                 $(14,863,687)    $   (219,257)    $  4,647,685

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

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

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

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

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

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

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

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

Dividends paid                                    --               --             (749)

Deferred financing cost                           --               --          745,237

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

Unrealized loss on market value
     of investments                               --         (245,310)        (245,310)
                                        ------------     ------------     ------------
     Balance September  30, 2004        $(20,035,605)    $   (464,567)    $  1,061,335
                                        ============     ============     ============
</TABLE>

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


                                       7
<PAGE>

                          CADENCE RESOURCES CORPORATION
                            STATEMENTS OF CASH FLOWS

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

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

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

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


                                       8
<PAGE>

                          CADENCE RESOURCES CORPORATION
                            STATEMENTS OF CASH FLOWS

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

Cash, beginning of period                                 3,619,345         40,011       191,684
                                                        -----------    -----------   -----------
Cash, end of period                                     $ 1,922,993    $ 3,619,345   $    40,011
                                                        ===========    ===========   ===========

SUPPLEMENTAL CASH FLOW DISCLOSURE:

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

NON-CASH INVESTING AND FINANCING
      ACTIVITIES:

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

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

                                       9
<PAGE>

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


NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

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

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

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

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

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

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


                                       10
<PAGE>

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

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)

Company is not successful in selling these properties has been made in the
accompanying financial statements. See Note 3.

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

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

                                       11
<PAGE>

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

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

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

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

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

                                       12
<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Fair Value of Financial Instruments
The carrying amounts for cash, receivables, deposits, payables, and advances
from related parties approximate their fair value.

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

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

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

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

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


                                       13
<PAGE>


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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Mineral Properties (continued)
accompanying financial statements, as the Company has changed its focus from
minerals exploration to oil and gas.

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

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

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

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

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

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

Principles of Consolidation
The financial statements include those of the Cadence Resources Corporation and
Celebration Mining Company. All significant inter-company accounts and
transactions have been


                                       14
<PAGE>

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Principles of Consolidation (continued)
eliminated. The financial statements are not considered consolidated statements
since Cadence Resources Corporation was the successor by merger to Celebration
Mining Company.

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

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

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

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

                                       15
<PAGE>

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

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

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

                                       16
<PAGE>

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

NOTE 3 - MINERAL PROPERTIES

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

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

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

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

Other Domestic Properties
In the fourth quarter of the year ended September 30, 2001, the Company elected
to write off all of its interests in mineral properties except for the ViPont
Mine, Kil Group Claims and West


                                       17
<PAGE>

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

NOTE 3 - MINERAL PROPERTIES (Continued)

Other Domestic Properties (continued)
Mullan Group Claims. The net effect of this write down was to record a loss on
asset impairment of $432,090 during the year ended September 30, 2001.

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

NOTE 4 - PROPERTY AND EQUIPMENT

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

NOTE 5 - INVESTMENTS

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


                                       18
<PAGE>

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

NOTE 5 - INVESTMENTS (Continued)

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

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

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

Other information regarding the Company's investments follows:

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


                                       19
<PAGE>


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

NOTE 5 - INVESTMENTS (Continued)

Nevada-Comstock Mining Company (formerly Caledonia Silver-Lead Mines, Inc.)
The Company on October 31, 2001 received 3,501,980 shares of the $0.10 par value
common stock of Caledonia Silver-Lead Mines, Inc. (an affiliated company) in
exchange for its Kil Group and West Mullan Group claims. The stock received was
recorded at its par value of $350,198 which, in the opinion of management,
approximates its fair value. At September 30, 2003, this investment was written
off to reflect the mining company's dormancy. In the year ended September 30,
2004, the Company's investment in the mining company increased to $12,000 as
funds were advanced to cover annual filing fees on patented mining claims.

TN Oil Company
In August 2004, the Company acquired a 25% equity ownership in TN Oil Company,
which owns oil leases in central and north central Tennessee.

Western Goldfields, Inc.
In 2002, the Company exchanged fully depreciated mining equipment for shares of
a privately held business, Calumet Mining Company, which was eventually acquired
by Western Goldfields, Inc. Upon completion of the acquisition, the Company
received 160,000 shares of Western's common stock. During 2003, the Company
acquired an additional 21,200 shares of Western stock for $24,730. At September
30, 2004, the fair market value of the Company's holdings in Western was
$102,148.

Cadence Resources Corporation Limited Partnership
On August 8, 2002, the Company formed a limited partnership in the State of
Washington whereby the Company became the managing general partner and an
outside individual investor became the initial limited partner. In connection
with the formation of the Partnership, the Company agreed to contribute $12,500
and its leasehold interest in an oil well ("2B", which ultimately was a dry
hold) in Wilbarger County, Texas and the limited partner contributed $250,000 in
cash. The entity, Cadence Resources Corporation Limited Partnership (hereinafter
"CRCLP" or "the Partnership") was formed to invest in oil and gas properties in
Texas and Louisiana. The limited partner's interest was purchased by the Company
in a transaction with an effective date of September 30, 2003, at which time the
Company held all of the general partner interests and limited partner interests
in the Partnership. See Note 13.

NOTE 6 - COMMON STOCK

During the year ended September 30, 2004, the Company issued 219,500 shares of
its common stock to officers, directors and consultants for services valued at
$329,355, 25,000 shares in repayment of a related party loan of $25,000, 15,000
shares for financing expense valued at $11,625, 110,000 shares for cash proceeds
of $275,000. Warrants previously issued were exercised for 10,000 shares at
$1.35 per share.


                                       20
<PAGE>


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

NOTE 6 - COMMON STOCK (Continued)

During the year ended September 30, 2003, the Company sold 212,500 "units" to
investors at prices ranging from $0.50 to $0.80 per unit in a private placement.
Each unit consists of one share of common stock and one warrant exercisable at
$1.35 per common share for three years. Sales of these units generated cash
proceeds of $110,000. Warrants previously issued (2,320,175) were exercised for
1,956,984 shares of common stock in "cashless" redemptions. (See Note 9.) During
this same period the Company sold 2,625,183 shares of its common stock for
$4,316,599 net of expenses of $347,850. The Company also issued 496,500 shares
of its common stock to officers, directors and consultants for services valued
at $540,675 and 220,000 shares for loan consideration valued at $207,000. In
addition, the Company issued to a related party an additional 120,000 shares
valued at $120,000 as an inducement for a loan. The value of this inducement was
used to reduce the payable to related party.

During the year ended September 30, 2002, the Company issued 589,184 shares of
its common stock to officers, consultants and others for services and prepaid
expenses valued at $211,667, 400,000 shares of its common stock for an
investment, 6,800 shares of its common stock to an officer for reimbursement of
expenses valued at $7,000 and 300,000 shares of its common stock to an officer
in payment of a note payable. These transactions were valued in accordance with
a plan for stock issuance previously approved by the board of directors. The
Company also sold 783,000 shares of its common stock for $241,900.

During the year ended September 30, 2002, the Company also sold 2,333,336
"units" to investors, two officers of the Company and another entity under
common control at $0.30 per unit in a private placement. Each unit consists of
one share of common stock and one warrant exercisable at $0.30 per common share
for five years. Sales of these units generated cash proceeds of $700,000. Two
officers of the Company and another entity under common control invested $50,000
in these common stock units. (See Note 9.)

NOTE 7 - REDEEMABLE PREFERRED STOCK

On April 23, 2001, the Company's board of directors authorized 20,000,000 shares
of preferred stock with a par value of $0.01 per share and rights and
preferences to be determined. No shares were issued and outstanding as of
September 30, 2002. During the year ended September 30, 2003, the Company issued
34,950 shares of its preferred stock to investors at prices ranging from $1.50
to $2.00 per share for aggregate proceeds of $59,925. The shares are convertible
to common stock at a price of $1.50 per share under certain terms and
conditions. At September 30, 2003, the shares carried a preferred dividend of
15% per annum. During the year ended September 30, 2004, the dividend feature
was discontinued because certain conditions, which required the payment of
dividends, were considered satisfied.


                                       21
<PAGE>


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

NOTE 7 - REDEEMABLE PREFERRED STOCK (Continued)

The Class A shares mature seven years from the date of issuance. At maturity,
the Class A shares will be redeemed for cash or common stock at Cadence's option
in an amount equal to the amount paid by the investors for the shares plus any
accrued and unpaid dividends. If shares of common stock are to be issued at
maturity, the conversion price shall be determined by the average closing bid
price for the 20 trading days prior to the maturity date.

At September 30, 2004, the Company had no accrued dividends payable to preferred
shareholders.

NOTE 8 - COMMON STOCK OPTION AND AWARD PLAN

In January 1992, the shareholders of Cadence approved a 1992 Stock Option and
Stock Award Plan under which up to ten percent of the issued and outstanding
shares of the Company's common stock could be awarded based on merit or work
performed. As of September 30, 2004, only 638 shares of common stock had been
awarded under the Plan.

The Company has a stock-based compensation plan whereby the Company's board of
directors may grant common stock to its employees and directors. Over the years,
a total of 72,750 options have been granted under the plan. These options have
been forfeited and none have been exercised through the year ending September
30, 2004. The old existing options are attributed to the merger of Celebration
Mining Company with Royal in August 1995.

The Company's board of directors has made option awards to select officers,
directors, consultants and shareholder/investors. These common stock options
were not awarded pursuant to a qualified plan and carry various terms and
conditions. The Company granted a total of 750,000 common stock options at an
average exercise price of $1.08 per share during the year ended September 30,
2002 and granted 287,140 common stock options at an average exercise price of
$2.23 during the year ended September 30, 2003.

During the year ended September 30, 2004, the Company issued 400,000 stock
options to two directors and one officer with an exercise price of $3.73. These
options were granted upon the acceptance by the individual of the position of
officer and/or director and the approval of the Company's qualified stock option
plan at its April 2004 annual shareholders meeting. The Company also granted
during the year ended September 30, 2004 an option to purchase 76,500 shares of
stock to a shareholder valued at $71,910 as a fee for his services in relation
to finding investors for the senior secured notes. See Note 9 and Note 12.

All options granted were exercisable immediately. The Company's board of
directors has reserved the right to cancel these awards for non-performance or
other reasons.


                                       22
<PAGE>


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

NOTE 8 - COMMON STOCK OPTION AND AWARD PLAN (Continued)

The fair value of each option granted during the year ended September 30, 2002
was estimated on the grant date using the Black-Scholes Option Price
Calculation. The following assumptions were made in estimating fair value during
fiscal 2002: risk-free interest rate of 5%, volatility of 100%, expected life of
3 to 5 years, and no expected dividends. The value of these options in the
amount of $626,790 was included in operating expense in the financial
statements. The following assumptions were made in estimating fair value during
the year ended September 30, 2003: risk-free interest rate of 3% to 4%,
volatility of 106% to 337%, expected life of 4 to 5 years and no expected
dividends. The value of these options in the amount of $222,343 was included in
the Company's statement of operations for 2003. The following assumptions were
made in estimating fair value during the year ended September 30, 2004: risk
free interest rate of 4%, volatility of 39%, expected life of three years and no
expected dividends. The value of these options, in the aggregate amount of
$431,910, was included in the Company's statement of operations for 2004.

The value of options issued in 2003 for financing fees in the amount of $429,671
was deducted against additional paid-in capital, as a cost of selling common
stock.


                                       23
<PAGE>


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

NOTE 8 - COMMON STOCK OPTION AND AWARD PLAN (Continued)

Following is a summary of the stock options during the years ended September 30,
2004, 2003, and 2002:

<TABLE>
<CAPTION>
                                                                       Weighted
                                                          Number       Average
                                                            of        Exercise
                                                         Options        Price
                                                        ----------    ----------
<S>                                                        <C>        <C>
Outstanding at 10/1/2001                                    60,000    $    18.60
Granted                                                    750,000          1.08
Exercised                                                       --            --
                                                        ----------    ----------
Expired or forfeited                                       (60,000)        18.60
                                                        ----------    ----------
Outstanding at 9/30/2002                                   750,000    $     1.08
                                                        ==========    ==========

Options exercisable at 9/30/2002                           750,000    $     1.08
                                                        ==========    ==========
Weighted average fair value of options granted during
   the year ended 9/30/2002                             $     0.84
                                                        ==========

Outstanding at 10/1/2002                                   750,000    $     1.08
Granted                                                    287,140          2.23
Exercised                                                 (100,000)        (0.68)
Expired or forfeited                                            --            --
                                                        ----------    ----------
Outstanding at 9/30/2003                                   937,140    $     1.47
                                                        ==========    ==========
Options exercisable at 9/30/2003                           937,140    $     1.47
                                                        ==========    ==========
Weighted average fair value of options granted
   during the year ended 9/30/2003                      $     2.27



Outstanding at 10/1/2003                                   937,140    $     1.47
Granted                                                    476,500          3.77
Exercised                                                       --            --
Expired or forfeited                                            --            --
                                                        ----------    ----------
Outstanding at 9/30/2004                                 1,413,640    $     2.25
                                                        ==========    ==========
Options exercisable at 9/30/2004                         1,413,640    $     2.25
                                                        ==========    ==========
Weighted average fair value of options granted
   during the year ended 9/30/2004                      $     0.91
                                                        ==========
</TABLE>

                                       24
<PAGE>


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

NOTE 8 - COMMON STOCK OPTION AND AWARD PLAN (Continued)

<TABLE>
<CAPTION>
                                                                       Weighted Average
       Exercise Date                                 Number of Shares  Price per Share
       -------------                                 ----------------  ---------------
<S>                                                  <C>                       <C>
       On or before June 21, 2005                    200,000                   $1.50
       On of before August 1, 2005                    50,000                   $1.50
       On or before March 1, 2007                    700,000                   $2.45
       On or before April 2, 2007                     76,500                   $4.00
       On or before July 8, 2007                     100,000                   $1.35
       On or before June 18, 2007                     50,000                   $1.70
       On or before June 1, 2007                      75,000                   $2.00
       On or before September 30, 2008               162,140                   $2.50
</TABLE>

In July 2003, 100,000 of the outstanding options were exercised for the purchase
of 100,000 shares of the Company's common stock.

Prior to April 2001, a total of 72,750 options were granted by the board to
officers, directors and other consultants. As shown above, the 60,000 options
remaining were forfeited during the fiscal year ending September 30, 2002.

The following table gives information about the Company's common stock that may
be issued upon the exercise of options under all of the Company existing stock
option plans as of September 30, 2004.

<TABLE>
<CAPTION>
                                               Remaining
    Exercise    Number of    Weighted Average  ContractualLife     Number     Weighted Average
      Prices       Options       Exercise      Price (in years)  Exercisable       Exercise Price
    ------------------------------------------------------------------------------- ----------
<S>                <C>          <C>             <C>                 <C>                <C>
       $0.75       300,000      $ 0.75          2.42                300,000            $0.75
        1.35       100,000        1.35          2.75                100,000             1.35
        1.50       200,000        1.50          0.75                200,000             1.50
        1.50       50,000         1.50          0.83                 50,000             1.50
        1.70       50,000         1.70          2.75                 50,000             1.70
        2.00       75,000         2.00          2.67                 75,000             2.00
        2.50      162,140         2.50          4.00                162,140             2.50
    3.73-4.00     476,500         3.77          2.50                476,500             3.77
                 --------        -----         ------             ---------           ------
                1,413,640        $2.25                            1,413,640            $2.25
              ===========        =====                          ===========           ======
</TABLE>

Stock Award Plan
During the year ended September 30, 2001, the Company's board of directors
approved the issuance of 15,000 shares of the Company's common stock per quarter
to each entitled director as compensation for service to the Company and 5,000
shares of the Company's common stock per quarter to officers in addition to
their salaried compensation for services.

                                       25
<PAGE>


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

NOTE 9 - WARRANTS

During the year ended September 30, 2002, the Company issued 2,333,336 shares of
stock with 2,333,336 warrants attached. These warrants were valued at $233,334
using the Black-Scholes Option Price Calculation. The following assumptions were
made in estimating fair value: risk free interest rate is 5%, volatility is 100%
and expected life is 5 years. These warrants may be used in a cashless exercise
to purchase 2,333,336 shares of the Company's common stock at $0.30 per share.
The warrants remain exercisable through April 15, 2007. During the year ended
September 30, 2003, all of these warrants were exercised in cashless exercises
in accordance with the terms of the warrants and 1,956,984 shares of the
Company's common stock were then issued to the warrant holders. As of the date
of these financial statements, none of these warrants remain outstanding and
exercisable.

During the year ended September 30, 2003, the Company issued 212,500 shares of
stock with 212,500 warrants attached, and 25,000 warrants related to a July 2002
purchase. The warrants were valued at $51,375 using the Black-Scholes Option
Price Calculation. The following assumptions were made is estimating fair value:
risk free interest rate is 5%, volatility is 100% and expected life is 3 years.
These warrants may be used to purchase 237,500 shares of the Company's common
stock at $1.35 per share. The warrants remain exercisable through October 15,
2005. As of the date of these financial statements, all but 10,000 of these
warrants remain outstanding and exercisable.

During the year ended September 30, 2004, the Company issued certain noteholders
warrants to purchase a total of 765,000 shares of common stock, exercisable at
$4.00 per share, expiring in three years. Both the number of warrants and the
exercise price are adjustable, dependent upon certain future equity transactions
of the Company. The warrants were valued at $745,237 using the Black-Scholes
Option Price Calculation. The following assumptions were made in estimating fair
value: risk-free interest rate is 5%, volatility is 100%, and expected life is
three years.

NOTE 10 - OIL AND GAS PROPERTIES

The Company's oil and gas producing activities are subject to laws and
regulations controlling not only their exploration and development, but also the
effect of such activities on the environment. Compliance with such laws and
regulations may necessitate additional capital outlays, affect the economics of
a project, and cause changes or delays in the Company's activities. The
Company's oil and gas properties are valued at the lower of cost or net
realizable value.

Louisiana
During the fourth quarter of the year ended September 30, 2001, the Company
began leasing acreage in a natural gas field in Desoto Parish, Louisiana. As of
the date of these financial statements, the Company has leased over 4,250 acres.
At September 30, 2004 and September 30, 2003, Louisiana leases of $42,711 and
$350,675, respectively, are included in the attached


                                       26
<PAGE>


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

NOTE 10 - OIL AND GAS PROPERTIES (Continued)

Louisiana (continued)
financial statements as part of unproved properties. Under the terms of a joint
operating agreement with Bridas Energy USA, Bridas commenced drilling wells, 13
of which were completed and of these 11 are producing at September 30, 2004. The
Company has various working interests in and net revenue interests in the wells
drilled. Bridas is the operator of all of Cadence's properties in Louisiana.

Texas
During the year ended September 30, 2002, the Company acquired an exploration
permit and lease option agreement for an oil well project in Wilbarger County,
Texas known as the Waggoner Ranch Project. During the quarter ended March 31,
2002 under the terms of a joint operating agreement with the W.T. Waggoner
Estate, Waggoner drilled an initial test well. By

September 30, 2004, Waggoner had drilled a total of eight wells in Wilbarger
County, of which five were producing oil. The W.T. Waggoner Estate is the
operator of all of Cadence's properties in Wilbarger County and the sole
purchaser of all production from these properties.

During the year ended September 30, 2002, the Company sold 40% of the working
interest in its initial well in this area (known as the "1A" well) to private
investors and two officers of the Company for $210,000. The Company's initial
cost in the portion of the prospect sold totaled $3,200.

During February 2003, the Company completed the West Electra Lake Well on the
Waggoner Ranch Project. The Company entered into a 45% working interest joint
operating agreement with the Waggoner Ranch for the operations conducted on this
acreage. In the quarter ending September 30, 2003, the Company drilled and
completed two additional wells on the West Electra Lake joint venture operating
area on the Waggoner Ranch. The Company owns a 50% working interest in these
last two wells.

At September 30, 2004 and 2003, prepaid oil and gas leases relating to Texas
property of $6,500 and $4,500, respectively, are included in the attached
financial statements.

Michigan
In December 2002, the Company began participating in a natural gas drilling
program in Alpena County, Michigan with Aurora Energy, Ltd. As of September 30,
2004, Cadence had a 22.5% working interest (before payout, 20% after payout),
18% net revenue interest (before payout, 16% after payout), in ten producing
wells in Alpena County. Production commenced from this field in June 2003.
Aurora is the operator of all of Cadence's properties in Alpena County. At
September 30, 2004, Michigan leases totaling $96,375 are included in the
attached financial statements as unproved property.

                                       27
<PAGE>


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

NOTE 10 - OIL AND GAS PROPERTIES (Continued)

Kansas
During the year ended September 30, 2003, and 2004, the Company leased over
26,000 acres of land in the Anadarko Basin in west central Kansas. No drilling
has commenced on any of this acreage. Cadence holds a 100% working interest and
82% net revenue interest in these leases.

At September 30, 2004, $253,213 of leases in Kansas are included in the attached
financial statements as unproved property.

New Mexico
At September 30, 2004, $57,420 of leases in New Mexico are included in the
attached financial statements as unproved property.

In June 2004, the Company began participating for a 20% working interest and 15%
net revenue interest in the Santa Nina Prospect in Eddy County. Earlier in the
year, the Company signed an agreement with SDX Resources to participate for up
to a 25% working interest and 20% net revenue interest in up to 17 development
wells in a project called the Sparkplug Unit.

NOTE 11 - NOTES PAYABLE - RELATED PARTIES

All of the Company's notes payable are considered short-term. At September 30,
2004, notes payable consisted of the following:

<TABLE>
<CAPTION>
                                                                                    2004         2003
                                                                                   --------   --------
<S>                                                                                <C>        <C>
Nathan Low Family Trust (a shareholder of the Company), secured by                 $     --   $ 50,000
assignment of a prorata interest in gas producing properties located in
Alpena County, Michigan, interest at 8%, dated February 24, 2003,
originally due on April 4, 2003, extended to December 31, 2003                                      --

Kevin Stulp (a shareholder of the Company),interest at 8%, dated February 24,
2003, originally due on April 5, 2003, extended to
December 31, 2003                                                                        --     25,000

Howard Crosby (an officer and shareholder of the Company), interest at 8%, dated
February 24, 2003, originally due on April 5, 2003, extended
to December 31, 2003                                                                     --     25,000

Howard Crosby (an officer and shareholder of the Company), unsecured, interest
at 5%, dated January 9, 2003, originally due on February 28,
2003, extended to December 31, 2003                                                      --     60,000
NOTE 11 - NOTES PAYABLE - RELATED PARTIES (Continued)

CGT Management Ltd., unsecured, interest at 10%, dated July 16, 2003
(paid in full October 2, 2003)                                                           --    300,000
                                                                                   --------   --------

Total                                                                              $     --   $460,000
                                                                                   ========   ========
</TABLE>

                                       28
<PAGE>


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

NOTE 12 - LONG-TERM DEBT

In April 2004, the Company completed a private placement of $6,000,000 of senior
secured notes from a group of institutional and individual lenders. A financing
fee of $380,000 was paid in connection with securing of this debt. This
financing fee has been recorded as a discount on long-term debt, and will be
written off ratably over the life of the debt. For the period ending September
30, 2004, $70,000 of this financing fee was written off. These notes accrue
interest at the rate of 10% per year (subject to increase under certain
conditions), payable quarterly, with the principal due and payable on March 31,
2006. The Company is obligated however, to make principal repayments equivalent
to 10% of the principal amount of the notes on each of September 30 and December
31 of 2005 if the Company's weighted average share price falls below $5.00 per
share at such times. The notes are secured by all of the assets of Cadence.

As part of the private placement, the noteholders received warrants to purchase
a total of 765,000 shares of common stock, exercisable at $4 per share, expiring
in three years. Both the number of warrants and the exercise price per share are
adjustable, dependent upon certain future equity transactions of the Company.
The value of the warrants upon issuance of $745,237 has been recorded as a
discount on long-term debt, and will be written off ratably over the life of the
debt. For the period ended September 30, 2004, $186,309 of this discount was
written off. Additionally, a related party was granted 76,500 options valued at
$71,910 as a finders fee related to these notes.

NOTE 13- COMMITMENTS AND CONTINGENCIES

Litigation
The Company was a defendant in a lawsuit alleging that the Company failed to
transfer common stock in exchange for a mining property interest. In June 1999,
Box Elder County Superior Court rejected the plaintiff's lawsuit and let stand
the Company's countersuit alleging fraudulent misrepresentation. Although the
plaintiff filed an appeal (regarding the originally filed lawsuit), the Utah
Supreme Court rejected the appeal in a judgment rendered on July 31, 2001.

The Company's countersuit, which sought both full title to the aforementioned
mineral property and compensatory damages as well as punitive damages, was
rejected in a jury trial in October 2002. Although the Company filed an appeal,
it expects the jury verdict will stand. As a result, the Company has and will
continue to hold an undivided 25% interest in the Vipont Mine. See Note 3.

                                       29
<PAGE>


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

NOTE 13- COMMITMENTS AND CONTINGENCIES (Continued)

Environmental Issues
The Company is engaged in oil and gas exploration and may become subject to
certain liabilities as they relate to environmental cleanup of well sites or
other environmental restoration procedures as they relate to the drilling of oil
and gas wells and the operation thereof. In the Company's acquisition of
existing or previously drilled wells, the Company may not be aware of what
environmental safeguards were taken at the time such wells were drilled or
during such time the wells were operated.

The Company could incur significant costs, including cleanup costs resulting
from a release of hazardous material, third-party claims for property damage and
personal injuries fines and sanctions, as a result of any violations or
liabilities under environmental or other laws. Changes in or more stringent
enforcement of environmental laws could also result in additional operating
costs and capital expenditures. In the course of routine oil and natural gas
operations, surface spills and leaks, including casing leaks, of oil or other
materials do occur, and the Company may incur costs for waste handling and
environmental compliance.

The Company was previously engaged in exploration of mineral properties. These
properties are classified as assets from discontinued operations or were
previously written off as permanently impaired. Although the Company has
discontinued the exploration of mineral properties, the possibility exists that
environmental cleanup or other environmental restoration procedures could remain
to be completed or be mandated by law, causing unpredictable and unexpected
liabilities to arise. At the date of this report, the Company is not aware of
any environmental issues related to any of its assets from discontinued
operations.

Capital Commitments
At September 30, 2004, the Company's future capital commitments are dependent
upon the Company's decision to proceed with additional well development. See
Note 10. No accruals have been made in the accompanying financial statements for
these amounts.

Lease Commitments
The Company began leasing office facilities in Walla Walla, Washington
commencing in June 2001. After a three-year lease with monthly payments of $400
expired in June 2004, the Company began a month to month tenancy, again paying
$400 per month. Total rent paid for this office space during the year ended
September 30, 2003 and 2002 was $4,800.

The Company began leasing additional office space in Hilton Head Island, South
Carolina in August 2003. The one-year lease calls for monthly rental payments of
$550. For the year ended September 30, 2004, the Company expended $4,967 for
this rental space.

Cadence Resources Corporation Limited Partnership
On August 8, 2002, the Company formed a limited partnership in the State of
Washington whereby the Company became the managing general partner and an
outside individual investor became the initial limited partner. The entity,
Cadence Resources Corporation Limited

                                       30
<PAGE>


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

NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)

Cadence Resources Corporation Limited Partnership (continued)
Partnership ("CRCLP" or the "Partnership") was formed to invest in oil and gas
properties in Texas and Louisiana.

In connection with the formation of the Partnership, the Company agreed to
contribute $12,500 in cash and its leasehold interest in an oil well ("2B",
which ultimately was a dry hole) in Wilbarger County, Texas and the limited
partner contributed $250,000 in cash.

Effective September 30, 2003, Cadence purchased the limited partner's interest
in the Partnership and thereby terminated the limited partner's security
interest in the equipment and fixtures affixed to wells 1A and 1B in Wilbarger
County, Texas. In this transaction, Cadence made a cash payment of $250,000 in
October 2003 to the limited partner and received, from the limited partner his
5% working interest in the West Electra Lake #1 oil well in Wilbarger, Texas.

In connection with the aforementioned transaction, Cadence also repaid in
October 2003 to the limited partner the unsecured sum of $300,000. These funds
were previously advanced to the Partnership in June 2003 for the exploration of
natural gas interests in the Black Bean Unit in Michigan in return for the
limited partner's receiving 120,000 shares of Cadence stock and a working
interest in each well drilled in the unit. Upon repayment of the $300,000
advance, the limited partner's working interest in each well drilled in the
Black Bean Unit was fixed at 2%.

Consulting Commitments
In June 2002, the Company entered into an agreement with Memphis Consulting
Group ("Memphis") for financial consulting and public relations services
beginning on August 1, 2002 through August 1, 2003. The agreement called for
monthly payments of $3,000, and an initial 50,000 stock options exercisable
through August 1, 2005 at $1.50 per share. See Note 8. This agreement was
terminated during the quarter ended March 31, 2003.

In September 2001, the Company entered into a consulting agreement with American
Financial Group for promotion to investors. The agreement called for monthly
payments of $2,000 to cover all expenses, 20,000 shares of the Company's common
stock (which were issued in October 2001) and an override of 2.5% of monies
raised in private placements from referrals or directed business. The agreement
was terminated during the quarter ended March 31, 2003.

In June 2003, the Company entered into a corporate advisory agreement with
Proteus Capital Corp. calling for a monthly fee of $3,000 in cash and 2,000
restricted shares of the common stock of the Company. Additionally, Proteus
received an option for 50,000 shares exercisable at $1.75 for a period of four
years, such shares bearing certain registration rights should the Company file a
registration statement on behalf of other shareholders.


                                       31
<PAGE>


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

NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)

Consulting Commitments (continued)
Lucius C. Geer, a consultant to the Company who manages its acquisition,
exploration and production operations, has entered into several agreements with
Cadence and has contractually received a 2% overriding royalty interest in oil,
gas and mineral leases in Wilbarger County, Texas and a 1% overriding royalty
interest in oil and gas leases in Desoto Parish, Louisiana.

Effective August 1, 2003, Cadence agreed to pay Mr. Geer $7,500 per month plus
an overriding royalty interest of 2% of the sales price received for all oil,
gas and minerals from leases which Geer acquires for Cadence. Effective August
1, 2004, the agreement with Mr. Geer was changed to increase the monthly fee
from $7,500 to $10,000.

Other Commitments
The Company entered into an exploration agreement with the W.T. Waggoner Estate
(Waggoner) and its trustees on August 1, 2002. This agreement calls for
exploration of the West Electra Lake Project located in Wilbarger County, Texas.
See Note 10.

On August 13, 2002, the Company entered into a public relations retainer
agreement for one year whereby the Company agreed to issue 60,000 shares of its
common stock during this period for services received. The agreement also calls
for reimbursement of expenses incurred pursuant to terms of this agreement. This
agreement was terminated in the quarter ending September 30, 2003.

NOTE 14 - RELATED PARTY TRANSACTIONS

At September 30, 2004 and 2003, the Company had related party accounts payable
outstanding in the amounts of $300,000 and $550,000, respectively. At September
30, 2004 and 2003, the Company had related party notes payable outstanding in
the amounts of $0 and $460,000, respectively.

In February 2004, the Company borrowed $250,000 from an officer, a total of
$95,000 from two directors, and $50,000 from Dotson Exploration Company, a
related entity. All of these borrowings were repaid by Cadence in April 2004.

In January 2004, Cadence hired Mr. Douglas Newby as a Vice President; Mr. Newby
is the president and owner of Proteus Capital Corp., with whom the Company has a
consulting agreement. See Note 13.

During the year ended September 30, 2002, the Company sold several mineral
properties located in Shoshone County, Idaho to Caledonia Silver-Lead Mines,
Inc., later renamed Nevada-Comstock Mining Company. Two officers of the Company
collectively own 2.4% of this entity and Cadence owns 35%.

                                       32
<PAGE>


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

NOTE 14 - RELATED PARTY TRANSACTIONS (Continued)

Two officers of the Company collectively own in excess of 40% of the stock of
Dotson Exploration Company and are the sole officers and directors of Dotson.
Dotson owns 109,000 shares of the Company's common stock. During fiscal year
2002 and the first quarter of fiscal year 2003, Cadence repaid Dotson a loan in
the amount of $10,000 and made two new loans to Dotson, one for $35,000 and one
for $20,000, each at an interest rate of 10% per annum. Dotson transferred to
Cadence marketable securities in the form of common stock of two unaffiliated
companies, Enerphaze Corporation and The Williams Companies, Inc., valued by
Cadence's board of directors at $33,380, as partial payment of the amount
loaned. During the nine months ended June 30, 2003, Dotson repaid the $20,000
loan in cash. At September 30, 2004 and 2003, Dotson owed Cadence $3,720, which
amount is payable on demand and bears interest at 10% per annum.

Because Dotson Exploration Company, Oxford Metallurgical, Inc. and
Nevada-Comstock Mining Company are controlled by two officers of Cadence, these
transactions cannot be considered to be the product of an arms-length
negotiation.

During fiscal 2003, the Company's president made two loans to Cadence. One loan
in December 2002 was in the principal amount of $70,000, bearing interest at 5%
and the other loan made in February 2003 was in the principal amount of $50,000
bearing interest at a rate of 8%. Cadence issued 14,000 shares of its common
stock valued at $10,920, as an inducement to making the $70,000 loan and 20,000
shares valued at $15,600, as an inducement to making the $50,000 loan. Cadence
repaid $60,000 and has agreed to issue 4,000 shares of its common stock in
repayment of the remaining $10,000 principal amount outstanding on the $70,000
loan. Cadence repaid $25,000 of the $50,000 loan in cash and issued 25,000
shares of its common stock in the year ending September 30, 2004 to repay the
remaining $25,000 principal amount.

In February 2003, a Company director made a bridge loan to Cadence in the
principal amount of $50,000, bearing interest of 8% per annum. Cadence issued
20,000 shares of its stock valued at $15,600 as an inducement for the director
to make the loan. Cadence repaid $25,000 of the $50,000 loan in 2003 and settled
the remaining amount in 2004 with common stock. In July 2003, the director
exercised a warrant to purchase 100,000 shares of common stock at $0.75 per
share.

On August 8, 2002, the Company formed a limited partnership whereby the Company
became the managing general partner and an outside individual investor (a
Company shareholder) became the initial limited partner. During the year ended
September 30, 2003, the limited partner advanced $300,000 to the limited
partnership in exchange for an unsecured note, which was repaid in October 2003.

In October 2002, the Nathan A. Low Roth IRA and various entities controlled by
Thomas Kaplan, shareholders of Cadence, exercised warrants in separate cashless
transactions whereby each party surrendered a total of 175,676 shares of common
stock valued at $325,000 to exercise warrants for the acquisition of 1,083,334
shares of Cadence common stock.

                                       33
<PAGE>


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

NOTE 14 - RELATED PARTY TRANSACTIONS (Continued)

In April 2002, Mr. Crosby purchased 83,334 Cadence investment units and Mr. Ryan
purchased 43,334 Cadence investment units at $0.30 per unit consisting of one
share of common stock and one warrant exercisable at $0.30. The warrants
contained a provision which allowed cashless exercise when and if Cadence common
stock traded at or above $1.50 per share. Also, in April 2002, Cadence issued to
Mr. Ryan 6,800 shares of its common stock in repayment of 6,800 Cadence shares
owned by Mr. Ryan that he had transferred to third parties to pay Cadence
invoices.

In January 2002, Cadence transferred 41,667 shares of the common stock it owned
in Trend Mining Company, of which Mr. Ryan is a director, to Mr. Ryan in payment
of past due salary of $16,000. Further, in October 2001, Mr. Ryan transferred
marketable securities of Enerphaze Corporation valued at $90,000 to Cadence in
exchange for 300,000 shares of Cadence, which shares are held by J.P. Ryan
Company, Inc. (which is held 100% by John Ryan), Andover Capital Corporation
(which is held 100% by John Ryan), and Dotson Exploration Company.

In October 2001, Cadence issued 200,000 shares of its common stock to Mr. Crosby
for cash in the amount of $60,000. On January 15, 2002, Cadence issued 100,000
shares of its common stock to Mr. Crosby in payment of a loan made to Cadence in
the principal amount of $30,000 in November 2001. On January 22, 2002, Mr.
Crosby made an additional loan of $30,000 bearing interest at 8% for which
Cadence issued him 15,000 shares valued at $4,500 as an inducement to making the
loan.

Other related party transactions are disclosed in Notes 3, 5, 6, and 11.

NOTE 15 - INCOME TAXES

At September 30, 2004, the Company had net deferred tax assets calculated at an
expected rate of 34% of approximately $5,672,000 as indicated below. As
management of the Company cannot determine that it is more likely than not that
the Company will realize the benefit of the net deferred tax asset, a valuation
allowance equal to the net deferred tax asset has been established at September
30, 2004.

The significant components of the deferred tax asset at September 30, 2004, 2003
and 2002 were as follows:

                                       2004        2003          2002
                                    ----------   ----------   ----------
Net operating loss carryforwards    $4,317,000   $2,829,000   $1,423,000
Stock options and warrants issued      623,000      622,000      172,000
Section 1231 loss carryforwards        146,000      151,000       89,000
Capital loss carryforwards             586,000    1,532,000      887,000
                                    ----------   ----------   ----------
Total deferred tax asset             5,672,000    5,134,000    2,571,000
Less valuation allowance             5,672,000    5,134,000    2,571,000
                                    ----------   ----------   ----------
Net deferred tax asset              $       --   $       --   $       --
                                    ==========   ==========   ==========


                                       34
<PAGE>


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

NOTE 15 - INCOME TAXES (Continued)

At September 30, 2004, the Company has net operating loss carryforwards of
approximately $12,700,000, which expire in the years 2009 through 2024. In
addition, the Company has net Section 1231 loss carryforwards of approximately
$432,000, which expire in 2006, and net capital loss carryforwards of
approximately $1,700,000, which expire in the years 2005 through 2009. The
change in the allowance account from September 30, 2003 to September 30, 2004
was $538,000, which was primarily due to the Company's operating and capital
losses and the expiration of Section 1231 and capital losses.

The Company may have had a control change as defined under the Internal Revenue
Code, because of new stock issuances and changes in ownership. The effect of
such control changes has not been calculated but may limit the future use of net
operating losses.

NOTE 16 - SUBSEQUENT EVENTS

Aurora Energy, Ltd.
On November 19, 2004, the Company announced that it had signed a letter of
intent establishing a 60-day period in which to conduct due diligence and
negotiate terms for acquisition of all of the outstanding common stock of Aurora
Energy, Ltd., a privately held company based in Traverse City, Michigan, in
exchange for shares of common stock of Cadence. The Company and Aurora Energy,
Ltd. are currently negotiating terms of the proposed transaction.


                                       35