UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT
PURSUANT TO SECTION 14A
of the
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ]
Preliminary Proxy Statement
[ ]
Confidential, for Use of the Commission Only [as permitted by Rule 14a-6(e)(2)]
[X]
Definitive Proxy Statement
[ ]
Definitive Additional Materials
[ ]
Soliciting Material Pursuant to Section 240.14a-12
HEALTHBRIDGE, INC.
(Name of Registrant as Specified in its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ]
No fee required.
[X]
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies: common stock
2) Aggregate number of securities to which transaction applies:16,500,000
3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): $0.98 (the average of the high and low price on September 7, 2006)
4) Proposed maximum aggregate value of transaction: $16,170,000
5) Total fee paid: $3,844.50
[X]
Fee paid previously with preliminary materials.
[ ]
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration No.:
3) Filing Party:
4) Date Filed:
HEALTHBRIDGE, INC.
2610-1066 West Hastings Street,
Vancouver, British Columbia V6E 3X2 Canada
Telephone (604) 602-1717
September 12, 2006
Dear Stockholder:
Healthbridge, Inc., (“Corporation”) cordially invites you to attend a Special Meeting of Stockholders (“Special Meeting”) to be held at 10:00 a.m., Pacific Standard Time, on Friday the 29th of September, 2006, at 2610-1066 West Hastings Street, Vancouver, British Columbia, Canada. Please find enclosed a notice of special meeting, a proxy statement describing the business to be transacted at the meeting, and a proxy form for use in voting at the meeting.
At the Special Meeting, you will be asked to vote on the following matters: (i) changing the name of the Corporation; (ii) ratifying agreements to acquire Providence Exploration, LLC, as a wholly owned subsidiary; and (iii) increasing the number of authorized common stock of the Corporation.
In addition to these matters, we will report on our progress and provide an opportunity for questions of general interest to our stockholders.
Thank you.
Sincerely,
/s/ Nora Coccaro
Nora Coccaro, Chief Executive Officer and Director
HEALTHBRIDGE, INC.
NOTICE OF THE SPECIAL MEETING OF STOCKHOLDERS
Notice is hereby given from Healthbridge, Inc., (“Corporation”) that a Special Meeting of Stockholders (“Special Meeting”) will be held at 10:00 a.m., Pacific Standard Time, on Friday the 29th of September, 2006, at 2610-1066 West Hastings Street, Vancouver, British Columbia, Canada. At the Special Meeting, stockholders will vote on the following matters:
| (1) | A proposal to amend the Corporation’s Amended and Restated Articles of Incorporation by changing the name of the Corporation to “Providence Resources, Inc.”; |
| (2) | A proposal to acquire Providence Exploration, LLC, as a wholly owned subsidiary pursuant to the Securities Exchange Agreement and the Note Exchange Agreement; and |
| (3) | A proposal to amend the Corporation’s Amended and Restated Articles of Incorporation to increase the Corporation’s authorized common stock from fifty million (50,000,000) to one hundred million (100,000,000) shares. |
Information regarding the above matters is set forth in the proxy statement that accompanies this notice.
The board of directors of the Corporation has fixed the close of business on September 12th, 2006, as the record date for determining stockholders entitled to notice of and to vote at the Special Meeting. A complete list of the stockholders entitled to notice of and to vote at the Special Meeting will be maintained at the Corporation’s principal executive offices during ordinary business hours for a period of ten days prior to the Special Meeting. The list will be open to the examination of any stockholder for any purpose germane to the Special Meeting during this time. The stockholders list will also be produced at the time and place of the Special Meeting and will be open during the whole time thereof.
By Order of the Board of Directors,
/s/ Nora Coccaro
Nora Coccaro, Chief Executive Officer and Director
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIALMEETING IN PERSON, PLEASE MARK, SIGN, DATE, AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED. IF YOU DO ATTEND THE MEETING, YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY.
NON-U.S. SHAREHOLERS, PLEASE RETURN YOUR EXECUTED PROXY BY FAX TO INTERWEST TRANSFER, ATTN: STACY BANKS, AT (801) 277-3147. MS. BANK’S PHONE NUMBER IS (801) 272-9294.
IF YOU HOLD YOUR SHARES IN “STREET-NAME,” PLEASE NOTE THAT ONLY YOUR BROKERAGE FIRM OR BANK CAN SIGN A PROXY ON YOUR BEHALF, AND ONLY UPON RECEIPT OF YOUR SPECIFIC INSTRUCTIONS. WE URGE YOU TO CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT TODAY, AND INSTRUCT THEM TO EXECUTE A PROXY IN FAVOR OF THE MATTERS PRESENTED IN THE PROXY STATEMENT.
TABLE OF CONTENTS
iii
HEALTHBRIDGE, INC.
PROXY STATEMENT FOR THE SPECIAL MEETING OF STOCKHOLDERS
INTRODUCTION
This proxy statement is furnished by Healthbridge, Inc., in connection with the solicitation of proxies for use at the Special Meeting of Stockholders (“Special Meeting”) to be held on Friday the 29th of September, 2006, at 10:00 a.m., Pacific Standard Time, at 2610-1066 West Hastings Street, Vancouver, British Columbia, Canada, and at any and all adjournments thereof. This proxy statement is first being mailed to stockholders on or about September 12th, 2006.
Healthbridge, Inc.‘s board of directors has proposed three matters and has solicited the proxy form attached hereto.
Unless we indicate otherwise or unless the context requires otherwise, all references in this proxy statement to “we,” “us,” “our,” or the “Corporation” are to Healthbridge, Inc., and all references to “Providence” mean Providence Exploration, LLC, and its subsidiaries.
QUESTIONS AND ANSWERS
| Q. | Why did I receive this proxy statement? |
| A. | You received this proxy statement as notice of the Special Meeting pertaining to the following: |
| Q. | Why does the Corporation wish to change its name to “Providence Resources, Inc.”? |
| A. | The Corporation proposes an amendment of our articles to change our name to more accurately reflect the Corporation’s business focus in connection with the proposed acquisition of Providence. |
| Q. | Why does the Corporation wish to acquire Providence? |
| A. | Since the discontinuation of medical waste sterilization operations, the Corporation has been searching for a business to acquire. We believe that Providence will make a suitable acquisition. |
| Q. | Why does the Corporation wish to increase the authorized common stock to 100,000,000? |
| A. | The Corporation proposes an amendment of our articles to increase the number of our authorized common stock to enable us to issue the shares required under the terms of the Securities Exchange Agreement and the Note Exchange Agreement in addition to providing us with sufficient authorized common stock to permit future equity financings, complete business acquisitions, build new business relationships or other corporate purposes. |
| Q. | When do you expect the amendments to become effective? |
| A. | If approved at the Special Meeting, the proposed amendments to our articles of incorporation will be effective upon filing with the Texas Secretary of State. The Corporation expects to file the amendments with the Texas Secretary of State as soon as practical after the Special Meeting. |
| Q. | When do you expect the acquisition to be consummated? |
| A. | If ratified at the Special Meeting, the Securities Exchange Agreement and the Note Exchange Agreement will close thereafter. Upon the closing of the agreements, the acquisition will be consummated. |
| Q. | What happens if additional matters are presented at the Special Meeting? |
| A. | No other business will be acted upon at the Special Meeting. |
| Q. | What do I need to do now? |
| A. | Vote, either in person or by proxy. |
| Q. | What is a proxy? |
| A. | A proxy is your legal designation of another person to vote the stock you own. That other person is considered your proxy. If you designate someone as your proxy in a written document, that document also is called a proxy. The Corporation has designated Nora Coccaro, our chief executive officer and a director, to act as proxy for the Special Meeting. |
| Q. | Who may vote at the Special Meeting? |
| A. | You may vote your common stock if the Corporation's records show that you owned your shares as of the close of business on September 12, 2006 (the "Record Date"). You may cast one vote for each share of common stock held by you on all matters presented. As of the Record Date, there were 31,366,327shares of common stock issued and outstanding. |
| Q. | What is the voting requirement to approve the proposals? |
| A. | For each of the proposals, a simple majority of the quorum of outstanding shares of common stock must vote in favor for the proposal to be approved. Abstentions have the same effect as votes against the proposals. |
If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute “broker non-votes.” Generally, broker non-votes occur when a beneficial owner fails to give voting instructions with respect to “non-routine” matters. In tabulating the voting result for any particular proposal, shares that constitute broker non-votes are not considered entitled to vote on that proposal. Therefore, although broker non-votes are counted for purposes of determining a quorum, broker non-votes will not otherwise affect the outcome of any matter being voted on at the meeting. |
| Q. | What is the quorum requirement for the Special Meeting? |
| A. | A majority of the Corporation’s outstanding shares as of the record date must be present at the meeting in order to hold the meeting and conduct business. This is called a quorum. Your shares will be counted for purposes of determining if there is a quorum if you (i) are present and vote in person at the meeting, or (ii) have properly submitted a proxy card. |
| Q. | How does the board of directors recommend that I vote? |
| A. | The board of directors recommends that you vote "FOR" each of the proposals |
| Q. | How can I vote my shares in person at the Special Meeting? |
| A. | If your shares are registered directly in your name with the Corporation’s transfer agent, Interwest Transfer, you are considered the “stockholder of record” with respect to those shares the proxy materials and proxy card are being sent directly to you. As the stockholder of record, you have the right to vote in person at the meeting. If you choose to do so, you can bring the enclosed proxy card or vote using the ballot provided at the meeting. However, even if you plan to attend the Special Meeting, the board recommends that you vote your shares in advance as described below so that your vote will be counted if you later decide not to attend the Special Meeting. |
Some of the Corporation’s stockholders hold their shares in street name through a stockbroker, bank, or other nominee rather than directly in their own name. In that case, you are considered the “beneficial owner” of shares held in street name, and the proxy materials are being forwarded to you together with a voting instruction card. Because a beneficial owner is not the stockholder of record, you may not vote these shares in person at the meeting unless you obtain a “legal proxy” from the broker, trustee, or nominee that holds your shares, giving you the right to vote those shares at the meeting. If you wish to attend the Special Meeting and vote in person, you will need to contact your broker, trustee, or nominee to obtain a legal proxy. |
| Q. | How can I vote my shares without attending the Special Meeting? |
| A. | Whether you hold shares directly as the stockholder of record or beneficially in street name, you may direct your vote without attending the Special Meeting by completing and mailing your proxy card or voting instruction card in the enclosed pre-paid envelope or by faxing your proxy card to Interwest Transfer, attn: Stacy Banks, at (801) 277-3147. Please refer to the enclosed materials for details. |
| Q. | What happens if I do not give specific voting instructions? |
| A. | If you hold shares as a record holder, and you sign and return a proxy card without giving specific voting instructions, your shares will be voted as recommended by our board of directors. If you do not return a proxy and do not vote at the Special Meeting in person, your shares will not be voted. |
If you hold your shares through a broker, bank, or other nominee and you do not provide instructions on how to vote, your broker or other nominee may have authority to vote your shares on your behalf on matters to be considered at the Special Meeting. |
| Q. | How can I change my vote after I return my proxy card? |
| A. | You may revoke your proxy and change your vote at any time before the final vote at the meeting. You may do this by signing a new proxy card with a later date or by attending the meeting and voting in person. However, your attendance at the meeting will not automatically revoke your proxy unless you vote at the meeting or specifically request in writing that your prior proxy be revoked. |
| Q. | Does Texas have dissenters' rights of appraisal? |
| A. | Stockholders of Texas domestic corporations have no rights of dissent and appraisal under Texas Business Corporations Act, Article 5.11, in connection with the proposals. |
| Q. | Is my vote confidential? |
| A. | Proxy instructions, ballots and voting tabulations that identify individual stockholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed either within the Corporation or to third parties, except: (i) as necessary to meet applicable legal requirements, (ii) to allow for the tabulation of votes and certification of the vote, and (iii) to facilitate a successful proxy solicitation. Occasionally, stockholders provide written comments on their proxy card, which may be forwarded to the Corporation’s management. |
| Q. | Where can I find the voting results of the Special Meeting? |
| A. | The preliminary voting results will be announced at the meeting. The final voting results will be tallied by our transfer agent and published on Form 8-K and Form 10-QSB. |
| Q. | Why do you need stockholder approval for the proposals? |
| A. | We are obligated to seek stockholder approval for Proposal 1 and Proposal 3 pursuant to Texas Business Corporations Act, Article 4.02, and Proposal 2 pursuant to the Texas Business Corporations Act, Article 5.02. |
| Q. | Are the approvals of the proposals contingent upon one another? |
| A. | We are submitting three separate proposals to our stockholders for their approval. We will not proceed with the name change, Proposal 1, unless the acquisition, Proposal 2, is approved. Proposal 2 is contingent upon the approval of Proposals 3. Proposal 3 is not contingent upon the approval of the other proposals. |
| Q. | Who pays for the cost of this proxy solicitation? |
| A. | The Corporation will pay the costs of the solicitation of proxies (under $7,500). The Corporation may also reimburse brokerage firms and other persons representing beneficial owners of shares for expenses incurred in forwarding the voting materials to their customers who are beneficial owners and obtaining their voting instructions. In addition to soliciting proxies by mail, the Corporation’s board members, officers and employees may solicit proxies on the Corporation’s behalf, without additional compensation, personally or by telephone. |
| Q. | How can I obtain a copy of the Corporation's 10-KSB? |
| A. | A copy of the Corporation’s 2005 year end report on Form 10-KSB may be obtained at no charge by sending a written request to the Corporation’s corporate address. The Form 10-KSB is also available on the Securities and Exchange Commission’s website at www.sec.gov. |
| Q. | Whom can I contact with questions? |
| A. | If you have any questions about any of the actions to be taken by the Corporation, please contact the Corporation’s chief executive officer, Nora Coccaro, at (604) 838-9797. |
SUMMARY TERM SHEET FOR PROPOSAL 2
This summary highlights selected information from this proxy statement regarding the acquisition and may not contain all of the information that is important to you. To understand the acquisition fully, and for a more complete description of the legal terms of the acquisition, you should carefully read this entire proxy statement, including the Securities Exchange Agreement, dated as of April 10, 2006, attached hereto as Exhibit 1, and the Note Exchange Agreement, dated as of April 10, 2006, attached hereto as Exhibit 2. Further, we have attached a fairness opinion provided by Mr. Bruce Lazier, dated March 27, 2006 which opines as to the equity of the acquisition transactions, attached hereto as Exhibit 3. We have included page references in this summary to direct you to the appropriate place in this proxy statement and the exhibits for a more complete description of the topics presented.
CONTACT INFORMATION
Healthbridge, Inc.
2610-1066 West Hastings Street,
Vancouver, British Columbia V6E 3X2 Canada
Telephone (604) 838-9797
Attn: Nora Coccaro
Providence Exploration, LLC
100 Crescent Court, 7th Floor
Dallas, Texas 75201
Telephone: (214) 695-5848
Attn: Abe Janz
BUSINESS CONDUCTED
Healthbridge, Inc. (page 23)
The Corporation is a Texas corporation with executive offices located in Vancouver, British Columbia formally engaged in developing, manufacturing and marketing medical waste sterilization devices. Due to a lack of any significant commercial success with our medical waste sterilization technology the Corporation decided to abandon this business and executed of a letter of intent on November 18, 2005 to acquire Providence. A Secured Revolving Replacement Promissory Note was signed on December 1, 2006 to loan Providence up to $5,000,000 to develop its operations. On April 10, 2006, the Corporation executed (i) a Securities and Exchange Agreement to acquire Providence, and its wholly owned subsidiaries PDX Drilling I, LLC, and Providence Resources, LLC, and (ii) a Note Exchange Agreement to satisfy the holders of certain promissory notes issued by Providence.
Providence Exploration, LLC (page 29)
Providence was organized in Texas as a limited liability company on July 12, 2005 and is an exploration stage company. Providence has no proved oil or gas reserves as its properties are in the early stages of development.
Providence is engaged in three lines of business: (1) oil and gas exploration, (2) acquiring, refurbishing and selling drilling and service rigs, and (3) providing drilling services. The oil and gas exploration activities are conducted for Providence in Comanche and Hamilton Counties, Texas, and in Val Verde County, Texas by Harding Company. The drilling rig acquisition and sales business and the drilling services business are conducted through Providence’s wholly owned subsidiary PDX Drilling I, LLC (“PDX”) in Young County, Texas. Providence Resources, LLC, is a wholly owned subsidiary of Providence without operations.
Providence has identified its first three drill sites within Hamilton and Comanche Counties. Harding Company commenced drilling in June and will now focus on post drilling “fracing” (which uses the fracturing of geologic formations to open up pathways for oil or gas to flow into wells). A final analysis of the results of this drillings is expected to be complete in September. Providence has received bids for conducting “seismic” operations (which use sound waves projected into the earth to locate oil and gas deposits) over its properties in Val Verde County.
Providence’s audit expressed substantial doubt as to Providence’s ability to continue as a going concern as a result of insufficient revenue generating activities and a working capital deficit of $4,048,158 as of December 31, 2005, which increased to $9,399,489 at June 30, 2006.
THE ACQUISITION (page 19)
On November 18, 2005, the Corporation entered into a letter of intent with Providence, which considered a stock exchange for the Corporation’s acquisition of Providence, subject to the parties satisfaction of certain conditions precedent to the acquisition, namely, the Corporation’s obligation to loan Providence up to $5,000,000 to fund its oil and gas exploration and development activities and lease purchases, and the execution of a definitive agreement.
On December 1, 2005, the Corporation executed a Secured Revolving Replacement Promissory Note (“Note”) with Providence to loan Providence up to $5,000,000 to acquire oil, gas and mineral leasehold interests and to fund exploration and development activities. We had advanced $5,244,076 to Providence pursuant to the Note as of June 30, 2006. In the event that our stockholders approve Proposal 2, the Note will be consolidated as an inter-company loan and remain due from Providence to the Corporation.
Proposal 2 asks the Corporation’s stockholders to consider the prospective acquisition of Providence as a wholly owned subsidiary pursuant to the terms and conditions of the Securities Exchange Agreement (through the exchange of shares of the Corporation for all the ownership units of Providence) and the Note Exchange Agreement (through the exchange of shares of the Corporation for certain promissory notes issued by Providence).
We have issued no securities in connection with the intended acquisition and related transactions. Should the Corporation’s stockholders approve these transactions, we will then issue an aggregate of 16,500,000 shares of our shares, which issuance will result in a dilution of approximately 34% to existing stockholders.
THE TRANSACTIONS
The Securities Exchange Agreement (page 19 and Exhibit 1)
Upon the terms and subject to the conditions of the Securities Exchange Agreement, dated April 10, 2006, the unit-holders of Providence’s membership units will exchange 1,250,000, or 100%, of the outstanding membership units for 4,286,330 shares of the Corporation, approximately 9% of the Corporation’s issued and outstanding shares, which shares will be distributed to Providence’s unit-holders on a pro rata basis on the closing date.
The Note Exchange Agreement (page 19 and Exhibit 2)
Upon the terms and subject to the conditions of the Note Exchange Agreement, dated April 10, 2006, the holders of the promissory notes issued by Providence will assign the notes to the Corporation for 12,213,670 shares of the Corporation, approximately 25% of the issued and outstanding shares, which shares will be distributed to promissory note holders according to their respective interests in the notes on the closing date. The aggregate principal and accrued interest of the promissory notes was $1,524,454 and $54,222 respectively at June 30, 2006. The promissory note holders are identified inExhibit A of the Note Exchange Agreement, attached hereto asExhibit 2.
Closing of the Transactions (page 19)
If the acquisition of Providence is approved by our stockholders, the closing of the Securities Exchange Agreement and the Note Exchange Agreement shall take place on September 29, 2006, at the offices of the Corporation, following the Special Meeting.
Conditions Precedent to the Transactions (page 19)
The closing of the Securities Exchange Agreement and the Note Exchange Agreement depend on the satisfaction or waiver of a number of conditions, including:
|X| stockholder approval of the Securities Exchange Agreement and the Note Exchange Agreement;
|X| the concurrent closing of the Securities Exchange Agreement and the Note Exchange Agreement;
|X| closing the transactions, as amended, on or before September 30, 2006;
|X| the Corporation’s fulfillment of the commitment to loan Providence up to $5,000,000 by the closing date for the purpose of funding Providence’s purchase of oil, gas, and mineral interests and ongoing exploration and development obligations under the Joint Exploration Agreement and the Agreement of Purchase and Sale; and
|X| the receipt and provision of closing documentation and securities on the closing date.
Representations and Warranties within the Transactions (page 20)
The Corporation and Providence represent and warrant a number of conditions within the Securities Exchange Agreement and the Note Exchange Agreement, including the following:
|X| all of the parties have the requisite authority to execute the agreements;
|X| no parties have any legal conflicts; and
|X| The Corporation and Providence will go about their business in an ordinary fashion until the closing of the Securities Exchange Agreement and the Note Exchange Agreement.
Interests of Our Executive Officer and Directors in the Transactions (page 20)
Our executive officer and directors may have interests in the acquisition that may be different from, or similar to, yours, including the following:
|X| Nora Coccaro, the executive officer and a director of the Corporation, owns 353,500 shares of the Corporation but will receive no additional shares on the close of the transactions and therefore has a similar interest to her fellow stockholders; and
|X| Marcus Muller, a director of the Corporation, owns 5,023,435 shares of the Corporation and will receive 2,160,949 additional shares on the closing of the Note Exchange Agreement as Mr. Muller is a promissory note holder and therefore has a special interest in the transactions closing. Mr. Muller’s promissory note is valued at $242,511. Should the Corporation’s stockholders approve the acquisition of Providence, Mr. Muller’s personal stockholdings in the Corporation will increase by 43%, to 15% of the Corporation’s issued and outstanding common shares.
Change of Control (page 20)
Following the close of the transactions, our present stockholders’ shares of common stock will be diluted by the issuance of 16,500,000 shares, which dilution will not constitute a change of control since the Corporation’s current stockholders will retain approximately 66% of the issued and outstanding common shares after the issuance while the unit holders and Providence note holders will acquire approximately 34% of the Corporation’s issued and outstanding common shares. Additionally, the close of the transactions will not cause the appointment of new officers or directors to the Corporation.
The Consideration Offered To Stockholders (page 20)
There is no consideration being offered to stockholders.
The Reasons For Engaging In The Transactions (page 20)
Due to a lack of any significant commercial success with our medical waste sterilization technology, the Corporation decided to consider alternative business opportunities in an effort to bring value to our stockholders. One of our directors, Markus Muller, introduced us to Providence as an opportunity in the oil and gas sector. Despite the fact that our business prior to entering into discussions with Providence was quite different from our intended business, the Corporation believed that Mr. Muller’s experience with Providence in the oil and gas sector, Providence’s relationship with oil and gas expertise in Texas, and the national interest in energy exploration were sufficient justification to enter into a letter of intent to acquire Providence.
Mr. Muller’s experience in the oil and gas industry was initiated in 1994 when he was involved in the financing of Harken Energy Corporation (AMEX: HEC). He has since been active in financing other oil and gas companies world-wide. Mr. Muller has known Abe Janz, a principal and the president of Providence for over six years. Mr. Muller and Mr. Janz first began a working relationship with an attempt to acquire 19,000 acres of Barnet Shale leases in late 2003 and early 2004. The endeavour ultimately failed to attract the necessary financing and was abandoned. Subsequently, in July of 2005, Mr. Muller assisted Mr. Janz with the financing of Providence for the purpose of purchasing drilling and service rigs to provide drilling services in Texas
We remain intent on obtaining stockholder approval to acquire Providence to engage the Corporation in the exploration, development and prospectively the production of oil and gas.
The Vote Required For Approval Of The Transactions (page 21)
Approval of Proposal 2 requires the affirmative vote of a majority of the stockholders at the meeting, assuming a quorum is present. The directors of the Corporation hold 5,376,935 shares of common stock, approximately 17% of our issued and outstanding shares, and plan to vote “for” Proposal 2.
Material Differences In The Rights Of Security Holders As A Result Of The Transactions (page 21)
There will be no material differences in the rights of security holders as a result of the acquisition.
Accounting Treatment Of The Transactions (page 21)
The acquisition will be accounted for under the purchase method of accounting, in accordance with U.S. generally accepted accounting principles.
The Federal Income Tax Consequences Of The Transactions (page 21)
Our stockholders will not recognize a gain or loss as a result of the acquisition.
Neither the Corporation nor Providence will recognize any gain or loss as a result of the acquisition, which will be deemed by the parties to be tax free.
REGULATORY APPROVALS (page 21)
No material federal or state regulatory requirements must be complied with or approvals obtained in connection with this transaction.
REPORTS, OPINIONS, APPRAISALS (page 22 and Exhibit 3)
The Board of Directors of the Corporation has obtained a fairness opinion from an unaffiliated financial advisor, Bruce Lazier, the principal of Ispyoil, LLC, in connection with the prospective acquisition of Providence. The Corporation selected Ispyoil, LLC, upon the recommendation of Christian Russenberger, one of our shareholders. There is no material relationship between Mr. Lazier and the Corporation. Mr. Lazier’s fee for providing his opinion was $25,000.
Mr. Lazier’s opinion states that the prospective transaction is fair to the Corporation and the Corporation’s stockholders from a financial viewpoint, arriving at said opinion on the basis of his investigation of the Corporation, Providence, the transactions, and public sources. The Corporation gave Mr. Lazier no instructions through the course of his review of the transaction. Further, Mr. Lazier was not denied any information from either the Corporation or Providence in connection with the scope of his investigation.
Mr. Lazier’s fairness opinion, attached as Exhibit 3, will be made available for inspection and copying at the principal executive offices of the Corporation during its regular business hours by any interested stockholder, and may be transmitted to any interested stockholder upon written request and at the expense of the requesting stockholder. Further, Mr. Lazier has consented to use his fairness opinion in this proxy statement, although his opinion should not be relied upon by the Corporation’s stockholders in reaching any decision as to whether the Corporation should proceed with the considered transactions.
PAST CONTRACTS, TRANSACTIONS OR NEGOTIATIONS
Letter of Intent (page 24 under “Corporate History”)
On November 18, 2005, the Corporation entered into a letter of intent with Providence, which considered a stock exchange for the Corporation’s acquisition of Providence subject to the parties satisfaction of certain conditions precedent to the acquisition, namely, the Corporation’s obligation to loan Providence up to $5,000,000 to fund its oil and gas exploration and development activities and lease purchases, and the execution of a definitive agreement.
Promissory Note (page 27 and page 38 under “Liquidity and Capital Resources”)
On December 1, 2005, we executed a Secured Revolving Replacement Promissory Note (“Note”) with Providence to loan Providence up to $5,000,000 to acquire oil, gas and mineral leasehold interests and to fund exploration and development. We had advanced $5,244,076 to Providence pursuant to the Note as of June 30, 2006. As of June 30, 2006, the Note had accrued interest of $159,878. In the event that our stockholders approve Proposal 2, the Note will be consolidated as an inter-company loan and remain due from Providence to the Corporation.
Comanche and Hamilton Counties (page 29)
On October 1, 2005, Providence executed a Joint Exploration Agreement with Harding Company to purchase approximately 6,272 acres of oil and gas leases located in Comanche and Hamilton Counties, Texas, in exchange for $3,136,273 for the purpose of exploring, developing and producing oil and gas. Providence acquired a 90% working interest while its joint venture operating partner, Harding Company, retained a 10% working interest in the leases.
Val Verde County (page 30)
On March 30, 2006, Providence closed an Agreement for Purchase and Sale with Global Solutions, LLC, to purchase approximately 12,832 acres of oil and gas leases located in Val Verde County, Texas, in exchange for $3,849,600 for the purpose of exploring, developing and producing oil and gas.
PRO FORMA FINANCIAL DATA
The following is a summary of unaudited, pro forma, consolidated, financial data as of June 30, 2006 and December 31, 2005, for the Corporation and Providence. The pro forma financial data is based on pro forma financial data attached hereto as Exhibits E and F. The pro forma balance sheet and statement of operations data are presented as if the acquisition of Providence by the Corporation had occurred on June 30, 2006 and December 31, 2005. The pro forma financial data is presented for informational purposes and is not necessarily indicative of either the future results of operations or the results of operations that would have occurred if the acquisition had been consummated on any date. You should read the following pro forma financial data along with other financial information contained elsewhere in this proxy statement.
Combined Pro Forma Balance Sheet
June 30, December 31,
2006 2005
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,834,066 $ 2,057,498
Accounts receivable, net 78,665 72,833
Inventory 666,139
Promissory note receivable (incl. interest) - 5,000
Prepaid expenses 78,671 34,449
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Total Current Assets 7,657,541 2,169,780
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PROPERTY AND EQUIPMENT, Net 373,436 1,212,858
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OTHER ASSETS
Undeveloped reserves 11,157,492 6,178,787
Loan origination fees, net of amortization of $17,743 58,507 71,215
Notes receivable-member 138,754 87,418
Deposits 2,266 2,266
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Total Other Assets 11,357,019 6,339,686
TOTAL ASSETS 19,387,995 9,722,324
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 28,324 $ 146,482
Accrued expenses 261,300 158,768
Related party payables 38,500 13,500
Note payable -
2,774,800
Current portion of L-T notes payable
362,548 341,919
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Total Current Liabilities 3,465,472 660,669
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LONG-TERM LIABILITIES
L-T notes payable 4.087,643 704,617
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Total Long-Term Liabilities 4,087,643 4,349,617
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Total Liabilities
7,553,115 5,010,286
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STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; $0.0001 par value, 25,000,000 shares authorized,
no shares issued and outstanding - -
Common stock; $0.0001 par value, 50,000,000 shares authorized,
32,980,906 shares issued and outstanding 3,432 3,298
Additional paid-in capital 15,458,092 13,847,471
Common share subscriptions 7,253,220 -
Accumulated other comprehensive income 15,124 14,370
Accumulated deficit (10,858,659) (9,153,101)
Member's equity (36,329) -
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Total Stockholders' Equity (Deficit) 11,834,880 4,712,038
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 19,387,995 $ 9,722,324
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Combined Pro Forma Statements of Operations
June 30, December 31,
2006 2005
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REVENUES $ 358,131 $ 369,515
COST OF SALES 547,368 694,382
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GROSS MARGIN (189,237) (324,867)
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OPERATING EXPENSES
General and administrative 913,607 746,808
Total Operating Expenses 913,607 746,808
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LOSS FROM OPERATIONS (1,102,844) (1,071,675)
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OTHER INCOME (EXPENSE)
Interest income (1,561,101) 23,623
Interest expense 191,452 (286,590)
Note receivable write off 519,831 (89,731)
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-
Total Other Income (Expense) (849,818) (352,698)
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LOSS BEFORE PROVISION FOR INCOME TAXES (1,952,662) (1,424,373)
Provision for income taxes - -
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LOSS BEFORE DISCONTINUED OPERATIONS (1,952,662) (1,424,373)
Gain (loss) from discontinued operations, net of tax - (299,248)
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NET LOSS (1,952,662) (1,723,621)
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OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment - 9,057
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NET COMPREHENSIVE INCOME (LOSS)
$ (1,952,662) $ (1,714,564)
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RISK FACTORS
Before deciding how to vote on the proposals described in this proxy statement, you should carefully consider the risks relating to the acquisition and to our post-closing operations as described below, together with the other information in this proxy statement. Our business, financial condition and results of operations could be adversely affected by any of the following risks, which could cause the trading price of our common stock to decline.
Risks Relating to the Acquisition of Providence
If we are unable to complete the acquisition, we will have no business operations and our stock price may decline.
If we do not complete the acquisition as we intend, we will be left with no business operations or prospects which may cause the market price of our stock to decline. Even if the acquisition is not approved by our stockholders we will remain obligated to pay the costs related to the acquisition, including legal, accounting and financial advisory fees.
The acquisition will result in dilution to our current stockholders’ voting power and ownership percentages.
The issuance of shares of our capital stock in the acquisition will dilute the voting power and ownership percentage of our existing stockholders. We will issue a total of 16,500,000 shares of our common stock in the acquisition, resulting in a dilution of approximately 34% to our current stockholders.
We may not realize the anticipated benefits from the acquisition which could cause our stock price to decline.
We may not achieve the benefits we are seeking in the acquisition. Providence may not be successful in its exploration efforts or if successful, oil and gas prices may not remain at their current levels. As a result, our operations and financial results may be less rewarding than anticipated, which may cause the market price of our common stock to decline.
The acquisition of Providence could decrease the value of your stock
Providence is a start up company with a limited history of realizing revenue and a working capital deficit, about which Providence’s auditors have expressed a going concern opinion. Additionally, Providence expects losses in the future and its current assets are insufficient to conduct its minimum plan of operation over the next 12 months. Given these facts, the acquisition of Providence could result in significant losses for the Corporation which could decrease the value of your stock.
Risks Relating to the Corporation after the Acquisition
We may not be successful in integrating the business operations of Providence into our business operations after the acquisition, stifling growth and hindering the realization of a profit.
The acquisition involves the integration of companies that have previously operated independently. Successful integration of Providence’s operations with ours will depend on our ability to consolidate operations and procedures and to integrate Providence’s management team with our own. If we are unable to do so, we may not realize the anticipated potential benefits of the acquisition, our business development could be stifled, and results of operations may not produce a profit. Difficulties could include the loss of key employees, the disruption of Providence’s ongoing businesses, and possible inconsistencies in standards, controls, procedures and policies.
We may be unable to manage the growth of our business which could negatively affect development, revenues, and fiscal independence.
We believe that if our post-acquisition growth plan is successful, our business has the potential to grow in size and complexity. If our management is unable to manage growth effectively, our business development may be slowed, our operating results my not show a profit, and we may not become financially independent from outside funding sources. Any new sustained growth would be expected to place a significant strain on our management systems and operational resources. We anticipate that new sustained growth, if any, will require us to recruit, hire and retain new managerial, finance and support personnel. We cannot be certain that we will be successful in recruiting, hiring or retaining such personnel. Our ability to compete effectively and to manage our future growth, if any, will depend on our ability to maintain and improve operational, financial, and management information systems on a timely basis and to expand, train, motivate and manage our work force. If we begin to grow, we cannot be certain that our personnel, systems, procedures, and controls will be adequate to support our operations.
Risks Related to Providence’s Business
Oil and natural gas drilling and producing operations involve various risks which could result in net losses.
Drilling activities are subject to many risks, including the risk that no commercially productive reservoirs will be discovered. Wells drilled by Providence may not be productive, and, thus, Providence may not be able to recover all or any portion of its investment in such wells. Drilling for oil and natural gas may involve unprofitable efforts, not only from dry wells, but also from wells that are productive but do not produce sufficient net reserves to return a profit after deducting drilling, operating and other costs. The seismic data and other technologies Providence uses do not allow it to know conclusively prior to drilling a well that oil or natural gas is present or may be produced economically. The cost of drilling, completing and operating a well is often uncertain, and cost factors can reduce the feasibility of a project to produce a profit. Further, Providence’s drilling operations may be curtailed, delayed or canceled as a result of numerous factors, including:
|X| unexpected drilling conditions;
|X| title problems;
|X| pressure or irregularities in formations;
|X| equipment failures or accidents;
|X| adverse weather conditions;
|X| compliance with environmental and other governmental requirements; and
|X| cost of, or shortages or delays in the availability of, drilling rigs, equipment and services.
Providence’s operations are subject to all the risks normally incident to the operation and development of oil and natural gas properties and the drilling of oil and natural gas wells, including:
|X| encountering well blowouts;
|X| cratering and explosions;
|X| pipe failure;
|X| fires;
|X| formations with abnormal pressures resulting in uncontrollable flows of oil and natural gas;
|X| brine or well fluids;
|X| release of contaminants into the environment; and
|X| other environmental hazards and risks.
The nature of these risks is such that some liabilities including environmental fines and penalties could exceed Providence’s ability to pay for the damages. Providence could incur significant costs due to these risks that could result in net losses.
Providence is subject to federal, state and local laws and regulations which could create liability for personal injuries, property damage, and environmental damages.
Exploration for and development, exploitation, production and sale of oil and natural gas in the United States is subject to extensive federal, state and local laws and regulations, including complex tax laws and environmental laws and regulations. Existing laws or regulations, as currently interpreted or reinterpreted in the future, or future laws or regulations could harm Providence’s business, results of operations and financial condition. Providence may be required to make large expenditures to comply with environmental and other governmental regulations. Matters subject to regulation include oil and gas production and saltwater disposal operations and Providence’s processing, handling and disposal of hazardous materials, such as hydrocarbons and naturally occurring radioactive materials, discharge permits for drilling operations, spacing of wells, environmental protection, reports concerning operations, and taxation. Under these laws and regulations, Providence could be liable for personal injuries, property damage, oil spills, discharge of hazardous materials, reclamation costs, remediation, clean-up costs and other environmental damages.
Shortages of oil field equipment, services and qualified personnel could reduce Providence’s profit margin, cash flow and operating results.
The demand for qualified and experienced field personnel to drill wells and conduct field operations, geologists, geophysicists, engineers and other professionals in the oil and natural gas industry can fluctuate significantly, often in correlation with oil and natural gas prices, causing periodic shortages. There have also been shortages of drilling rigs and other equipment, as demand for rigs and equipment has increased along with the number of wells being drilled. These factors also cause significant increases in costs for equipment, services and personnel. Higher oil and natural gas prices generally stimulate increased demand and result in increased prices for drilling rigs, crews and associated supplies, equipment and services. Providence cannot be certain when or if it will experience these issues and these types of shortages or price increases which could significantly decrease Providence’s profit margin, cash flow and operating results on any particular well or restrict its ability to drill additional wells.
The results of Providence’s operations depend on the production and maintenance efforts of Harding Company, a third party.
The operation of Providence’s oil and natural gas operations in Comanche, Hamilton and prospectively Val Verde Counties will be dependent on an independent local operator, Harding Company. The fact that Providence is dependent on operations of a third party to produce revenue from its oil and natural gas assets could restrict its ability to generate a net profit on operations.
Oil and natural gas prices are volatile, and any substantial decrease in prices could cause Providence to continue to operate at a loss.
Providence’s future financial condition, results of operations and the carrying value of its oil and natural gas properties will depend primarily upon the prices it receives for production. Oil and natural gas prices historically have been volatile and are likely to continue to be volatile in the future. Providence’s cash flow from operations will be highly dependent on the prices that it receives for oil and natural gas. This price volatility also affects the amount of Providence’s cash flow available for capital expenditures and its ability to borrow money or raise additional capital. The prices for oil and natural gas are subject to a variety of additional factors that are beyond the Corporation’s control. These factors include:
|X| the level of consumer demand;
|X| the domestic supply;
|X| domestic governmental regulations and taxes;
|X| the price and availability of alternative fuel sources;
|X| weather conditions; and
|X| market uncertainty.
These factors and the volatility of the energy markets generally make it extremely difficult to predict future oil and natural gas price movements with any certainty. Declines in oil and natural gas prices would not only reduce future revenue, but could reduce the amount of oil and natural gas that Providence can produce economically and, as a result, could cause it to continue to operate at a loss. Should the oil and natural gas industry experience significant price declines, Providence may, among other things, be unable to meet its financial obligations.
FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements. These statements relate to future events, future financial performance or projected business results and involve known and unknown risks and uncertainties. Actual results may differ materially from those expressed or implied by these statements. In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will” or other similar words. The following list identifies some of the factors that could cause actual results to differ from those expressed or implied from the forward-looking statements:
|X| our anticipated financial performance and business plan;
|X| the sufficiency of existing capital resources;
|X| our ability to raise additional capital to fund cash requirements for future operations;
|X| uncertainties related to the Corporation’s future business prospects with Providence;
|X| uncertainties related to Providence’s future business prospects;
|X| the ability of the Corporation to generate revenues to fund future operations;
|X| the volatility of the stock market; and
|X| general economic conditions.
The Corporation’s and Providence’s forward-looking statements are based on their respective management’s beliefs and assumptions extracted from information available to management at the time the statements are made. Management cautions you that assumptions, beliefs, expectations, intentions and projections about future events may, and often do, vary materially from actual results. Therefore, actual results may differ materially from those expressed or implied by the forward-looking statements.