**UNITED        STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM        10-K**

 

*(Mark        One)*

þ            Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act        of 1934 for the fiscal year ended**December 31,        2007**.

o       Transition report pursuant to        Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period        from      to. 

 

Commission file number:**000-30377**

 

**PROVIDENCE RESOURCES, INC.**

(Exact        name of registrant as specified in its charter)

|  

**TEXAS**

(State or other jurisdiction of

incorporation or organization) | **06-1538201** 

(I.R.S. Employer

Identification No.) |
|------------------------------------------------------------------------------------|-------------------------------------------------------------|

 

**5300 Bee Caves Rd, Bldg 1 Suite 240, Austin, Texas,        78746**

(Address        of principal executive offices) (Zip Code)

 

**(512) 970-2888**

(Issuer’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act:        none.

Securities registered under Section 12(g) of the Exchange Act: common stock        (title of class), $0.001 par value.

Indicate        by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of        the Securities Act of 1933: Yeso     No        þ.

Indicate        by check mark if the registrant is not required to file reports pursuant to Section 13 or        Section 15(d) of the Exchange Act: Yeso     No        þ.

Indicate        by check mark whether the registrant: (1) filed all reports required to be filed by Section        13 or 15(d) of the Exchange Act 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 the past 90 days: Yes        þ     Noo.

Indicate        by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K        is not contained herein, and will not 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-K or any amendment to this Form 10-Ko.

Indicate        by check mark whether the registrant is a large accelerated filer, an accelerated filer, a        non-accelerated filer, or a smaller reporting company as defined by Rule 12b-2 of the        Exchange Act: smaller reporting company þ.

Indicate        by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the        Exchange Act): Yeso     No        þ.

The        aggregate market value of the registrant's common stock, $0.0001 par value, held by        non-affiliates (49,653,214 shares) was approximately $11,916,771 based on the average        closing bid and asked prices ($0.24) for the common stock on March 31, 2008.

At April 1,        2008, the number of shares outstanding of the registrant's common stock, $0.0001 par value        (the only class

 

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**TABLE OF CONTENTS**

**           **Page**    
**PART I.**
     Item       1.                           Business  3  Item       1A.                         Risk Factors  8  Item       1B.                         Unresolved Staff Comments  13  Item       2.                           Properties  13  Item       3.                           Legal Proceedings  14  Item       4.                           Submission of Matters to a Vote of                    Security Holders  14 
**PART II.**
     Item       5.                           Market for Registrant's Common                    Equity, Related Stockholder Matters, and Issuer Purchases of Equity                    Securities  15  Item       6.                           Selected Financial Data  17  
Item       7.                               Management's Discussion and                        Analysis of Financial Condition and Results of Operations
  17  Item       7A.     Quantitative                    and Qualitative Disclosures about Market Risk  22  Item       8.                           Financial Statements and Supplementary Data  22  Item       9.                           Changes in and Disagreements with Accountants on Accounting and Financial                    Disclosure  23  Item       9A.     Controls                    and Procedures (Item 9A (T))  23  Item       9B.     Other                    Information  23 
**PART III.**
     Item     10.                         Directors, Executive Officers and Corporate                    Governance  24  Item     11.                         Executive Compensation  27  Item     12.                         Security Ownership of Certain Beneficial Owners                    and Management and Related Stockholder Matters  28  Item     13.                         Certain Relationships and Related Transactions,                    and Director Independence  29  Item     14.                         Principal Accountant Fees and Services  29  Item     15.                         Exhibits and Financial Statement                    Schedules  30                                            Signatures  31    **
**            2        **

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**PART        I**

 

| **ITEM 1.** | **BUSINESS** |
|-------------|--------------|

 

***As        used herein the terms “Company,” “we,” “us,” and        “our,” refer to Providence Resources, Inc., a Texas corporation, and our        subsidiaries. All references herein to “Providence Exploration” refer to        Providence Exploration, LLC, our wholly owned subsidiary, and its subsidiary PDX Drilling        I, LLC.***

 

**Corporate History**  

The Company        was incorporated under the laws of the State of Texas on February 17, 1993, as “GFB        Alliance Services, Inc.” We have since undergone several name changes and on May 13,        1999, pursuant to an amendment to our articles of incorporation, adopted the name        “Healthbridge, Inc.” During early 2002 we acquired exclusive ownership and        intellectual property rights for a medical waste disposal technology. Prior to year end        2005 we decided to discontinue all operations due to our inability to successfully        commercialize this technology.

 

The Company        decided to enter into the oil and gas business in November of 2005. We executed a secured        promissory note with Providence Exploration dated December 1, 2005, to loan up to        $5,000,000 to fund its oil and gas exploration, development activities and lease purchases.        On April 10, 2006, we executed a Securities Exchange Agreement with Providence Exploration        and the membership unit holders of Providence Exploration and concurrently entered into a        Note Exchange Agreement with the holders of certain of Providence Exploration’s        promissory notes, which agreements resulted in the acquisition of Providence Exploration as        a wholly owned subsidiary on September 29, 2006, at which time we changed our name to        “Providence Resources, Inc.”

 

The        Company’s principal place of business is located at 5300 Bee Caves Rd, Bldg 1 Suite        240, Austin, Texas, 78746, and our telephone number is (512) 970-2888.

 

The        Company’s registered statutory office is located at 408 West 17th Street, Ste. 101,        Austin, Texas 78701.

 

**The        Company**

 

The Company        is involved in oil and gas exploration in Val Verde, Comanche, and Hamilton Counties,        Texas.

 

***Oil        and Gas Exploration in Val Verde County***

 

On March        30, 2006, the Company closed an Agreement for Purchase and Sale with Global Mineral        Solutions, L.P., to purchase approximately 12,832 acres of oil and gas leases located in        Val Verde County, Texas, in exchange for $3,849,600.

 

The        Company’s interests in Val Verde County include multiple oil and gas target zones        within a large structure delineated by prior seismic and drilling in the area. The leases        lie along a trend that has produced from multiple large gas fields, including the Gomez        field, which has produced 10.6 trillion cubic feet to date, the Brown Bassett, which has        produced 1.6 trillion cubic feet to date, and the JM Field, which has produced 650 billion        cubic feet to date.

 

 

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*Seismic        Exploration – Val Verde County Leases*

 

On March        27, 2007 the Company engaged TRNCO Petroleum Corporation (“TRNCO”) to implement        an I/O two recording system in combination with the latest state-of-the-art acquisition and        processing parameters to obtain high quality 3D seismic data from the Val Verde County        leases. The data collected is intended to illuminate deep gas targets at depths ranging        from 14,000 to 16,000 feet in the Ellenberger carbonate, Strawn carbonate and        Pennsylvanian-Wolfcamp sandstone reservoirs which underlie our leasehold interests over 57        square miles. TRNCO was responsible for supervising the acquisition, processing, licensing        and interpretation of the seismic data while Dawson Geophysical Company        (“Dawson”) was engaged to obtain the actual 3D seismic data.

 

Dawson went        to work on the property obtaining seismic data at a rate of 1 square mile a day delivering        data on a weekly basis. Demux and geometry work was performed on accumulated data as it was        received Actual data acquisition was completed by the end of November. The Company engaged        Fairfield Industries Incorporated (“FairField”) to process and interpret the        Val Verde seismic data. Fairfield is well known worldwide for developing and operating        sophisticated software and hardware configurations to process data that creates accurate        images of the Earth’s subsurface for geologic interpretation. High-performance        networking that utilizes workstation cluster technology empowers Fairfield with        supercomputing capabilities that generate superior algorithms with the best available noise        reduction, multiple removal, pre-stack time, depth imaging, and multi-component seismic        processing. Superior hardware and software capabilities, coupled with international        experience in marine streamer, shallow water, transition zone, and high land seismic data        analysis and processing enable Fairfield to provide geophysical services in a timely and        cost-effective manner.

 

The Company        also engaged Mr. Sam Ting as a consultant to provide additional processing experience to        the work of Fairfield and TRNCO to ensure high quality results. Mr. Ting is a dedicated        geophysicist with over 25 years experience that includes exploration seismic projects        in the Delaware, Midland, and Val Verde Basins in Texas. Since early 2005, Mr. Ting has        provided geophysical services as a private consultant. Between April 2000 and February        2005, Mr. Ting was the founder and president of Geo-Experts, Inc., a geo-science consulting        company of more than 40 consultants that provided expertise associated with exploration and        production projects worldwide. Prior to founding Geo-Experts, Mr. Ting was with Mobil        Research and Development for 20 years with his last 9 years of service as senior        geophysical advisor responsible for providing technical evaluations and assistance for        Mobil's worldwide geophysical applications.

 

Meanwhile, the Company’s management and consultants are reviewing        general geological and reservoir attributes in order to optimize seismic processing for        mapping fractured reservoirs. The ultimate seismic challenge facing the Company is to map        the most productive pays from Ellenberger to Strawn represented by compartmentalized and        hydro-thermally fractured dolomitic reservoirs. 

 

The        anticipated final processing of seismic data by our team of dedicated professionals is        expected by the middle of April 2008. Interpretative work to identify and prioritize        initial drilling locations will be determined shortly thereafter. Initial drilling on        the leases is anticipated within the third quarter of 2008. In the event that we do not        begin drilling by early 2009 the Val Verde County leases will begin to expire.

 

 

 

4

 

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*Drilling        – Val Verde Leases*

 

On June 29,        2007, the Company entered into an exploration and development agreement        (“Agreement”) with Miller Energy, LLC and certain of its affiliates        (“Miller”) providing for the further exploration and development of the        Company’s oil and gas leasehold interests in Val Verde County, Texas. Miller, and its        affiliates, is a group of privately owned oil and gas companies, based in Lafayette,        Louisiana. Miller’s business operations include oil and gas interests within the        Barnett Shale, in the vicinity of Fort Worth, Texas.

 

The        Agreement includes the following provisions: 

 

| **•** | Miller will undertake all activities necessary to test and                        develop the Company’s oil and gas leasehold interests in Val Verde                        County; |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | Miller will fund up to $10,000,000 of drilling costs in Val                        Verde County through a series of convertible debentures; and |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | Miller will acquire a 10% working interest in the                        Company’s Val Verde County oil and gas leasehold                        interests. |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

The Company        is now actively working with Miller in anticipation of the final interpretation and        processing of seismic data that is expected to indicate prospective drill        targets.

 

***Oil        and Gas Exploration in Comanche and Hamilton Counties***

 

On October        1, 2005, Providence Exploration purchased interests in approximately 6,272 acres of oil and        gas leases located in Comanche and Hamilton Counties, Texas from Harding Company. Seismic        work was completed on the leases and initial drill targets identified. An oil and gas        pipeline infrastructure was also completed in Southeast Comanche County by Comanche County        Pipeline, LLC, a partnership owned 90% by the Company and 10% by Harding Company and        others. Harding Company drilled four wells, Marrs #1, Steward #1H, Nowell #1 and Patton #2H        on the Company’s Comanche County leases. None of the wells indicated commercial        quantities of gas that could be produced on an economic basis and were abandoned. We now        retain approximately 3,000 acres of the original acreage leased in Comanche and Hamilton        County as several of the leases have expired due to non-production. No additional wells are        anticipated for these leases until such time as further evaluation of existing work is        completed. 

 

**Competition**

 

The oil and        gas business in Texas is highly competitive. We compete with over 1,000 independent        companies, many with greater financial resources and larger staff than we have available.        Texas hosts approximately 40 significant independent operators including Marathon Oil,        Houston Exploration Company and Newfield Exploration Company in addition to over 950        smaller operations with no single producer dominating the area. Major operators such as        Exxon, Shell Oil, ConocoPhillips, Mobil and others that are considered major players in the        oil and gas industry retain significant interests in Texas. We believe that we can        successfully compete against the independent companies by focusing our efforts on the        efficient development of our leases.

 

**Marketability**

 

The        products to be sold by us, oil and natural gas, are commodities purchased by many        distribution and retail companies. Crude oil can be sold whenever it is produced subject to        transportation cost. Natural gas requires transportation from point of production to the        purchaser by pipeline. The Company does not produce oil or gas products for market at this        time.

 

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**Patents, Trademarks, Licenses, Franchises, Concessions, Royalty        Agreements and Labor Contracts**

 

We        currently have no patents, trademarks, licenses, franchises, concessions, or labor        contract, except the leases we have acquired for oil, gas and mineral interests do provide        for the payment of royalties in the event production is realized.

 

**Governmental and Environmental Regulation**

 

The        Company’s oil and gas exploration, including future production and related operations        are subject to extensive rules and regulations promulgated by federal and state agencies.        Failure to comply with such rules and regulations can result in substantial penalties. The        regulatory burden on the oil and gas industry adds to our cost of doing business and        affects our profitability. Because such rules and regulations are frequently amended or        interpreted differently by regulatory agencies, we are unable to accurately predict the        future cost or impact of complying with such laws.

 

The        Company’s oil and gas exploration and future production operations are and will be        affected by state and federal regulation of gas production, federal regulation of gas sold        in interstate and intrastate commerce, state and federal regulations governing        environmental quality and pollution control, state limits on allowable rates of production        by a well or pro-ration unit and the amount of gas available for sale, state and federal        regulations governing the availability of adequate pipeline and other transportation and        processing facilities, and state and federal regulation governing the marketing of        competitive fuels. For example, a productive gas well may be “shut-in” because        of an over-supply of gas or lack of an available gas pipeline in the areas in which we may        conduct operations. State and federal regulations generally are intended to prevent waste        of oil and gas, protect rights to produce oil and gas between owners in a common reservoir,        control the amount of oil and gas produced by assigning allowable rates of production and        control contamination of the environment. Pipelines are subject to the jurisdiction of        various federal, state and local agencies.

 

Many state        authorities require permits for drilling operations, drilling bonds and reports concerning        operations and impose other requirements relating to the exploration and production of oil        and gas. Such states also have ordinances, statutes or regulations addressing conservation        matters, including provisions for the unitization or pooling of properties, the regulation        of spacing, plugging and abandonment of wells, and limitations establishing maximum rates        of production from wells. Texas regulations do provide certain limitations with respect to        our operations.

 

**Environmental Regulation**

 

The recent        trend in environmental legislation and regulation has been generally toward stricter        standards, and this trend will likely continue. The Company does not presently anticipate        that we will be required to expend amounts relating to future oil and gas production        operations that are material in relation to our total capital expenditure program by reason        of environmental laws and regulations, but because such laws and regulations are subject to        interpretation by enforcement agencies and are frequently changed by legislative bodies, we        are unable to accurately predict the ultimate cost of such compliance for 2008.

 

The Company        is subject to numerous laws and regulations governing the discharge of materials into the        environment or otherwise relating to environmental protection. These laws and regulations        may require the acquisition of a permit before drilling commences, restrict the types,        quantities and concentration of varioussubstances that can be        released into the environment in connection with drilling and production activities, limit        or prohibit drilling activities on certain lands lying within wilderness, wetlands, and        areas containing threatened and endangered plant and wildlife species, and impose        substantial liabilities for unauthorized pollution resulting from our        operations.

 

 

6

 

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The        following environmental laws and regulatory programs appear to be the most significant to        our operations in 2008:

 

***Clean        Water and Oil Pollution Regulatory Programs***— The        Federal Clean Water Act (“CWA”) regulates discharges of pollutants to surface        waters. The discharge of crude oil and petroleum products to surface waters also is        precluded by the Oil Pollution Act (“OPA”). Our operations are inherently        subject to accidental spills and releases of crude oil and drilling fluids that may give        rise to liability to governmental entities or private parties under federal, state or local        environmental laws, as well as under common law. Minor spills may occur from time to time        during the normal course of our future production operations. We will maintain spill        prevention control and countermeasure plans (“SPCC plans”) for facilities that        store large quantities of crude oil or petroleum products to prevent the accidental        discharge of these potential pollutants to surface waters.

 

***Clean        Air Regulatory Programs***— Our operations are subject to        the federal Clean Air Act (“CAA”), and state implementing regulations. Among        other things, the CAA requires all major sources of hazardous air pollutants, as well as        major sources of certain other criteria pollutants, to obtain operating permits, and in        some cases, construction permits. The permits must contain applicable Federal and state        emission limitations and standards as well as satisfy other statutory and regulatory        requirements. The 1990 Amendments to the CAA also established new monitoring, reporting,        and recordkeeping requirements to provide a reasonable assurance of compliance with        emission limitations and standards. Providence Exploration currently obtains construction        and operating permits for our compressor engines; we are not presently aware of any        potential adverse claims in this regard.

 

***Waste        Disposal Regulatory Programs***— Our operations will        generate and result in the transportation and disposal of large quantities of produced        water and other wastes classified by EPA as “non-hazardous solid wastes”. The        EPA is currently considering the adoption of stricter disposal and clean-up standards for        non-hazardous solid wastes under the Resource Conservation and Recovery Act        (“RCRA”). In some instances, EPA has already required the clean up of certain        non-hazardous solid waste reclamation and disposal sites under standards similar to those        typically found only for hazardous waste disposal sites. It also is possible that wastes        that are currently classified as “non-hazardous” by EPA, including some wastes        generated during our drilling and production operations, may in the future be reclassified        as “hazardous wastes”. Because hazardous wastes require much more rigorous and        costly treatment, storage, transportation and disposal requirements, such changes in the        interpretation and enforcement of the current waste disposal regulations would result in        significant increases in waste disposal expenditures.

 

***The        Comprehensive Environmental Response, Compensation and Liability Act        (“CERCLA”)***—

CERCLA,        also known as the “Superfund” law, imposes liability, without regard to fault        or the legality of the original conduct, on certain classes of persons who are considered        to have caused or contributed to the release or threatened release of a “hazardous        substance” into the environment. These persons include the current or past owner or        operator of the disposal site or sites where the release occurred and companies that        transported disposed or arranged for the disposal of the hazardous substances under CERCLA.        These persons may be subject to joint and several liabilities for the costs of cleaning up        the hazardous substances that have been released into the environment and for damages to        natural resources. The Company is not presently aware of any potential adverse claims in        this regard.

 

 

7

 

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***Texas        Railroad Commission***— The State of Texas has        promulgated certain legislative rules pertaining to exploration, development and production        of oil and gas that are administered by the Texas Railroad Commission. The rules govern        permitting for new drilling, inspection of wells, fiscal responsibility of operators,        bonding wells, the disposal of solid waste, water discharge, spill prevention, liquid        injection, waste disposal wells, schedules that determine the procedures for plugging and        abandonment of wells, reclamation, annual reports and compliance with state and federal        environmental protection laws. We believe that we will function in compliance with these        rules.

 

We believe        that all of our operations are in substantial compliance with current applicable federal,        state and local environmental laws and regulations and that continued compliance with        existing requirements will not have a material adverse effect our financial position, cash        flows or results of operations. There can be no assurance, however, that current regulatory        requirements will not change, currently unforeseen environmental incidents will not occur        or past non-compliance with environmental laws or regulations will not be        discovered.

**Employees**

 

The Company        currently has 2 employees. We also use an independent operator and contractors to assist us        in managing our interests in oil and gas properties. Management also uses consultants,        attorneys, and accountants as necessary to assist in the development of our        business.

 

**Reports to Security Holders**

 

The        Company’s annual report contains audited financial statements. We are not required to        deliver an annual report to security holders and will not automatically deliver a copy of        the annual report to our security holders unless a request is made for such delivery. We        file all of our required reports and other information with the Securities and Exchange        Commission (the “Commission”). The public may read and copy any materials that        are filed by the Company with the Commission at the Commission’s Public Reference        Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information        on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.        The statements and forms filed by us with the Commission have also been filed        electronically and are available for viewing or copy on the Commission maintained Internet        site that contains reports, proxy and information statements, and other information        regarding issuers that file electronically with the Commission. The Internet address for        this site can be found at*http://www.sec.gov*.

 

| **ITEM 1A.** | **RISK FACTORS** |
|--------------|------------------|

 

Our future        operating results are highly uncertain. Before deciding to invest in us or to maintain or        increase your investment, you should carefully consider the risks described below, in        addition to the other information contained in this annual report. If any of these risks        actually occur, our business, financial condition or results of operations could be        seriously harmed. In that event, the market price for our common stock could decline and        you may lose all or part of your investment.

 

**Risks        Related to the Company’s Business**

 

***The        Company has a history of operating losses and such losses may continue in the        future.***

 

Since the Company’s inception in 1993, our operations        have resulted in a continuation of losses and an accumulated deficit of $38,118,959 at        December 31, 2007. We will continue to incur operating losses until such time as we begin        producing oil and gas revenue, which may or may not eventuate. Should the Company fail to        produce oil and gas revenue we may continue to operate at a loss and may never be        profitable.

 

 

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***The        Company has a limited operating history as an oil and gas exploration        company.***

 

The Company        acquired Providence Exploration on September 29, 2006, which company first began oil and        gas exploration operations during the fourth quarter of 2005. As such, our limited        operating history in the oil and gas exploration sector provides an inadequate track record        from which to base future projections of success.

 

***The        Company has a history of uncertainty about continuing as a going        concern.***

 

The        Company’s audits for the periods ended December 31, 2007 and December 31, 2006        expressed substantial doubt as to our ability to continue as a going concern as a result of        recurring losses, an accumulated deficit of $38,118,959 as of December 31, 2007, and        revenue generating activities that were insufficient to sustain operations. Unless we are        able to cure this pattern of reoccurring losses and insufficient revenue, our ability to        continue as a going concern will be in jeopardy.

 

***The        Company cannot represent that it will be successful in continuing        operations.***

 

The Company        has not, to date, generated sufficient revenue from operations to cover expenses and may        not generate sufficient revenue over the next twelve months to ensure continued oil and gas        development operations. Should the Company be unable to realize sufficient revenue over        that time period, it will be forced to raise additional capital to remain in operation.        Except for our Agreement with Miller Energy, we have no commitments for the provision of        additional capital and can offer no assurance that such capital will be available as        necessary to continue operations.

 

**Risks        Related to the Oil and Gas Industry**

 

***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 which we drill may not be productive, and, thus, we        may not be able to recover all or any portion of our 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 which we use do not allow us 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, our drilling operations may be        curtailed, delayed or canceled as a result of numerous factors, including:

 

| **•** | unexpected drilling conditions; |
|------------|---------------------------------|

| **•** | title problems; |
|------------|-----------------|

| **•** | pressure or irregularities in formations; |
|------------|-------------------------------------------|

| **•** | equipment failures or accidents; |
|------------|----------------------------------|

| **•** | adverse weather conditions; |
|------------|-----------------------------|

 

| **•** | compliance with environmental and other governmental                        requirements; and |
|------------|-----------------------------------------------------------------------------------------------|

| **•** | cost of, or shortages or delays in the availability of,                        drilling rigs, equipment and services. |
|------------|-----------------------------------------------------------------------------------------------------------------------|

 

Our        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:

 

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| **•** | encountering well blowouts; |
|------------|-----------------------------|

| **•** | cratering and explosions; |
|------------|---------------------------|

| **•** | pipe failure; |
|------------|---------------|

| **•** | fires; |
|------------|--------|

| **•** | formations with abnormal pressures resulting in                        uncontrollable flows of oil and natural gas; |
|------------|---------------------------------------------------------------------------------------------------------------------|

| **•** | brine or well fluids; and |
|------------|---------------------------|

| **•** | release of contaminants into the environment and other                        environmental hazards and risks. |
|------------|----------------------------------------------------------------------------------------------------------------|

 

The nature        of these risks is such that some liabilities including environmental fines and penalties        could exceed our ability to pay for the damages. We could incur significant costs due to        these risks that could result in net losses.

 

***The        Company is subject to federal, state and local laws and regulations which could create        liability for personal injuries, property damage, and environmental damages.*** 

 

Exploration        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 the Company’s business, results of operations and financial condition. We 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 our 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, we 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 the Company’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. We cannot be certain when or if we will experience these issues and        these types of shortages or price increases which could significantly decrease any profit        margin, cash flow and operating results on any particular well or restrict our ability to        drill additional wells.

 

***The        results of the Company’s operations depend on the exploration and operational efforts        of Miller Energy, LLC, Harding Company, TRNCO Petroleum Corporation, Dawson Geophysical,        Fairfield Industries, and certain consultants, all of whom are third        parties.*** 

 

Exploration        and operational efforts through seismic exploration, drilling and operation in Comanche and        Hamilton Counties have been provided by Harding Company, exploration efforts through        seismic exploration, processing and interpretation in Val Verde County have been provided        by TRNCO, Dawson, Fairfield, Sam Ting and Bill Purves, while drilling on the Val Verde        County leases will prospectively be conducted by Miller Energy. Despite being leaders in        their respective fields, our dependence on third parties to initiate, determine and conduct        operations could impede our own prospect of success.

 

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***Oil        and natural gas prices are volatile, and any substantial decrease in prices could cause the        Company to continue to operate at a loss in the event that we are successful in producing        oil and gas.*** 

 

Our future        financial condition, results of operations and the carrying value of our oil and natural        gas properties will depend primarily upon the prices we receive for production. Oil and        natural gas prices historically have been volatile and are likely to continue to be        volatile in the future. Our cash flow from operations will be highly dependent on the        prices that we receive for oil and natural gas. This price volatility also affects the        amount of cash flow available for capital expenditures and our 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 our control. These factors include:

 

| **•** | the level of consumer demand; |
|------------|-------------------------------|

| **•** | the domestic supply; |
|------------|----------------------|

| **•** | domestic governmental regulations and taxes; |
|------------|----------------------------------------------|

| **•** | the price and availability of alternative fuel                        sources; |
|------------|--------------------------------------------------------------------------------|

| **•** | weather conditions; and |
|------------|-------------------------|

| **•** | 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 we can produce economically and, as a result, could cause us to        continue to operate at a loss. Should the oil and natural gas industry experience        significant price declines, we may continue to operate at a loss even if we produce oil or        gas.

 

**Risks        Related to the Company’s Stock**

 

***The        Company will require additional capital funding.***

 

The Company        will require additional funds, either through equity offerings or debt placements to        develop our operations. Such additional capital may result in dilution to our current        shareholders. Our ability to meet short-term and long-term financial commitments depends on        future cash. There can be no assurance that future income will generate sufficient funds to        enable us to meet our financial commitments.

 

***The        market for our stock is limited and our stock price may be volatile.***

 

The market        for our common stock has been limited due to low trading volume and the small number of        brokerage firms acting as market makers. Because of the limitations of our market and        volatility of the market price of our stock, investors may face difficulties in selling        shares at attractive prices when they want to. The average daily trading volume for our        stock has varied significantly from week to week and from month to month, and the trading        volume often varies widely from day to day.

 

***The        Company does not pay cash dividends.***

 

The Company        does not pay cash dividends. We have not paid any cash dividends since inception and have        no intention of paying any cash dividends in the foreseeable future. Any future dividends        would be at the discretion of our board of directors and would depend on, among other        things, future earnings, our operating and financial condition, our capital requirements,        and general business conditions. Therefore, shareholders should not expect any type of        cash flow from their investment.

 

 

 

11

 

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***We        incur significant expenses as a result of being quoted on the Over the Counter Bulletin        Board, which may negatively impact our financial performance.***

 

We incur        significant legal, accounting and other expenses as a result of being listed on the Over        the Counter Bulletin Board. The Sarbanes-Oxley Act of 2002, as well as related rules        implemented by the Commission, has required changes in corporate governance practices of        public companies. We expect that compliance with these laws, rules and regulations,        including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 as discussed in the        following risk factor, may substantially increase our expenses, including our legal and        accounting costs, and make some activities more time-consuming and costly. As a result,        there may be a substantial increase in legal, accounting and certain other expenses in the        future, which would negatively impact our financial performance and could have a material        adverse effect on our results of operations and financial condition.

 

***Our        internal controls over financial reporting may not be considered effective in the future,        which could result in a loss of investor confidence in our financial reports and in turn        have an adverse effect on our stock price.***

 

Pursuant to        Section 404 of the Sarbanes-Oxley Act of 2002 we are required to furnish a report by our        management on our internal controls over financial reporting. Such report must contain,        among other matters, an assessment of the effectiveness of our internal controls over        financial reporting as of the end of the year, including a statement as to whether or not        our internal controls over financial reporting are effective. This assessment must include        disclosure of any material weaknesses in our internal controls over financial reporting        identified by management. If we are unable to continue to assert that our internal controls        are effective, our investors could lose confidence in the accuracy and completeness of our        financial reports, which in turn could cause our stock price to decline.

 

***The        Company’s shareholders may face significant restrictions on their        stock.***

 

The        Company’s stock differs from many stocks in that it is a “penny stock.”        The Commission has adopted a number of rules to regulate “penny stocks”        including, but not limited to, those rules from the Securities Act as follows:

 

|   | 3a51-1 | which defines penny stock as, generally speaking, those                        securities which are not listed on either NASDAQ or a national securities                        exchange and are priced under $5, excluding securities of issuers that have                        net tangible assets greater than $2 million if they have been in operation                        at least three years, greater than $5 million if in operation less than                        three years, or average revenue of at least $6 million for the last three                        years; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 15g-1 | which outlines transactions by broker/dealers which are                        exempt from 15g-2 through 15g-6 as those whose commissions from traders are                        lower than 5% total commissions; |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 15g-2 | which details that brokers must disclose risks of penny                        stock on Schedule 15G; |
|--------|-------|-------------------------------------------------------------------------------------------------------|

|   | 15g-3 | which details that broker/dealers must disclose quotes and                        other information relating to the penny stock market; |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | 15g-4 | which explains that compensation of broker/dealers must be                        disclosed; |
|--------|-------|----------------------------------------------------------------------------------------------|

 

|   | 15g-5 | which explains that compensation of persons associated in                        connection with penny stock sales must be disclosed; |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | 15g-6 | which outlines that broker/dealers must send out monthly                        account statements; and |
|--------|-------|---------------------------------------------------------------------------------------------------------|

|   | 15g-9 | which defines sales practice requirements. |
|--------|-------|--------------------------------------------|

 

12

 

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Since the        Company’s securities constitute a “penny stock” within the meaning of the        rules, the rules would apply to us and our securities. Because these rules provide        regulatory burdens upon broker-dealers, they may affect the ability of shareholders to sell        their securities in any market that may develop; the rules themselves may limit the market        for penny stocks. Additionally, the market among dealers may not be active. Investors in        penny stock often are unable to sell stock back to the dealer that sold them the stock. The        mark-ups or commissions charged by the broker-dealers may be greater than any profit a        seller may make. Because of large dealer spreads, investors may be unable to sell the stock        immediately back to the dealer at the same price the dealer sold the stock to the investor.        In some cases, the stock may fall quickly in value. Investors may be unable to reap any        profit from any sale of the stock, if they can sell it at all.

 

Shareholders should be aware that, according to Commission Release No.        34-29093 dated April 17, 1991, the market for penny stocks has suffered from patterns        of fraud and abuse. These patterns include:

 

|   | **•** | control of the market for the security by one or a few                        broker-dealers that are often related to the promoter or issuer; |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | manipulation of prices through prearranged matching of                        purchases and sales and false and misleading press releases; |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | “boiler room” practices involving high pressure                        sales tactics and unrealistic price projections by inexperienced sales                        persons; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | excessive and undisclosed bid-ask differentials and markups                        by selling broker-dealers; and |
|--------|------------|-------------------------------------------------------------------------------------------------------------------|

|   | **•** | the wholesale dumping of the same securities by promoters                        and broker-dealers after prices have been manipulated to a desired level,                        along with the inevitable collapse of those prices with consequent investor                        losses. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| **ITEM 1B.** | **UNRESOLVED STAFF COMMENTS** |
|--------------|-------------------------------|

 

Not        applicable.

 

| **ITEM 2.** | **PROPERTIES** |
|-------------|----------------|

 

**Oil        and Gas Properties**

 

The Company        has approximately 12,832 acres of oil and gas leases located in Val Verde County, Texas and        approximately 3,000 acres of oil and gas leases in Comanche and Hamilton County.

 

***Drilling Activity***

 

In the last        three fiscal years, the Company has drilled no productive wells. In 2006 and 2007 we        drilled 4 exploratory wells on our leases in Comanche County which failed to produce        economically recoverably quantities of oil or gas.

 

***Present Activities***

 

As of the        date of this current report on Form 10-K, the Company is not in the process of drilling        wells, installing waterfloods, performing pressure maintenance operations, or performing        any other related operations of material importance.

 

***Delivery Commitments***

 

The Company        has not contracts to provide a fixed and determinable quantity of oil or gas.

 

***13***

 

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***Undeveloped Acreage***

 

All acreage        in which the Company maintains an interest is to be considered undeveloped        acreage.

Undeveloped        acreage is considered to be those lease acres on which wells have not been drilled or        completed to a point that would permit the production of commercial quantities of oil and        gas regardless of whether or not such acreage contains proved reserves. Undeveloped acreage        should not be confused with undrilled acreage held by production under the terms of a        lease.

 

***Oil        and Gas Reserves***

 

Oil and gas        reserves for our properties have not been determined as of December 31, 2007.

 

***Oil        and Gas Titles***

 

As is        customary in the oil and gas industry, we perform only a perfunctory title examination at        the time of acquisition of undeveloped properties.  Prior to the commencement of        drilling, in most cases, and in any event where we are the operator, a title examination is        conducted and significant defects remedied before proceeding with operations.  We        believe that the title to our properties is generally acceptable to a reasonably prudent        operator in the oil and gas industry.  The properties owned by us are subject to        royalty, overriding royalty, and other interests customary in the industry, liens        incidental to operating agreements, current taxes and other burdens, minor encumbrances,        easements, and restrictions.  We do not believe that any of these burdens        materially detract from the value of the properties or will materially interfere with their        use in the operation of our business.

 

**Office        and Warehouse Facilities**

 

The Company        currently maintains limited office space in Austin, Texas at 5300 Bee Caves Rd, Bldg 1        Suite 240, Austin Texas, 78746 for which we pay no rent. Our wholly owned subsidiary        Providence Exploration maintained limited officer space at 100 Crescent Court, 7th Floor,        Dallas, Texas, 75201 until December of 2007. Providence Exploration paid rent of $Nil for        the year ended December 31, 2007 and $5,325 for the year ended December 31, 2006.        Providence Exploration’s wholly owned subsidiary PDX Drilling I, LLC maintained        warehouse space in Young County, Texas until December of 2006. PDX Drilling I, LLC paid        rent of $9,600 for the year ended December 31, 2007 and $12,200 for the year ended December        31, 2006. We believe that our office space will be adequate for the foreseeable        future.

 

| **ITEM 3.** | **LEGAL PROCEEDINGS** |
|-------------|-----------------------|

 

The        Company is currently not a party to any legal proceedings.

 

| **ITEM 4.** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY                        HOLDERS** |
|-------------|--------------------------------------------------------------------------------|

 

No matters        were submitted to a vote of the security holders, through the solicitation of proxies or        otherwise, during the fourth quarter ended December 31, 2007.

 

 

14

 

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**PART        II**

 

| **ITEM 5.** | **MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS,                        AND ISSUER PURCHASES OF EQUITY SECURITIES** |
|-------------|-----------------------------------------------------------------------------------------------------------------------------|

 

The        Company’s common stock is quoted on the Over the Counter Bulletin Board, a service        maintained by the National Association of Securities Dealer, Inc., under the symbol        “PVRS”. Trading in the common stock over-the-counter market has been limited        and sporadic and the quotations set forth below are not necessarily indicative of actual        market conditions. These prices reflect inter-dealer prices without retail mark-up,        mark-down, or commission, and may not necessarily reflect actual transactions. The high and        low bid prices for the common stock for each of the quarters listed below are as        follows:

 

| ***Year*** | ***Quarter Ended*** | ***High*** | ***Low*** |
|------------|---------------------|------------|-----------|
| **2007**   | December 31         | $0.23      | $0.08     |
|       | September 30        | $0.25      | $0.14     |
|       | June 30             | $0.33      | $0.14     |
|       | March 31            | $0.60      | $0.32     |
| **2006**   | December 31         | $1.00      | $0.35     |
|       | September 30        | $1.60      | $0.70     |
|       | June 30             | $2.50      | $0.96     |
|       | March 31            | $0.96      | $0.48     |

 

**Capital Stock**

 

The        following is a summary of the material terms of the Company’s capital stock. This        summary is subject to and qualified by our articles of incorporation and bylaws.

 

***Common Stock***

 

As of April        1, 2008, there were 241 shareholders of record holding a total of 59,161,118 shares of        fully paid and non-assessable common stock of the 250,000,000 shares of common stock, par        value $0.0001, authorized. The board of directors believes that the number of beneficial        owners is greater than the number of record holders because a portion of our outstanding        common stock is held in broker “street names” for the benefit of individual        investors. The holders of the common stock are entitled to one vote for each share held of        record on all matters submitted to a vote of stockholders. Holders of the common stock have        no preemptive rights and no right to convert their common stock into any other securities.        There are no redemption or sinking fund provisions applicable to the common        stock.

 

***Preferred Stock***

As of April        1, 2008, there were no shares issued and outstanding of the 25,000,000 shares of preferred        stock authorized. The par value of the preferred stock is $0.0001 per share. The        Company’s preferred stock may have such rights, preferences and designations and may        be issued in such series as determined by the board of directors.

 

15

 

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***Warrants***

 

As of April        1, 2008, the Company has 7,267,650 outstanding. The Company has issued (i) 348,000 common        share purchase warrants exercisable at $0.30 per share at any time until December 1, 2010,        (ii) 6,684,960 common share purchase warrants exercisable at $1.00 per share at any time        until July 25, 2009, (iii) 188,190 common share purchase warrants exercisable at $0.72 per        share at any time until November 7, 2009, and (iv) 46,500 common share purchase warrants        exercisable at $0.72 per share at any time until November 20, 2009.

 

***Stock        Options***

 

As of April        1, 2008, the Company had no outstanding stock options to purchase shares of our common        stock.

 

***Convertible Debentures and Notes***

 

The        outstanding convertible debentures and notes issued by the Company are as        follows:

 

During        2007, the Company issued secured eight convertible promissory notes in the aggregate amount        of $5,000,000 with interest at 10% per annum. The principal and accrued interest on the        notes may be converted into shares of the Company’s common stock at any time until        three years from the date of issuance at a conversion price of $0.08. The notes were issued        as follows: one note in the principal amount of $1,000,000 was issued on April 29, 2007,        one note in the principal amount of $1,000,000 was issued on May 31, 2007, four notes with        an aggregate value of $2,500,000 were issued on August 8, 2007, and two notes with an        aggregate value of $500,000 were issued on August 15, 2007.

 

During        2005, the Company issued seven convertible debentures in the aggregate amount of $3,320,000        with interest at 7% per annum. The principal and accrued interest on the notes may be        converted into shares of the Company’s common stock at any time until five years from        the date of issuance at a conversion price of $0.35. The notes were issued on November 28,        2005.

 

***Dividends***

 

The Company        has not declared any cash dividends since inception and does not anticipate paying any        dividends in the near future. The payment of dividends is within the discretion of the        board of directors and will depend on our earnings, capital requirements, financial        condition, and other relevant factors. There are no restrictions that currently limit the        Company's ability to pay dividends on its common stock other than those generally imposed        by applicable state law.

**Transfer Agent and Registrar**

 

The        Company’s transfer agent and registrar is Interwest Transfer, 1981 E. Murray-Holladay        Road, Holladay, Utah, 84117-5164. Interwest’s phone number is (801)        272-9294.

 

**Purchases of Equity Securities made by the Issuer and Affiliated        Purchasers**

 

None.

 

**Recent        Sales of Unregistered Securities**

 

None.

 

 

16

 

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| **ITEM 6.** | **SELECTED FINANCIAL DATA** |
|-------------|-----------------------------|

 

Not        required.

         

| **ITEM 7.** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL                        CONDITION AND RESULTS OF OPERATIONS** |
|-------------|------------------------------------------------------------------------------------------------------------------------|

 

This*Management’s Discussion and Analysis of Financial Condition        and**Results of Operations*and other        parts of this current report contain forward-looking statements that involve risks and        uncertainties. Forward-looking statements can also be identified by words such as        “anticipates,” “expects,” “believes,”        “plans,” “predicts,” and similar terms. Forward-looking statements        are not guarantees of future performance and our actual results may differ significantly        from the results discussed in the forward-looking statements. Factors that might cause such        differences include but are not limited to those discussed in the subsection        entitled*Forward-Looking Statements and Factors That May Affect        Future Results and Financial Condition*below. The following        discussion should be read in conjunction with our financial statements and notes thereto        included in this current report. Our fiscal year end is December 31.

 

**Discussion and Analysis**

 

During the        year ended December 31, 2007, the Company was involved in (i) seismic exploration        activities on the Val Verde County leases with TRNCO, (ii) raising additional capital by        way of loans to fund the exploration, and development of those properties under lease (iii)        evaluating the performance and results of drilling activities on the Comanche and Hamilton        County leases, (iv) engaging Miller Energy, LLC. as a partner in the development of the Val        Verde County leases, and (v) seismically exploring for gas prospects within the Val Verde        leases.

 

Over the        next twelve months the Company intends to:

 

| **•** | initiate drilling on the Val Verde leases to include                        multiple deep drilling targets for natural gas production; and |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | evaluate the prospect of further development of acreage that                        remains under lease in Comanche and Hamilton County. |
|------------|------------------------------------------------------------------------------------------------------------------------------------------|

 

The        Company’s business development strategy is prone to significant risks and        uncertainties that can have an immediate impact on efforts to realize net cash flow. In the        near term, we will not be able to generate sufficient cash flow from operations to sustain        our business as we continue to incur lease development expenses without any corresponding        revenue. Further, we can offer no assurance that our efforts to identify

 

 

commercial        quantities or oil or gas that can be produced economically will be successful or that the        Company will ever produce revenue from oil and gas exploration activities.

 

**Results of Operations**

 

***Net        Losses***

 

For the        period from inception until December 31, 2007, the Company incurred a net loss of        $38,118,959. Net losses for the year ended December 31, 2007 were $22,204,275 as compared        to $6,761,584 for the year ended December 31, 2006. The increase in net losses over the        comparative periods can be primarily attributed to a loss associated with impairment        charges to our oil and gas leases and pipeline.

 

We did not        generate any revenues during this period.

 

17

 

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We will        continue to operate at a loss through fiscal 2008 due to the nature of the Company’s        oil and gas exploration and development operations and cannot determine whether we will        ever generate revenues from operations.

 

***Expenses***

 

General and        administrative expenses for the year ended December 31, 2007 were $1,120,602 as compared to        $2,121,062 for the year ended December 31, 2006. The decrease in general and administrative        expenses over the comparative periods can be primarily attributed to decreases in legal,        consulting, and accounting costs. We expect that general and administrative expenses will        remain relatively consistent in future periods.

 

Other expenses for the year ended December 31, 2007 included        $21,083,673 in impairment charges associated with exploration activities in Comanche County        as compared to other expenses of $4,666,299 for the year ended December 31, 2006. During        the year ended December 31, 2007, management determined that the accounting values for our        oil and gas leases and our oil and gas pipeline were too high in relation to the        probability of recouping expenses attributed to the Comanche County exploration activities.        This determination was made based our failure to discover commercial quantities of oil and        gas on the Comanche County/Hamilton County leases and those expenses attributed to the        construction of a pipeline to non-productive wells. Accordingly, we recorded impairment        charges of $17,881,092 on the leases and $1,509,734 on the pipeline. Impairment charges        were offset by a decrease in interest expense to $1,554,288 for the year ended December 31,        2007 from $5,102,503 for the year ended December 31, 2006.

 

Depreciation expenses for the years ended December 31, 2007 and 2006 was        $9,911 and $9,544 respectively.

         

***Income Tax Expense (Benefit)***

         

The Company        has an income tax benefit resulting from net operating losses that may offset any future        operating profit.

 

***Impact of Inflation***

 

The Company        believes that inflation has had an effect on Providence Exploration’s operations due        to the increased interest in oil and gas exploration over the last three years which has        increased prices for labor,

 

maintenance        services and equipment. We believe that we can offset inflationary increases by improving        operating efficiencies.

 

*C**apital Expenditures***

 

The Company        spent no amounts on capital expenditures for the period from February 17, 1993 (inception)        to December 31, 2007, except those costs of unproved properties acquired with Providence        Exploration, pipeline construction, and related exploration costs.

 

18

 

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***Liquidity and Capital Resources***

 

The Company        had current assets of $1,588,971 and total assets of $34,266,567 as of December 31, 2007.        These assets include cash on hand of $1,158,885 and undeveloped oil and gas leases of        $31,099,253. Stockholders equity in the Company was $27,868,767 at December 31,        2007.

 

Cash flows        used in operating activities were $226,453 for the year ended December 31, 2007, compared        to cash flows used in operating activities of $211,623 for the year ended December 31,        2006. The cash flows used in operating activities during the current period is due        primarily to net losses.

 

Cash flows        used in investing activities were $6,069,257 for the year ended December 31, 2007, compared        to $8,379,886 for the year ended December 31, 2006. Cash flows used in investing activities        focused on obtaining seismic data in connection with the Val Verde County        leases.

 

Cash flows        from financing activities were $5,936,700 for the year ended December 31, 2007, compared to        $8,096,026 for the year ended December 31, 2006. Cash flows from financing activities        during the current period consisted of proceeds from convertible promissory notes of        $5,000,000, proceeds from notes payable, and the sale of common stock.

 

We had a        working capital deficit of $2,247,566 as of December 31, 2007, and have funded our cash        needs from inception through revenues and a series of debt and equity transactions,        including several private placements. We do not believe that our current assets are        sufficient to conduct our exploration and development activities over the next twelve (12)        months though we do intend to rely on the terms and conditions of our funding agreement        with Miller Energy LLC to finance a prospective drilling program on the Val Verde leases.        However, no assurances can be given that additional funding, as needed to explore and        develop our lease interests will be available to us on acceptable terms or at all. Our        inability to obtain funding, as necessary, would have a material adverse affect on our        business.

 

The Company        has no current plans for the purchase or sale of any plant or equipment.

 

We have no        current plans to make any changes in the number of employees.

 

***Off        Balance Sheet Arrangements***

 

As of        December 31, 2007, the Company has no off-balance sheet arrangements that have or are        reasonably likely to have a current or future effect on our financial condition, changes in        financial condition, revenues or expenses, results of operations, liquidity, capital        expenditures, or capital resources that is material to stockholders.

 

***Going        Concern***

 

The        Company’s audit expressed substantial doubt as to the Company’s ability to        continue as a going concern as a result of reoccurring losses, lack of revenue generating        activities, and an accumulated deficit of $38,104,387 as of December 31, 2007. These        conditions raise substantial doubt about the Company’s ability to continue as a going        concern.

 

Management’s plan to address the Company’s ability to continue        as a going concern, include the development and prospective production of oil and natural        gas operations, and the conversion of outstanding debt to equity. The successful outcome of        these activities cannot be determined at this time, and there is no assurance that, if        achieved, we would then have sufficient funds to execute our intended business plan or        generate positive operating results.

 

19

 

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***Forward Looking Statements and Factors That May Affect Future Results        and Financial Condition***

 

The        statements contained in the section titled “*Results of        Operations”*and*“Description        of Business”*, with the exception of historical facts, are        forward looking statements. A safe-harbor provision may not be applicable to the forward        looking statements made in this current report. Forward looking statements reflect our        current expectations and beliefs regarding our future results of operations, performance,        and achievements. These statements are subject to risks and uncertainties and are based        upon assumptions and beliefs that may or may not materialize. These statements include, but        are not limited to, statements concerning:

 

|   | **•** | our anticipated financial performance; |
|--------|------------|----------------------------------------|

|   | **•** | uncertainties related to oil and gas exploration and                        development; |
|--------|------------|------------------------------------------------------------------------------------------|

|   | **•** | our ability to generate revenues through oil and gas                        production to fund future operations; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------|

|   | **•** | our ability to raise additional capital to fund cash                        requirements for future operations; |
|--------|------------|-----------------------------------------------------------------------------------------------------------------|

|   | **•** | the volatility of the stock market; and |
|--------|------------|-----------------------------------------|

|   | **•** | general economic conditions. |
|--------|------------|------------------------------|

 

We wish to        caution readers that our operating results are subject to various risks and uncertainties        that could cause our actual results to differ materially from those discussed or        anticipated, including the factors set forth in the section entitled        “*Risk Factors*” included        elsewhere in this report. We also wish to advise readers not to place any undue reliance on        the forward looking statements contained in this report, which reflect our beliefs and        expectations only as of the date of this report. We assume no obligation to update or        revise these forward looking statements to reflect new events or circumstances or any        changes in our beliefs or expectations, other that is required by law.

 

***Stock-Based Compensation***

 

On January        1, 2006, we adopted SFAS No. 123 (revised 2004) (SFAS No. 123R), Share-Based Payment, which        addresses the accounting for stock-based payment transactions in which an enterprise        receives employee services in exchange for (a) equity instruments of the enterprise or (b)        liabilities that are based on the fair value of the enterprise’s equity instruments        or that may be settled by the issuance of such equity instruments. In January 2005, the        Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 107,        which provides supplemental implementation guidance for SFAS No. 123R. SFAS No. 123R        eliminates the ability to account for stock-based compensation transactions using        the

intrinsic        value method under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock        Issued to Employees, and instead generally requires that such transactions be accounted for        using a fair-value-based method. We use the Black-Scholes-Merton (“BSM”)        option-pricing model to determine the fair-value of stock-based awards under SFAS No. 123R,        consistent with that used for pro forma disclosures under SFAS No. 123, Accounting for        Stock-Based Compensation. We have elected the modified prospective transition method as        permitted by SFAS No. 123R and accordingly prior periods have not been restated to reflect        the impact of SFAS No. 123R. The modified prospective transition method requires that        stock-based compensation expense be recorded for all new and unvested stock options,        restricted stock, restricted stock units, and employee stock purchase plan shares that are        ultimately expected to vest as the requisite service is rendered beginning on January 1,        2006, the first day of our fiscal year 2006. Stock-based compensation expense for awards        granted prior to January 1, 2006 is based on the grant date fair-value as determined under        the pro forma provisions of SFAS No. 123.

 

 

 

20

 

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Prior to        the adoption of SFAS No 123R, we measured compensation expense for our employee stock-based        compensation plans using the intrinsic value method prescribed by APB Opinion No. 25. We        applied the disclosure provisions of SFAS No. 123 as amended by SFAS No. 148, Accounting        for Stock-Based Compensation – Transition and Disclosure, as if the fair-value-based        method had been applied in measuring compensation expense. Under APB Opinion No. 25, when        the exercise price of our employee stock options was equal to the market price of the        underlying stock on the date of the grant, no compensation expense was        recognized.

 

We account        for equity instruments issued in exchange for the receipt of goods or services from other        than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging        Issues Task Force (“EITF”) in Issue No. 96-18. Costs are measured at the        estimated fair market value of the consideration received or the estimated fair value of        the equity instruments issued, whichever is more reliably measurable. The value of equity        instruments issued for consideration other than employee services is determined on the        earliest of a performance commitment or completion of performance by the provider of goods        or services as defined by EITF 96-18.

 

***Critical Accounting Policies***

 

In the        notes to the audited consolidated financial statements for the Company for the year ended        December 31, 2006, the Company’s auditors discussed those accounting policies that        are considered to be significant in determining the results of operations and financial        position. The Company’s auditors believe that their accounting principles conform to        accounting principles generally accepted in the United States of America.

 

The        preparation of financial statements requires management to make significant estimates and        judgments that affect the reported amounts of assets, liabilities, revenues and expenses.        By their nature, these judgments are subject to an inherent degree of uncertainty. On an        on-going basis, we evaluate our estimates, including those related to bad debts,        inventories, intangible assets, warranty obligations, product liability, revenue, and        income taxes. We base our estimates on historical experience and other facts and        circumstances that are believed to be reasonable, and the results form the basis for making        judgments about the carrying value of assets and liabilities. The actual results may differ        from these estimates under different assumptions or conditions.

 

***Revenue Recognition***

 

Revenues        are recorded upon the completion of the services, with the existence of an agreement and        where collectability is reasonably assured. Oil and natural gas production revenue, if any,        will be recognized at the time and point of sale after the product has been extracted from        the ground.

 

***Recent Accounting Pronouncements***

 

In December        2007, the FASB issued SFAS 160, “Noncontrolling interests in Consolidated Financial        Statements – an amendment of ARB No. 51”. This Statement amends ARB 51 to        establish accounting and reporting standards for the noncontrolling interest in a        subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling        interest in a subsidiary is an ownership interest in the consolidated entity that should be        reported as equity in the consolidated financial statements. This Statement is effective        for fiscal years beginning on or after December 15, 2008. Early adoption is not permitted.        Management is currently evaluating the effects of this statement, but it is not expected to        have any impact on the Company’s financial statements.

 

21

 

----

 

 

 

In February        2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and        Financial Liabilities. SFAS 159 creates a fair value option allowing an entity to        irrevocably elect fair value as the initial and subsequent measurement attribute for        certain financial assets and financial liabilities, with changes in fair value recognized        in earnings as they occur. SFAS 159 also requires an entity to report those financial        assets and financial liabilities measured at fair value in a manner that separates those        reported fair values from the carrying amounts of assets and liabilities measured using        another measurement attribute on the face of the statement of financial position. Lastly,        SFAS 159 requires an entity to provide information that would allow users to understand the        effect on earnings of changes in the fair value on those instruments selected for the fair        value election. SFAS 159 is effective for fiscal years beginning after November 15, 2007        with early adoption permitted. The Company is continuing to evaluate SFAS 159 and to assess        the impact on our results of operations and financial condition if an election is made to        adopt the standard.

         

| **ITEM 7A.** | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET                        RISK** |
|--------------|---------------------------------------------------------------------------------------|

         

Not required.

         

| **ITEM 8.** | **FINANCIAL STATEMENTS AND SUPPLEMENTARY                        DATA** |
|-------------|------------------------------------------------------------------------|

 

Our        audited financial statements for the years ended December 31, 2007 and 2006 are attached        hereto as F-1 through F-34.

22

 

----

 

**PROVIDENCE RESOURCES, INC.**

**(A        Development Stage Company)**

**INDEX        TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2007 and 2006**

 

         

|   | *Page* |
|--------|--------|

         

| Report of Independent Registered Public Accounting                        Firm | F-2 |
|--------------------------------------------------------------------------------|-----|

         

| Consolidated Balance Sheets | F-3 |
|-----------------------------|-----|

         

| Consolidated Statements of Operations and Comprehensive                        Loss | F-4 |
|-------------------------------------------------------------------------------------|-----|

         

| Consolidated Statements of Stockholders’ Equity                        (Deficit) and Comprehensive Loss | F-5 |
|---------------------------------------------------------------------------------------------------------------|-----|

         

| Consolidated Statements of Cash Flows | F-11 |
|---------------------------------------|------|

         

| Notes to Consolidated Financial Statements | F-12 |
|--------------------------------------------|------|

         

                                                                                                                                                                   

 

 

F-1

 

----

 

REPORT OF        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the        Board of Directors

Providence        Resources, Inc. and Subsidiaries

Vancouver,        BC Canada

 

We have        audited the accompanying balance sheet of Providence Resources, Inc. and Subsidiaries (A        Development Stage Company) at December 31, 2007 and 2006 and the related statements of        operations, stockholders' equity (deficit) and cash flows for the year then ended and for        the cumulative period from February 17, 1993 (date of inception) to December 31, 2007.        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 PCAOB (United States). Those        standards require that we plan and perform the audit to obtain reasonable assurance about        whether the financial statements are free of material misstatement. The Company is not        required to have, nor were we engaged to perform, an audit of its internal controls over        financial reporting. Our audit included consideration of internal control over financial        reporting as a basis for designing audit procedures that are appropriate in the        circumstances, but not for the purpose of expressing an opinion on the effectiveness of the        Company’s internal control over financial reporting. Accordingly, we express no such        opinion. An audit 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 Providence Resources, Inc. and Subsidiaries at December        31, 2007 and 2006 and the results of its operations and its cash flows for the year then        ended and from February 17, 1993 (inception) through December 31, 2007 in conformity with        accounting principles generally accepted in the United States of America.

 

The        accompanying financial statements have been prepared assuming that the Company will        continue as a going concern. As discussed in Note 2 to the financial statements, the        Company has recorded significant losses from operations, and is dependent on financing to        continue operations, which together raise substantial doubt about its ability to continue        as a going concern. Management's plans in regard to these matters are also described in        Note 2. The financial statements do not include any adjustments that might result from the        outcome of this uncertainty.

 

/s/        Chisholm, Bierwolf & Nilson

 

Chisholm,        Bierwolf & Nilson, LLC

Bountiful,        Utah

March 25,        2008

 

 

 

 

 

 

 

F-2

 

----

 

| PROVIDENCE RESOURCES, INC.

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS       |
|----------------------------------------------------------------------------------------------|
|                                                                                         |   |   | December 31, |   |   | December 31, |
|                                                                                         |   |   | 2007 |   |   | 2006 |
| ASSETS                                                                                       |   |   |   |   |   |   |
|                                                                                         |   |   |   |   |   |   |
| CURRENT ASSETS:                                                                              |   |   |   |   |   |   |
| Cash                                                                                         |   | $ | 1,180,147 |   | $ | 1,540,145 |
| Note receivable                                                                              |   |   | 350,000 |   |   | - |
| Drilling rig inventory                                                                       |   |   | - |   |   | 724,515 |
| Prepaid expenses                                                                             |   |   | 34,168 |   |   | 98 |
| Total current assets                                                                         |   |   | 1,564,315 |   |   | 2,264,758 |
|                                                                                         |   |   |   |   |   |   |
| PROPERTY AND EQUIPMENT (Note 3) :                                                            |   |   |   |   |   |   |
| Oil and gas leases – undeveloped                                                       |   |   | 14,115,585 |   |   | 26,266,981 |
| Oil and gas pipeline (construction in progress)                                              |   |   | - |   |   | 1,170,173 |
| Equipment, net of amortization                                                               |   |   | - |   |   | 45,810 |
| Total property and equipment                                                                 |   |   | 14,115,585 |   |   | 27,482,964 |
|                                                                                         |   |   |   |   |   |   |
| OTHER ASSETS:                                                                                |   |   |   |   |   |   |
| Loan origination fees, net of amortization of                        $55,851                 |   |   | 20,399 |   |   | 45,799 |
| Deposits                                                                                     |   |   | - |   |   | 2,266 |
| Total other assets                                                                           |   |   | 20,399 |   |   | 48,065 |
|                                                                                         |   |   |   |   |   |   |
| Total assets                                                                                 |   | $ | 15,700,299 |   | $ | 29,795,787 |
|                                                                                         |   |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                         |   |   |   |   |   |   |
|                                                                                         |   |   |   |   |   |   |
| CURRENT LIABILITIES:                                                                         |   |   |   |   |   |   |
| Accounts payable                                                                             |   | $ | 1,082,222 |   | $ | 953,803 |
| Accrued expenses                                                                             |   |   | 539,413 |   |   | 153,909 |
| Related party payables                                                                       |   |   | 135,500 |   |   | 75,000 |
| Short-term note payable (Note 4)                                                             |   |   | 500,000 |   |   | - |
| Short-term convertible promissory notes (Note 5)                                             |   |   | 780,821 |   |   | - |
| Current portion of long-term notes payable (Note                        7)                   |   |   | 773,925 |   |   | 454,099 |
| Total current liabilities                                                                    |   |   | 3,811,881 |   |   | 1,636,811 |
|                                                                                         |   |   |   |   |   |   |
| CONVERTIBLE DEBENTURES (Note 8)                                                              |   |   | 3,320,000 |   |   | 3,570,000 |
| LONG-TERM CONVERTIBLE PROMISSORY NOTES (Note 6)                                              |   |   | 1,075,695 |   |   | - |
| LONG-TERM NOTES PAYABLE (Note 7)                                                             |   |   | 200,000 |   |   | 319,826 |
|                                                                                         |   |   |   |   |   |   |
| Total liabilities                                                                            |   |   | 8,407,576 |   |   | 5,526,637 |
|                                                                                         |   |   |   |   |   |   |
| COMMITMENTS (Note 16)                                                                        |   |   | - |   |   | - |
| MINORITY INTEREST IN NET ASSETS OF SUBSIDIARY                                                |   |   | 150,973 |   |   | 117,017 |
|                                                                                         |   |   |   |   |   |   |
| STOCKHOLDERS' EQUITY                                                                         |   |   |   |   |   |   |
| Preferred stock, $.0001 par value, 25,000,000                        shares                  |   |   |   |   |   |   |
| authorized, no shares issued and outstanding                                                 |   |   | - |   |   | - |
| Common stock, $.0001 par value, 250,000,000 shares                        authorized,        |   |   |   |   |   |   |
| 59,161,118 and 51,855,539 shares issued and outstanding,                        respectively |   | 5,916 |   |   | 5,185 |
| Additional paid-in capital                                                                   |   |   | 45,240,221 |   |   | 40,047,072 |
| Accumulated other comprehensive income                                                       |   |   | 14,572 |   |   | 14,560 |
| Deficit accumulated during the development stage                                             |   |   | (38,118,959) |   |   | (15,914,684) |
|                                                                                         |   |   |   |   |   |   |
| Total stockholder's equity                                                                   |   |   | 7,141,750 |   |   | 24,152,133 |
|                                                                                         |   |   |   |   |   |   |
| Total liabilities and stockholders' equity                                                   |   | $ | 15,700,299 |   | $ | 29,795,787 |

 

The        accompanying notes are an integral part of these financial statements

 

F-3

 

----

 

.

| PROVIDENCE RESOURCES, INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE                        LOSS

Years ended December 31, 2007 and 2006 and Cumulative                        Amounts |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                 |   | Years ended December 31, |   |   | Inception on

February 17, 1993

Through

December 31, |
|                                                                                                                                                                                                                                 |   | 2007 |   |   | 2006 |   |   | 2007 |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Sales                                                                                                                                                                                                                                | $ | - |   | $ | 350 |   | $ | 350 |
| Cost of Sales                                                                                                                                                                                                                        |   | - |   |   | 25,427 |   |   | 25,427 |
| Gross profit                                                                                                                                                                                                                         |   | - |   |   | 25,777 |   |   | 25,777 |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| General and administrative expenses                                                                                                                                                                                                  |   | (1,120,602) |   |   | (2,121,062) |   |   | (8,576,026) |
| Loss from operations                                                                                                                                                                                                                 |   | (1,120,602) |   |   | (2,095,285) |   |   | (8,550,249) |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Other income (expense):                                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
| Interest expense                                                                                                                                                                                                                     |   | (1,554,288) |   |   | (5,102,503) |   |   | (6,997,928) |
| Debt conversion expense                                                                                                                                                                                                              |   | (162,444) |   |   | - |   |   | (162,444) |
| Interest income                                                                                                                                                                                                                      |   | 25,828 |   |   | 416,306 |   |   | 474,312 |
| Impairment of capital assets                                                                                                                                                                                                         |   | (19,390,826) |   |   | - |   |   | (19,390,826) |
| Loss on disposal of assets                                                                                                                                                                                                           |   | (35,899) |   |   | - |   |   | (35,899) |
| Loss before provision for minority interest,                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| income taxes and discontinued operations                                                                                                                                                                                             |   | (22,238,231) |   |   | (6,781,482) |   |   | (34,663,034) |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Minority interest                                                                                                                                                                                                                    |   | 33,956 |   |   | 19,898 |   |   | 53,854 |
| Loss before provision for income taxes and                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| discontinued operations                                                                                                                                                                                                              |   | (22,204,275) |   |   | (6,761,584) |   |   | (34,609,180) |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Provision for income taxes                                                                                                                                                                                                           |   | - |   |   | - |   |   | - |
| Loss before discontinued operations                                                                                                                                                                                                  |   | (22,204,275) |   |   | (6,761,584) |   |   | (34,609,180) |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Gain (loss) from discontinued operations, net of                        tax                                                                                                                                                          |   | - |   |   | - |   |   | (3,407,279) |
| Net loss before cumulative effect                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |
| of accounting change                                                                                                                                                                                                                 |   | (22,204,275) |   |   | (6,761,584) |   |   | (38,016,459) |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Cumulative effect of accounting change, net of                        tax                                                                                                                                                            |   | - |   |   | - |   |   | (102,500) |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Net loss                                                                                                                                                                                                                             |   | (22,204,275) |   |   | (6,761,584) |   |   | (38,118,959) |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Loss per share from continuing operations

- basic and diluted                                                                                                                                                                       |   | $ (0.38) |   |   | $ (0.24) |   |   |   |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Net Loss per common share - basic and diluted                                                                                                                                                                                        |   | $ (0.38) |   |   | $ (0.24) |   |   |   |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Weighted average common shares - basic and                        diluted                                                                                                                                                            |   | 58,845,406 |   |   | 28,296,428 |   |   |   |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Net loss                                                                                                                                                                                                                             |   | (22,204,275) |   |   | (6,761,584) |   |   | (38,118,959) |
| Other comprehensive income                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Foreign currency translation adjustment                                                                                                                                                                                              |   | 12 |   |   | 190 |   |   | 14,572 |
|                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Net comprehensive income (loss)                                                                                                                                                                                                      | $ | (22,204,263) |   | $ | (6,761,394) |   | $ | (38,104,387) |

 

 

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

F-4

 

----

 

                                                                                 

| PROVIDENCE RESOURCES, INC.

(A Developmental Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)                        AND COMPREHENSIVE LOSS

February 17, 1993 ( Date of Inception) to December 31,                        2007 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   | Deficit |   |   |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   | Accumulated |   | Accumulated |   |   |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   | Additional |   | Other |   | During the |   |   |
|                                                                                                                                                                                                                                                     |   | Preferred Stock |   | Common Stock |   | Paid-in |   | Comprehensive |   | Development |   |   |
|                                                                                                                                                                                                                                                     |   | Shares |   | Amount |   | Shares |   | Amount |   | Capital |   | Income |   | Stage |   | Total |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at February 17, 1993 (date of inception)                                                                                                                                                                                                         | - | $ | - |   | 60,000 | $ | 6 | $ | 1,194 | $ | - | $ | - | $ | 1,200 |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                                                                                                                                                                                                 |   | - |   | - |   | - |   | - |   | - |   | - |   | (200) |   | (200) |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 1993                                                                                                                                                                                                                             |   | - |   | - |   | 60,000 |   | 6 |   | 1,194 |   | - |   | (200) |   | 1,000 |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                                                                                                                                                                                                 |   | - |   | - |   | - |   | - |   | - |   | - |   | (240) |   | (240) |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 1994                                                                                                                                                                                                                             |   | - |   | - |   | 60,000 |   | 6 |   | 1,194 |   | - |   | (440) |   | 760 |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                                                                                                                                                                                                 |   | - |   | - |   | - |   | - |   | - |   | - |   | (240) |   | (240) |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 1995                                                                                                                                                                                                                             |   | - |   | - |   | 60,000 |   | 6 |   | 1,194 |   | - |   | (680) |   | 520 |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                                                                                                                                                                                                 |   | - |   | - |   | - |   | - |   | - |   | - |   | (240) |   | (240) |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 1996                                                                                                                                                                                                                             |   | - |   | - |   | 60,000 |   | 6 |   | 1,194 |   | - |   | (920) |   | 280 |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of common stock for cash                                                                                                                                                                                                                        |   | - |   | - |   | 32,068 |   | 3 |   | 80,269 |   | - |   | - |   | 80,272 |
| Net loss                                                                                                                                                                                                                                                 |   | - |   | - |   | - |   | - |   | - |   | - |   | (79,765) |   | (79,765) |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 1997                                                                                                                                                                                                                             |   | - |   | - |   | 92,068 |   | 9 |   | 81,463 |   | - |   | (80,685) |   | 787 |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of common stock for:                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Services                                                                                                                                                                                                                                                 |   | - |   | - |   | 6,500 |   | 1 |   | 12,999 |   | - |   | - |   | 13,000 |
| Cash                                                                                                                                                                                                                                                     |   | - |   | - |   | 26,170 |   | 3 |   | 26,167 |   | - |   | - |   | 26,170 |
| Additional shares due to rounding                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| after stock split                                                                                                                                                                                                                                        |   | - |   | - |   | 300 |   | 1 |   | (1) |   | - |   | - |   | - |
| Net loss                                                                                                                                                                                                                                                 |   | - |   | - |   | - |   | - |   | - |   | - |   | (36,896) |   | (36,896) |
|                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 1998                                                                                                                                                                                                                             |   | - |   | - |   | 125,038 |   | 14 |   | 120,628 |   | - |   | (117,581) |   | 3,061 |

 

 

F-5

 

----

 

PROVIDENCE RESOURCES, INC.

(A Developmental Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND        COMPREHENSIVE LOSS

February 17, 1993 ( Date of Inception) to December 31,        2007

         

         

|   |   |            |   |         |   |    |   |          |   |        |   |        |   |        |   |   |
|--------|--------|-----------------|--------|--------------|--------|---------|--------|---------------|--------|-------------|--------|-------------|--------|-------------|--------|--------|
|   |   |            |   |         |   |    |   |          |   |        |   |        |   | Deficit     |   |   |
|   |   |            |   |         |   |    |   |          |   |        |   | Accumulated |   | Accumulated |   |   |
|   |   |            |   |         |   |    |   |          |   | Additional  |   | Other       |   | During the  |   |   |
|   |   | Preferred Stock |   | Common Stock |   | Paid-in |   | Comprehensive |   | Development |   |        |
|   |   | Shares          |   | Amount       |   | Shares  |   | Amount        |   | Capital     |   | Income      |   | Stage       |   | Total  |

 

|  

Balance forward, December 31, 1998          |   |  

- |   |  

- |   |  

125,038 |   |  

14 |   |  

120,628 |   |  

- |   |  

(117,581) |   |  

3,061 |
|-----------------------------------------------------|--------|-----------|--------|-----------|--------|-----------------|--------|------------|--------|-----------------|--------|-----------|--------|-------------------|--------|---------------|
|                                                |   |      |   |      |   |            |   |       |   |            |   |      |   |              |   |          |
| Rounding                                            |   | -         |   | -         |   | (38)            |   | -          |   | -               |   | -         |   | -                 |   | -             |
| Issuance of common stock for:                       |   |      |   |      |   |            |   |       |   |            |   |      |   |              |   |          |
| Cash                                                |   | -         |   | -         |   | 22,500          |   | 2          |   | 899,998         |   | -         |   | -                 |   | 900,000       |
| Assets                                              |   | -         |   | -         |   | 128,012         |   | 13         |   | 1,020,452       |   | -         |   | -                 |   | 1,020,465     |
| Net book value of Healthbridge, Inc.                |   | -         |   | -         |   | 20,500          |   | 2          |   | (2)             |   | -         |   | -                 |   | -             |
| Dividends-in-kind                                   |   | -         |   | -         |   | 50,202          |   | 5          |   | 2,008,091       |   | -         |   | (2,008,096)       |   | -             |
| Debt                                                |   | -         |   | -         |   | 242,500         |   | 23         |   | 999,978         |   | -         |   | -                 |   | 1,000,001     |
| Reverse acquisition with Healthbridge, Inc.         |   |      |   |      |   |            |   |       |   |            |   |      |   |              |   |
| and Wattmonitor, Inc.                               |   | -         |   | -         |   | 147,500         |   | 15         |   | 798,046         |   | -         |   | -                 |   | 798,061       |
| Common stock offering costs                         |   | -         |   | -         |   | -               |   | -          |   | (105,000)       |   | -         |   | -                 |   | (105,000)     |
| Reverse acquisition, retirement of old shares       |   |      |   |      |   |            |   |       |   |            |   |      |   |              |   |          |
| of Wattmonitor, Inc.                                |   | -         |   | -         |   | (147,500)       |   | (15)       |   | (915,627)       |   | -         |   | 117,581           |   | (798,061)     |
| Share adjustment for shares previously issued       | -      |      | -      |      | 150    |            | -      |       | -      |            | -      |      | -      |              | -      |
| Net loss                                            |   | -         |   | -         |   | -               |   | -          |   | -               |   | -         |   | (3,196,076)       |   | (3,196,076)   |
|                                                |   |      |   |      |   |            |   |       |   |            |   |      |   |              |   |          |
| Balance at December 31, 1999                        |   | -         |   | -         |   | 588,864         |   | 60         |   | 4,826,564       |   | -         |   | (5,204,172)       |   | (377,549)     |
|                                                |   |      |   |      |   |            |   |       |   |            |   |      |   |              |   |          |
| Issuance of common stock for:                       |   |      |   |      |   |            |   |       |   |            |   |      |   |              |   |          |
| Debt                                                |   | -         |   | -         |   | 34,950          |   | 4          |   | 349,496         |   | -         |   | -                 |   | 349,500       |
| Services                                            |   | -         |   | -         |   | 11,000          |   | 1          |   | 71,199          |   | -         |   | -                 |   | 71,200        |
| Cash                                                |   | -         |   | -         |   | 19,500          |   | 2          |   | 194,998         |   | -         |   | -                 |   | 195,000       |
| Accounts payable                                    |   | -         |   | -         |   | 7,500           |   | 1          |   | 74,999          |   | -         |   | -                 |   | 75,000        |
|                                                |   |      |   |      |   |            |   |       |   |            |   |      |   |              |   |          |
| Common stock offering costs                         |   | -         |   | -         |   | -               |   | -          |   | (15,600)        |   | -         |   | -                 |   | (15,600)      |
|                                                |   |      |   |      |   |            |   |       |   |            |   |      |   |              |   |          |
| Stock option compensation expense                   |   | -         |   | -         |   | -               |   | -          |   | 6,000           |   | -         |   | -                 |   | 6,000         |
|                                                |   |      |   |      |   |            |   |       |   |            |   |      |   |              |   |          |
| Net loss                                            |   | -         |   | -         |   | -               |   | -          |   | -               |   | -         |   | (816,545)         |   | (816,545)     |
| Balance at December 31,                        2000 |   | -         |   | -         |   | 661,814         |   | 67         |   | 5,507,656       |   | -         |   | (6,020,717)       |   | (512,994)     |

 

 

F-6

 

----

PROVIDENCE RESOURCES, INC.

(A Developmental Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND        COMPREHENSIVE LOSS

February 17, 1993 ( Date of Inception) to December 31,        2007

 

|   |   |            |   |         |   |    |   |          |   |        |   |        |   |        |   |   |
|--------|--------|-----------------|--------|--------------|--------|---------|--------|---------------|--------|-------------|--------|-------------|--------|-------------|--------|--------|
|   |   |            |   |         |   |    |   |          |   |        |   |        |   | Deficit     |   |   |
|   |   |            |   |         |   |    |   |          |   |        |   | Accumulated |   | Accumulated |   |   |
|   |   |            |   |         |   |    |   |          |   | Additional  |   | Other       |   | During the  |   |   |
|   |   | Preferred Stock |   | Common Stock |   | Paid-in |   | Comprehensive |   | Development |   |        |
|   |   | Shares          |   | Amount       |   | Shares  |   | Amount        |   | Capital     |   | Income      |   | Stage       |   | Total  |

 

|                               |   |   |   |   |   |    |   |        |   |      |   |   |   |        |   |             |
|------------------------------------|--------|--------|--------|--------|--------|---------|--------|--------|--------|-----------|--------|--------|--------|-------------|--------|-------------|
| Balance forward, December 31, 2000 |   | -      |   | -      |   | 661,814 |   | 67     |   | 5,507,656 |   | -      |   | (6,020,717) |   | (512,994)   |
|                               |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |        |
| Issuance of common stock for:      |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |        |
| Services                           |   | -      |   | -      |   | 84,400  |   | 9      |   | 258,941   |   | -      |   | -           |   | 258,950     |
| Accounts payable                   |   | -      |   | -      |   | 13,750  |   | 1      |   | 59,999    |   | -      |   | -           |   | 60,000      |
| Debt                               |   | -      |   | -      |   | 41,603  |   | 4      |   | 249,614   |   | -      |   | -           |   | 249,618     |
|                               |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |        |
| Net loss                           |   | -      |   | -      |   | -       |   | -      |   | -         |   | -      |   | (422,008)   |   | (422,008)   |
|                               |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |        |
| Balance at December 31, 2001       |   | -      |   | -      |   | 801,567 |   | 81     |   | 6,076,210 |   | -      |   | (6,442,725) |   | (366,434)   |
|                               |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |        |
| Comprehensive loss:                |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |        |
| Net loss                           |   | -      |   | -      |   | -       |   | -      |   | -         |   | -      |   | (1,221,203) |   | (1,221,203) |
| Other comprehensive loss -         |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |        |
| cumulative foreign currency        |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |        |
| translation adjustment             |   | -      |   | -      |   | -       |   | -      |   | -         |   | 4,869  |   | -           |   | 4,869       |
| Total comprehensive loss           |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   | (1,216,334) |
|                               |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |        |
| Issuance of common stock for:      |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |        |
| Intellectual property              |   | -      |   | -      |   | 37,500  |   | 4      |   | 224,996   |   | -      |   | -           |   | 225,000     |
| Services                           |   | -      |   | -      |   | 143,000 |   | 14     |   | 806,086   |   | -      |   | -           |   | 806,100     |
| Accounts payable and services      |   | -      |   | -      |   | 5,000   |   | 1      |   | 10,999    |   | -      |   | -           |   | 11,000      |
|                               |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |        |
| Stock option compensation expense  |   | -      |   | -      |   | -       |   | -      |   | 12,500    |   | -      |   | -           |   | 12,500      |
|                               |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |        |
| Balance at December 31, 2002       |   | -      |   | -      |   | 987,067 |   | 99     |   | 7,130,791 |   | 4,869  |   | (7,663,928) |   | (528,169)   |

 

F-7

 

----

 

PROVIDENCE RESOURCES, INC.

(A Developmental Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND        COMPREHENSIVE LOSS

February 17, 1993 ( Date of Inception) to December 31,        2007

         

         

|   |   |            |   |         |   |    |   |          |   |        |   |        |   |        |   |   |
|--------|--------|-----------------|--------|--------------|--------|---------|--------|---------------|--------|-------------|--------|-------------|--------|-------------|--------|--------|
|   |   |            |   |         |   |    |   |          |   |        |   |        |   | Deficit     |   |   |
|   |   |            |   |         |   |    |   |          |   |        |   | Accumulated |   | Accumulated |   |   |
|   |   |            |   |         |   |    |   |          |   | Additional  |   | Other       |   | During the  |   |   |
|   |   | Preferred Stock |   | Common Stock |   | Paid-in |   | Comprehensive |   | Development |   |        |
|   |   | Shares          |   | Amount       |   | Shares  |   | Amount        |   | Capital     |   | Income      |   | Stage       |   | Total  |

|                               |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |      |
|------------------------------------|--------|--------|--------|--------|--------|---------|--------|--------|--------|-----------|--------|--------|--------|-------------|--------|-----------|
| Balance forward, December 31, 2002 |   | -      |   | -      |   | 987,067 |   | 99     |   | 7,130,791 |   | 4,869  |   | (7,663,928) |   | (528,169) |
|                               |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |      |
| Comprehensive loss:                |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |      |
| Net loss                           |   | -      |   | -      |   | -       |   | -      |   | -         |   | -      |   | (232,560)   |   | (232,560) |
| Other comprehensive loss -         |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |      |
| cumulative foreign currency        |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |      |
| translation adjustment             |   | -      |   | -      |   | -       |   | -      |   | -         |   | (806)  |   | -           |   | (806)     |
| Total comprehensive loss           |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   | (233,366) |
|                               |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |      |
| Issuance of common stock for:      |   |   |   |   |   |    |   |   |   |      |   |   |   |        |   |      |

 

 

| Cash                          |   | -      |   | -      |   | 314,165   |   | 32     |   | 102,801   |   | -      |   | -           |   | 102,833   |
|-------------------------------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|--------|-------------|--------|-----------|
| Services                      |   |   |   |   |   | 2,100     |   | -      |   | 3,888     |   | -      |   | -           |   | 3,888     |
| Debt                          |   |   |   |   |   | 1,537,048 |   | 154    |   | 475,583   |   | -      |   | -           |   | 475,737   |
| Common stock offering costs   |   | -      |   | -      |   | -         |   | -      |   | (2,000)   |   | -      |   | -           |   | (2,000)   |
|                          |   |   |   |   |   |      |   |   |   |      |   |   |   |        |   |      |
| Issuance of common stock      |   |   |   |   |   |      |   |   |   |      |   |   |   |        |   |      |
| options for services          |   | -      |   | -      |   | -         |   | -      |   | 15,000    |   | -      |   | -           |   | 15,000    |
| after reverse split           |   | -      |   | -      |   | 65        |   | -      |   | -         |   | -      |   | -           |   | -         |
|                          |   |   |   |   |   |      |   |   |   |      |   |   |   |        |   |      |
| Balance at December 31, 2003  |   | -      |   | -      |   | 2,840,445 |   | 285    |   | 7,726,063 |   | 4,063  |   | (7,896,488) |   | (166,077) |
|                          |   |   |   |   |   |      |   |   |   |      |   |   |   |        |   |      |
| Issuance of common stock for: |   |   |   |   |   |      |   |   |   |      |   |   |   |        |   |      |
| Debt conversion               |   | -      |   | -      |   | 2,735,555 |   | 273    |   | 197,673   |   | -      |   | -           |   | 197,946   |
| Services                      |   |   |   |   |   | 1,050,000 |   | 105    |   | 80,395    |   |   |   |        |   | 80,500    |
| Other comprehensive loss -    |   |   |   |   |   |      |   |   |   |      |   |   |   |        |   |      |
| cumulative foreign currency   |   |   |   |   |   |      |   |   |   |      |   |   |   |        |   |      |
| translation adjustment        |   | -      |   | -      |   | -         |   | -      |   | -         |   | 1,250  |   | -           |   | 1,250     |
|                          |   |   |   |   |   |      |   |   |   |      |   |   |   |        |   |      |
| Net loss                      |   | -      |   | -      |   | -         |   | -      |   | -         |   | -      |   | (311,757)   |   | (311,757) |
|                          |   |   |   |   |   |      |   |   |   |      |   |   |   |        |   |      |
|                          |   |   |   |   |   |      |   |   |   |      |   |   |   |        |   |      |
| Balance at December 31, 2004  |   | -      |   | -      |   | 6,626,000 |   | 663    |   | 8,004,131 |   | 5,313  |   | (8,208,245) |   | (198,138) |

F-8

 

----

 

PROVIDENCE RESOURCES, INC.

(A Developmental Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)            AND COMPREHENSIVE LOSS

February 17, 1993 ( Date of Inception) to December 31,            2007

             

             

|   |   |            |   |         |   |    |   |          |   |        |   |        |   |        |   |   |
|--------|--------|-----------------|--------|--------------|--------|---------|--------|---------------|--------|-------------|--------|-------------|--------|-------------|--------|--------|
|   |   |            |   |         |   |    |   |          |   |        |   |        |   | Deficit     |   |   |
|   |   |            |   |         |   |    |   |          |   |        |   | Accumulated |   | Accumulated |   |   |
|   |   |            |   |         |   |    |   |          |   | Additional  |   | Other       |   | During the  |   |   |
|   |   | Preferred Stock |   | Common Stock |   | Paid-in |   | Comprehensive |   | Development |   |        |
|   |   | Shares          |   | Amount       |   | Shares  |   | Amount        |   | Capital     |   | Income      |   | Stage       |   | Total  |

| Balance forward, December 31, 2004    |   | -      |   | -      |   | 6,626,000  |   | 663    |   | 8,004,131  |   | 5,313  |   | (8,208,245) |   | (198,138)  |
|---------------------------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------|------------|--------|--------|--------|-------------|--------|------------|
|                                  |   |   |   |   |   |       |   |   |   |       |   |   |   |        |   |       |
| Issuance of common stock for:         |   |   |   |   |   |       |   |   |   |       |   |   |   |        |   |       |
| Cash                                  |   | -      |   | -      |   | 7,520,000  |   | 752    |   | 2,005,248  |   | -      |   | -           |   | 2,006,000  |
| Debt                                  |   | -      |   | -      |   | 2,334,841  |   | 233    |   | 349,992    |   | -      |   | -           |   | 350,226    |
|                                  |   |   |   |   |   |       |   |   |   |       |   |   |   |        |   |       |
| Issuance of warrants for finders fees |   | -      |   | -      |   | -          |   | -      |   | 191,400    |   | -      |   | -           |   | 191,400    |
| Common stock offering costs           |   | -      |   | -      |   | -          |   | -      |   | (125,400)  |   | -      |   | -           |   | (125,400)  |
|                                  |   |   |   |   |   |       |   |   |   |       |   |   |   |        |   |       |
| Other comprehensive loss -            |   |   |   |   |   |       |   |   |   |       |   |   |   |        |   |       |
| cumulative foreign currency           |   |   |   |   |   |       |   |   |   |       |   |   |   |        |   |       |
| translation adjustment                |   | -      |   | -      |   | -          |   | -      |   | -          |   | 9,057  |   | -           |   | 9,057      |
|                                  |   |   |   |   |   |       |   |   |   |       |   |   |   |        |   |       |
| Net loss for the period               |   | -      |   | -      |   | -          |   | -      |   | -          |   | -      |   | (944,857)   |   | (944,857)  |
|                                  |   |   |   |   |   |       |   |   |   |       |   |   |   |        |   |       |
| Balance at December 31, 2005          |   | -      | $      | -      |   | 16,480,841 | $      | 1,648  | $      | 10,425,371 | $      | 14,370 | $      | (9,153,101) | $      | 1,288,288  |
|                                  |   |   |   |   |   |       |   |   |   |       |   |   |   |        |   |       |
| Issuance of common stock for:         |   |   |   |   |   |       |   |   |   |       |   |   |   |        |   |       |
| Acquisition of Providence Exploration |   | -      |   | -      |   | 20,000,000 |   | 2,000  |   | 15,998,000 |   | -      |   | -           |   | 16,000,000 |

 

| Cash                                       |   | -      |   | -      |   | 13,369,920 |   | 1,337  |   | 8,020,615  |   | -      |   | -            |   | 8,021,952   |
|--------------------------------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------|------------|--------|--------|--------|--------------|--------|-------------|
| Debt                                       |   | -      |   | -      |   | 2,004,778  |   | 200    |   | 2,071,014  |   | -      |   | -            |   | 2,071,214   |
|                                       |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |        |
| Issuance of warrants with equity financing |   | -      |   | -      |   | -          |   | -      |   | 3,409,330  |   | -      |   | -            |   | 3,409,330   |
| Issuance of warrants for finders fees      |   | -      |   | -      |   | -          |   | -      |   | 122,743    |   | -      |   | -            |   | 122,743     |
|                                       |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |        |
| Other comprehensive loss -                 |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |        |
| cumulative foreign currency                |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |        |
| translation adjustment                     |   | -      |   | -      |   | -          |   | -      |   | -          |   | 190    |   | -            |   | 190         |
|                                       |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |        |
| Net loss for the period                    |   | -      |   | -      |   | -          |   | -      |   | -          |   | -      |   | (6,761,584)  |   | (6,761,584) |
|                                       |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |        |
|                                       |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |        |
| Balance at December 31, 2006               |   | -      | $      | -      |   | 51,855,539 | $      | 5,185  | $      | 40,047,072 | $      | 14,560 | $      | (15,914,684) | $      | 24,152,133  |
|                                            |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |        |

         

F-9

 

----

 

PROVIDENCE RESOURCES, INC.

(A Developmental Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND        COMPREHENSIVE LOSS

February 17, 1993 ( Date of Inception) to December 31,        2007

         

         

|   |   |            |   |         |   |    |   |          |   |        |   |        |   |        |   |   |
|--------|--------|-----------------|--------|--------------|--------|---------|--------|---------------|--------|-------------|--------|-------------|--------|-------------|--------|--------|
|   |   |            |   |         |   |    |   |          |   |        |   |        |   | Deficit     |   |   |
|   |   |            |   |         |   |    |   |          |   |        |   | Accumulated |   | Accumulated |   |   |
|   |   |            |   |         |   |    |   |          |   | Additional  |   | Other       |   | During the  |   |   |
|   |   | Preferred Stock |   | Common Stock |   | Paid-in |   | Comprehensive |   | Development |   |        |
|   |   | Shares          |   | Amount       |   | Shares  |   | Amount        |   | Capital     |   | Income      |   | Stage       |   | Total  |

 

 

| Balance at                    December 31, 2006  |   | -      | $      | -      |   | 51,855,539 | $      | 5,185  | $      | 40,047,072 | $      | 14,560 | $      | (15,914,684) | $      | 24,152,133   |
|--------------------------------------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------|------------|--------|--------|--------|--------------|--------|--------------|
|                                             |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |         |
| Issuance of common                    stock for: |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |         |
| Cash                                             |   | -      |   | -      |   | 1,987,500  |   | 199    |   | 236,501    |   | -      |   | -            |   | 236,700      |
| Services                                         |   |   |   |   |   | 1,450,000  |   | 145    |   | 284,855    |   | -      |   | -            |   | 285,000      |
| Debt                                             |   |   |   |   |   | 3,868,079  |   | 387    |   | 580,126    |   | -      |   | -            |   | 580,513      |
|                                             |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |         |
| Discount on                    convertible notes |   |   |   |   |   |       |   |   |   | 4,091,667  |   |   |   |         |   | 4,091,667    |
|                                             |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |         |
| Other                    comprehensive loss -    |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |         |
| cumulative foreign                    currency   |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |         |
| translation                    adjustment        |   | -      |   | -      |   | -          |   | -      |   | -          |   | 12     |   | -            |   | 12           |
|                                             |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |         |
| Net loss for the                    period       |   | -      |   | -      |   | -          |   | -      |   | -          |   | -      |   | (22,204,275) |   | (22,204,275) |
|                                             |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |         |
|                                             |   |   |   |   |   |       |   |   |   |       |   |   |   |         |   |         |
| Balance at                    December 31, 2007  |   | -      | $      | -      |   | 59,161,118 | $      | 5,916  | $      | 45,240,221 | $      | 14,572 | $      | (38,118,959) | $      | 7,141,750    |

 

 

 

 

 

 

 

 

 

 

 

 

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

 

F-10

 

----

 

 

| PROVIDENCE RESOURCES, INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2007 and 2006 and Cumulative                        Amounts |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                   |   | Years ended December 31, |   |   | Inception on

February 17, 1993

through

December 31, |
|                                                                                                                                                                                   |   | 2007 |   |   | 2006 |   |   | 2007 |
| Cash flows from operating activities:                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Net loss                                                                                                                                                                               | $ | (22,204,275) |   | $ | (6,761,584) |   | $ | (38,118,959) |
| Adjustments to reconcile net loss to net cash                                                                                                                                          |   |   |   |   |   |   |   |   |
| used in operating activities:                                                                                                                                                          |   |   |   |   |   |   |   |   |
| Shares issued for services                                                                                                                                                             |   | 285,000 |   |   | 360,000 |   |   | 645,000 |
| Shares issued with financing                                                                                                                                                           |   | - |   |   | 3,532,073 |   |   | 3,532,073 |
| Shares issued for debt and accrued interest                        conversion                                                                                                          |   | 178,214 |   |   | 226,547 |   |   | 404,761 |
| Additional value of shares issued for debt and services                        conversion                                                                                              | 152,300 |   |   | 1,409,667 |   |   | 3,151,831 |
| Amortization of conversion rights on debt                                                                                                                                              |   | 948,184 |   |   | - |   |   | 948,184 |
| Depreciation, amortization and impairment                                                                                                                                              |   | 19,462,036 |   |   | 9,544 |   |   | 19,627,056 |
| Minority interest                                                                                                                                                                      |   | (33,956) |   |   | (19,898) |   |   | (53,854) |
| Discontinued operations                                                                                                                                                                |   | - |   |   | - |   |   | 2,542,150 |
| Gain on write-off of liabilities                                                                                                                                                       |   | - |   |   | - |   |   | (96,270) |
| Loss on disposal of assets                                                                                                                                                             |   | 35,899 |   |   | - |   |   | 35,899 |
| (Increase) decrease in:                                                                                                                                                                |   |   |   |   |   |   |   |   |
| Accounts receivable and prepaid expenses                                                                                                                                               |   | 207 |   |   | 121,615 |   |   | 110,725 |
| Inventory                                                                                                                                                                              |   | 374,515 |   |   | - |   |   | 374,515 |
| Accounts payable                                                                                                                                                                       |   | 128,419 |   |   | 931,721 |   |   | 1,679,246 |
| Accrued expenses                                                                                                                                                                       |   | 385,504 |   |   | (82,808) |   |   | 595,923 |
| Related party payables                                                                                                                                                                 |   | 60,500 |   |   | 61,500 |   |   | 235,812 |
| Net cash used in operating activities                                                                                                                                                  |   | (227,453) |   |   | (211,623) |   |   | (4,385,908) |
|                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
| Cash flows from investing activities:                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Advances to Providence Exploration prior to                        acquisition                                                                                                         |   | - |   |   | (5,811,761) |   |   | (8,886,761) |
| Cash of Providence Exploration on acquisition                        date                                                                                                              |   | - |   |   | 73,271 |   |   | 73,271 |
| Acquisition of intangible assets                                                                                                                                                       |   | - |   |   | - |   |   | (150,398) |
| Acquisition of property and equipment                                                                                                                                                  |   | (6,069,257) |   |   | (2,644,520) |   |   | (8,717,517) |
| Issuance of notes receivable                                                                                                                                                           |   | - |   |   | 3,124 |   |   | (616) |
| Net cash used in investing activities                                                                                                                                                  |   | (6,069,257) |   |   | (8,379,886) |   |   | (17,682,021) |
|                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
| Cash flows from financing activities:                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Proceeds from notes payable                                                                                                                                                            |   | 700,000 |   |   | - |   |   | 1,392,999 |
| Proceeds from convertible promissory notes                        payable                                                                                                              |   | 5,000,000 |   |   | - |   |   | 5,000,000 |
| Issuance of common stock                                                                                                                                                               |   | 236,700 |   |   | 8,021,952 |   |   | 13,347,979 |
| Commissions paid to raise convertible debentures                                                                                                                                       |   | - |   |   | - |   |   | (41,673) |
| Minority investment in subsidiary                                                                                                                                                      |   | - |   |   | 136,915 |   |   | 136,915 |
| Proceeds from (payments for) convertible                        debentures                                                                                                             |   | - |   |   | - |   |   | 3,654,173 |
| Payments on notes payable                                                                                                                                                              |   | - |   |   | (62,841) |   |   | (256,889) |
| Net cash provided by financing activities                                                                                                                                              |   | 5,936,700 |   |   | 8,096,026 |   |   | 23,233,504 |
|                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
| Change in accumulated other comprehensive income                                                                                                                                       |   | 12 |   |   | 190 |   |   | 14,572 |
| Net increase (decrease) in cash                                                                                                                                                        |   | (359,998) |   |   | (495,293) |   |   | 1,180,147 |
| Cash, beginning of period                                                                                                                                                              |   | 1,540,145 |   |   | 2,035,438 |   |   | - |
|                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
| Cash, end of period                                                                                                                                                                    | $ | 1,180,147 |   | $ | 1,540,145 |   | $ | 1,180,147 |
|  

Cash paid for interest                                                                                                                                                         | $ | - |   | $ | - |   |   |   |
| Cash paid for taxes                                                                                                                                                                    | $ | - |   | $ | - |   |   |   |

         

 

Non-cash investing and financing activities (Note 10)

 

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

F-11

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 1        — Organization and Summary of Significant Accounting Policies

Organization 

The        consolidated financial statements consist of Providence Resources, Inc. (“Providence        Resources”) (formerly Healthbridge, Inc.) and its wholly owned subsidiaries,        Healthbridge AG (“Healthbridge AG”), Providence Exploration LLC        (“Providence Exploration”), PDX Drilling, LLC and Providence Resources LLC and        a ninety percent interest in Comanche County Pipeline, LLC (collectively “the        Company”).

Providence        Resources, Inc. was organized on February 17, 1993 (date of inception) under the laws of        the State of Texas. The Company changed its name from Healthbridge, Inc. to Providence        Resources, Inc. on September 29, 2006. Healthbridge AG was formed as a German subsidiary        during 2002. Providence Exploration, LLC was formed on July 12, 2005, under the Laws of the        State of Texas as a Limited Liability Company and is headquartered in Dallas, Texas.        Providence Exploration formed a wholly owned subsidiary, PDX Drilling, LLC (PDX), on July        12, 2005. PDX was formed to acquire drilling and service rigs for the purpose of drilling        oil and gas wells in Texas. Providence Exploration also formed a wholly owned subsidiary,        Providence Resources LLC, on September 1, 2005, to acquire leases in Texas for oil and gas        exploration and development. In October of 2006, Providence Exploration entered into an        agreement to form Comanche County Pipeline, LLC with the purpose of constructing an oil and        gas pipeline in Comanche County, Texas.

On January        25, 2002, the Company acquired certain patents related to the infectious medical waste        sterilization and disposal technologies developed in Germany. During the fourth quarter of        2005, the Company decided to discontinue all operations connected to the Valides®        Modular Infectious Waste Disposal System and the Medides System due to the unsatisfactory        level of revenue generated to date.

On November        21, 2005, the Company executed a letter of intent to acquire Providence Exploration, LLC,        as a wholly owned subsidiary in a stock for ownership exchange. On September 29, 2006, the        Corporation acquired Providence Exploration as a wholly owned subsidiary, pursuant to the        closing of a Securities Exchange Agreement and a Note Exchange Agreement.

The        Securities Exchange Agreement, entered into on April 10, 2006 with Providence Exploration        and the unit holders of Providence Exploration, provided for the exchange of 4,286,330        shares of the Corporation’s common stock for 1,250,000 issued and outstanding        membership units of Providence Exploration. The Note Exchange Agreement, entered into on        April 10, 2006 with the holders of certain promissory notes issued by Providence        Exploration, provided for the exchange of 12,213,670 shares of the Company’s common        stock for the assignment of those promissory notes to the Company. The agreements were        closed pursuant to shareholder approval at a special meeting of the shareholders held on        September 29, 2006.

Providence        Exploration is involved in exploration activities for the recovery of oil and gas from the        Marble Falls and Barnett Shale formations in the Fort Worth basin and from the Ellenburger        carbonate, Strawn carbonate and Pennsylvanian-Wolfcamp sandstone reservoirs in Val Verde        County. The Fort Worth basin prospects include approximately 7,374 acres of oil and gas        leases and the Val Verde County prospects include approximately 12,832 acres of oil and gas        leases. Providence Exploration has a 90% working interest and its joint venture operating        partner, Harding Company, has a 10% working interest in the Fort Worth basin        projects.

The Company        is considered a development stage company as defined in SFAS No. 7.

F-12

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 1        — Organization and Summary of Significant Accounting Policies        (continued)

Principles of Consolidation

The        consolidated financial statements include the accounts of Providence Resources, Inc. and        its wholly owned subsidiaries. All significant intercompany balances and transactions have        been eliminated.

Cash and        Cash Equivalents

For        purposes of the statement of cash flows, the Company considers all highly liquid        investments with a maturity of three months or less to be cash equivalents.

Inventory

Inventory        at December 31, 2007 consists of drilling rigs, parts and components. The Company records        inventory at the lower of cost and market.

Property        and Equipment

Property        and equipment are stated at cost less accumulated depreciation. Maintenance and repairs are        charged to expense as incurred. Costs of major renewals or betterments are capitalized over        the remaining useful lives of the related assets. Depreciation is computed by using the        straight-line method. The cost of property disposed of and related accumulated depreciation        is removed from the accounts at the time of disposal, and gain or loss is reflected in        operations.

Oil and        Gas Leases Not Subject to Amortization

Oil and gas        lease costs are recorded at cost and consist of 7,374.5 acres of land leases in North        Eastern Texas in the Barnett Shale Formation and 12,847.2 acres of land leases in Southwest        Texas in Val Verde County. These leases are undeveloped at December 31, 2007, and        accordingly no depletion is included in the accompanying consolidated financial        statements.

The Company        follows the full cost method of accounting for exploration and development of oil and gas        properties whereby all costs in acquiring, exploring and developing properties are        capitalized, including estimate of abandonment costs, net of estimated equipment salvage        costs. Prior to acquisition on September 29, 2006, Providence Exploration capitalized        $3,278,647 in exploration costs. No costs related to production, general corporate        overhead, or similar activities have been capitalized. As of December 31, 2007, the Company        only has capitalized costs of unproved properties acquired and related exploration costs.        Leasehold costs are depleted based on the units-of-production method based on estimated        proved reserves. No proved reserves currently exist for the Company and therefore no        depletion has been taken as of December 31, 2007.

Convertible Notes Payable

The fair        value of the conversion option on a convertible note payable is calculated using the        intrinsic value method and recorded as a discount on the face value of the note. This        amount is amortized using the straight-line method over the term of the note.

 

F-13

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 1        — Organization and Summary of Significant Accounting Policies        (continued)

In        accordance with Statement of Financial Accounting Standards No. 144 “Accounting for        the Impairment or Disposal of Long-Lived Assets”, the Company reviews its long-lived        assets to be held and used, excluding proved oil and gas properties accounted for under the        full cost method of accounting, whenever events or circumstances indicate that the carrying        value of those assets may not be recoverable. An impairment loss is indicated if the sum of        the expected future net cash flows is less than the carrying amount of the assets. In this        circumstance, the Company recognizes an impairment loss for the amount by which the        carrying amount of the asset exceeds the estimated fair value of the asset. The        Company’s long-lived assets related to its proved oil and gas properties accounted        for under the full cost method of accounting are prescribed by the Securities and Exchange        Commission (Regulation S-X, Rule 4-10, “Financial Accounting and Reporting for Oil        and Gas Producing Activities Pursuant to the Federal Securities Laws and the Energy Policy        and Conservation Act of 1975”).

Intangible Assets

Costs        associated with the acquisition of definite life intangibles are capitalized and amortized        over their useful life. Costs of property acquisition, exploration and development are        capitalized and subjected to a quarterly impairment (ceiling) test, based on the net        present value of proved reserves on the property. Management will write this intangible        down to its net realizable value at the time impairment appears to exist. During fiscal        2007, management determined that due to the dry holes experienced to date, that the        carrying values of the Company’s oil and gas leases and its oil and gas pipeline        exceeded the ceiling test amounts pursuant to Regulation S-X, Rule 4-10. Accordingly, the        Company recorded impairment charges of $17,881,092 and $1,509,734 on the leases and        pipeline respectively.

Loan        origination fees are amortized on a straight line basis over the 36 month term of the        loans.

Long-Lived Assets 

The Company        evaluates its long-lived assets in accordance with SFAS No. 144, “Accounting for the        Impairment of Long-Lived Assets”. Long-lived assets held and used by the Company are        reviewed for impairment whenever events or changes in circumstances indicate that their net        book value may not be recoverable. When such factors and circumstances exist, the Company        compares the projected undiscounted future cash flows associated with the related asset or        group of assets over their estimated useful lives against their respective carrying        amounts. Impairment, if any, is based on the excess of the carrying amount over the fair        value of those assets and is recorded in the period in which the determination was        made.

Income        Taxes

The Company        has adopted FASB 109 to account for income taxes. The Company currently has no issues which        create timing differences that would mandate deferred tax expense. Net operating losses        would create possible tax assets in future years, but due to the uncertainty as to the        utilization of net operating loss carry forwards, a valuation allowance has been made to        the extent of any tax benefit that net operating losses may generate. No provision for        income taxes has been recorded due to the net operating loss carry forward which will be        offset against future taxable income.

 

F-14

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 1        — Organization and Summary of Significant Accounting Policies        (continued)

Income        Taxes (continued)

The        difference between income taxes at statutory rates and the amount presented in the        financial statements is a result of the following:

|                                                                                                            | Years Ended December 31, | CumulativeAmounts |
|-----------------------------------------------------------------------------------------------------------------|--------------------------|-------------------|
|                                                                                                            | 2007                     | 2006              |
| Income tax benefit at statutory rate                                                                            | $(7,549,454)             | $(2,299,000)      | $(12,270,454) |
| Change in valuation allowance                                                                                   | 7,549,454                | 2,299,000         | 12,270,454 |
|                                                                                                            | $ -                      | $ -               | $ - |
|                                                                                                            |                     |              |   |
| Deferred tax assets are as follows at December 31,                        2007:

                          |                     |
|                                                                                                            | 2007                     | 2006              |   |
| NOL Carry-forward                                                                                               | 12,270,454               | 4,721,000         |   |
| Valuation allowance                                                                                             | (12,270,454)             | (4,721,000)       |   |
|                                                                                                            | $ -                      |              |   |
|                                                                                                                 |                          |                   |  |  |

The Company        has incurred Net Operating Losses of approximately $38,118,959. These losses will be        carried forward to offset future taxable income and will expire beginning in 2014. However,        realization of the future tax benefit of these carry-forwards is contingent on the        Company’s ability to generate positive net operations. A valuation allowance has been        recorded for the full amount of the deferred tax asset because it is more likely than not        that the deferred tax asset will not be realized. The components of current income tax        expense as of December 31, 2007 and 2006 respectively are as follows:

|                          | As at December 31, |
|-------------------------------|--------------------|
|                          | 2007               | 2006 |
| Current federal tax expense   | $ -                | $ - |
| Current state tax expense     | -                  | - |
| Change in NOL benefits        | 7,549,454          | 2,299,000 |
| Change in valuation allowance | (7,549,454)        | (2,299,000) |
| Income tax expense            | $ -                | $ - |

Concentration of Credit Risk

The Company        maintains its cash in bank deposit accounts, which, at times, may exceed federally insured        limits. At December 31, 2007, the Company had $1,180,147 in bank deposit accounts. The        Company has not experienced any losses in such accounts and believes it is not exposed to        any significant credit risk on cash and cash equivalents.

 

 

F-15

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 1        — Organization and Summary of Significant Accounting Policies        (continued)

Translation of Foreign Currencies

Assets and        liabilities of the Company’s foreign subsidiary are translated into U.S. dollars at        the applicable exchange rates at year-end. Net gains or losses resulting from the        translation of the Company’s assets and liabilities are reflected as a separate        component of stockholders’ equity. A negative translation impact on        stockholders’ equity reflects a current relative U.S. dollar value higher than at the        point in time that assets were actually acquired in a foreign currency. A positive        translation impact would result from a U.S. Dollar weaker in value than at the point in        time foreign assets were acquired.

Income and        expense items are translated at the weighted average rate of exchange (based on when        transactions actually occurred) during the year.

Revenue        Recognition

The Company        did not have revenues in the year ended December 31, 2007. Revenues are recorded upon the        completion of the services, with the existence of an agreement and where collectability is        reasonably assured. Oil and natural gas production revenue will be recognized at the time        and point of sale after the product has been extracted from the ground.

Stock-Based Compensation

At December        31, 2007, the Company has stock-based employee compensation plans and the Company accounts        for those plans under the recognition and measurement principles of APB Opinion 25,        “Accounting for Stock Issued to Employees”, and related Interpretations, and        has adopted the disclosure provisions of SFAS 123 (R), “Share Based        Payment.”

Had        compensation cost for the Company’s stock option plan been determined based on the        fair value at the grant date for awards consistent with the provisions of SFAS 123 (R), the        Company’s net loss and loss per share would have been reduced to the pro forma        amounts indicated below:

 

|   | Years ended December 31, |
|--------|--------------------------|

|   | 2007 | 2006 |
|--------|------|------|

 

| Net loss as reported | $ (22,204,275) | $ (6,761,584) |
|----------------------|----------------|---------------|

Deduct:

Total stock-based employee compensation expense

determined under fair value based method for all

|   | awards, net of related tax effects | - | - |
|--------|------------------------------------|---|---|

| Net loss pro forma | $ (22,204,275) | $ (6,761,584) |
|--------------------|----------------|---------------|

 

Loss per        share – basic and diluted:

|   | As reported | $ | (.38) | $ | (.24) |
|--------|-------------|---|-------|---|-------|

|   | Pro forma | $ | (.38) | $ | (.24) |
|--------|-----------|---|-------|---|-------|

 

 

F-16

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 1        — Organization and Summary of Significant Accounting Policies        (continued)

Earnings        Per Share

The        numerator for the earnings per share calculation is the net loss for the period. The        denominator is the weighted average number of shares outstanding during the        period.

The        computation of diluted earnings per common share is based on the weighted average number of        shares outstanding during the period plus the common stock equivalents which would arise        from the exercise or conversion of warrants, options and convertible securities, if any,        using the treasury stock method. The Company had 7,267,650 stock equivalents of warrants at        December 31, 2007 (2006 -7,267,650) that were excluded from the calculation of diluted        earnings per share. Common stock equivalents are not included in the diluted earnings per        share calculation when their effect is antidilutive.

Earnings        Per Share computation for Continuing operations:

|   | Years ended December                        31, |
|--------|-------------------------------------------------|

              20072006 

 

|   | Numerator – (loss from continuing                        operations) | $ | (22,204,275) | $ | (6,761,584) |
|--------|----------------------------------------------------------------------------|---|--------------|---|-------------|

|   | Denominator – weighted average |
|--------|--------------------------------------|

|   | number of shares outstanding | 54,845,406 | 28,296,428 |
|--------|------------------------------|------------|------------|

 

|   | Loss per share | $ | (0.38) | $ | (0.24) |
|--------|----------------|---|--------|---|--------|

Earnings        Per Share computation from Discontinued Operations:

|   | Years ended December                        31, |
|--------|-------------------------------------------------|

              20072006 

|   | Numerator – (loss from discontinued                        operations)$ | Nil | $ | Nil |
|--------|-------------------------------------------------------------------------------|-----|---|-----|

|   | Denominator – weighted average |
|--------|--------------------------------------|

|   | number of shares outstanding | 54,845,406 | 28,296,428 |
|--------|------------------------------|------------|------------|

 

|   | Loss per share-discontinued operations | $ | (0.38) | $ | (0.00) |
|--------|----------------------------------------|---|--------|---|--------|

Earnings        Per Share computation for Net Income:

|   | Years ended December                        31, |
|--------|-------------------------------------------------|

|   | 2007 | 2006 |
|--------|------|------|

|   | Numerator – (Net Loss ) | $ | (22,204,275) | $ | (6,761,584) |
|--------|-------------------------------|---|--------------|---|-------------|

|   | Denominator – weighted average |
|--------|--------------------------------------|

|   | number of shares outstanding | 54,845,406 | 28,296,428 |
|--------|------------------------------|------------|------------|

 

|   | Loss per share | $ | (0.38) | $ | (0.24) |
|--------|----------------|---|--------|---|--------|

 

 

F-17

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 1        — Organization and Summary of Significant Accounting Policies        (continued)

Use of        Estimates in the Preparation of Financial Statements

The        preparation of financial statements in conformity with generally accepted accounting        principles requires management to make estimates and assumptions that affect the reported        amounts of assets and liabilities and disclosure of contingent assets and liabilities at        the date of the financial statements and the reported amounts of revenues and expenses        during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain        amounts in the 2006 financial statements may have been reclassified to conform to the 2007        presentation.

Note 2        — Going Concern

As of        December 31, 2007, the Company’s revenue generating activities have not generated        sufficient funds for profitable operations, and the Company has incurred losses of        $38,118,959 since inception. These factors raise substantial doubt about the        Company’s ability to continue as a going concern.

We        anticipate that additional funding will be required in the next twelve months and that it        will be in the form of equity financing from the sale of our common stock. However, we do        not have any financing arranged and we cannot provide investors with firm assurance that we        will be able to raise sufficient funding from the sale of our common stock to fund our plan        of operations

Note 3        — Property and Equipment

Drilling        and service rigs and equipment are recorded at cost and are depreciated over their        estimated useful lives of ten years using the straight-line method. Office furniture and        equipment and automotive equipment are recorded at cost and depreciated over their        estimated useful lives of five to ten years using the straight-line method.

Upon sale        or retirement of property and equipment the cost and related accumulated depreciation of        the asset are removed from the Company's accounts and gain or loss is        recognized.

Expenditures for repair and maintenance are charged to expense as        incurred.

|   | 2007 | 2006   |
|--------|------|-------------|

|   | Drilling Rigs and Equipment | 15,441 | 3,740 |
|--------|-----------------------------|--------|-------|

|   | Drilling rigs and equipment | - | 27,495 |
|--------|-----------------------------|---|--------|

|   | Vehicles | - | 27,495 |
|--------|----------|---|--------|

|   | Office furniture and Equipment | - | 12,659 |
|--------|--------------------------------|---|--------|

|   | Less accumulated depreciation | - | (9,785) |
|--------|-------------------------------|---|---------|

|   | Equipment, net | $ | - | $ 45,810 |
|--------|----------------|---|---|----------|

 

 

 

F-18

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 3        — Property and Equipment (continued)

Depreciation expense for the years ended December 31, 2007 and 2006 was        $9,911 and $9,544 respectively. In the year ended December 31, 2007, the Company recorded a        loss on disposal of equipment in the amount of $35,899.

Note 4        – Short-term Note Payable 

|   | Note Payable - Global Convertible Megatrend LTD,                        unsecured, principal payable in full on February 23, 2008, interest at 10%                        payable at the end of each fiscal quarter, interest convertible to common                        shares at $0.35 per share. |  

                         

$500,000 |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                  |                                             |

For the        year ended December 31, 2007, the Company recorded $42,603 as interest and financing        expense relating to a short-term note payable. Accrued interest as at December 31, 2007 for        the outstanding short-term note payable totaled $42,603.

Note 5        – Short-term Convertible Promissory Notes

In 2007,        the Company issued a secured convertible promissory note with a total face value of        $1,000,000 in exchange for a cash advance of the same amount. The principal and interest        are due in full on the maturity date of the note. The notes are secured by:

|   | 1. | All seismic data obtained in connection with the 3D Seismic                        Project Proposal and Agreement dated March 27, 2007 between the Company and                        TRNCO Petroleum Corporation which seismic data may not be shared with any                        third party without the express written consent of the holder of the                        note. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Any and all proceeds arising from or attributable to the                        assets. |
|--------|----|-----------------------------------------------------------------------------------------|

At the sole        discretion of the holder, the principal and accrued interest on the note may be converted        into shares of the Company’s common stock. The promissory notes bear interest at 10%        per annum. The principal and interest on the notes can be converted into shares of common        stock at a conversion price of $0.15. The terms of the note are outlined in the following        table.

|   | Convertible Promissory Note Payable – Miller Energy                        LLC, secured, payable in full on April 29, 2008, including interest at 10%,                        convertible at $0.15 per common share. |  

                         

$ 1,000,000 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------|
|   | Total Principal of Convertible Promissory Note                                                                                                                                                                             | $ 1,000,000                                         |
|   | Less: unamortized note discount                                                                                                                                                                                            | ($ 219,179)                                         |
|   | Net book value                                                                                                                                                                                                             | $ 780,821                                           |
|   |                                                                                                                                                                                                                       |                                                |

For the        year ended December 31, 2007, the Company recorded $67,123 as interest and financing        expense relating to short-term convertible promissory notes. Accrued interest as at        December 31, 2007 for the outstanding short-term convertible promissory notes totaled        $67,123.

 

F-19

 

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 5        – Short-term Convertible Promissory Notes (continued)

The fair        value of the conversion option on the short-term promissory note of $666,667 as calculated        using the intrinsic value method was recorded as a discount on the face value of the note.        This amount will be amortized using the straight-line method over the term of the note. In        2007, the Company recorded $447,489 as interest expense due to amortization of the        discount.

Note 6        – Long-term Convertible Promissory Notes

In 2007,        the Company issued secured seven convertible promissory notes with a total face value of        $4,000,000 in exchange for a cash advance of the same amount. The principal and interest        are due in full three years after the issue date of the notes. The notes are secured        by:

|   | 1. | All seismic data obtained in connection with the 3D Seismic                        Project Proposal and Agreement dated March 27, 2007 between the Company and                        TRNCO Petroleum Corporation which seismic data may not be shared with any                        third party without the express written consent of the holder of the                        note. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Any and all proceeds arising from or attributable to the                        assets. |
|--------|----|-----------------------------------------------------------------------------------------|

At the sole        discretion of the holder, the principal and accrued interest on the note may be converted        into shares of the Company’s common stock. The promissory notes bear interest at 10%        per annum. The principal and interest on notes with a total face value of $3,000,000 can be        converted into shares of common stock at a conversion price of $0.08. The principal and        interest on the remaining note with a face value of $1,000,000 can be converted into shares        of common stock at a conversion price of $0.15. The terms of the note are outlined in the        following table.

|   | Convertible Promissory Note Payable – Global                        Project Finance AG, secured, payable in full on May 31, 2010, including                        interest at 10%, convertible at $0.15 per common share.                                     |  

$ 1,000,000                                 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------|
|   | Convertible Promissory Note Payable – Global                        Convertible Megatrend Ltd., secured, payable in full on August 8, 2010,                        including interest at 10%, convertible at $0.08 per common                        share.    |  

                         

$ 1,400,000 |
|   | Convertible Promissory Note Payable – Golden Beach                        Company Ltd., secured, payable in full on August 8, 2010, including                        interest at 10%, convertible at $0.08 per common share.                                   |  

                         

$ 100,000   |
|   | Convertible Promissory Note Payable – CR                        Innovations AG, secured, payable in full on August 8, 2010, including                        interest at 10%, convertible at $0.08 per common share.                                           |  

$ 600,000                                   |
|   | Convertible Promissory Note Payable – Global                        Project Finance AG, secured, payable in full on August 8, 2010, including                        interest at 10%, convertible at $0.08 per common share.                                   |  

$ 400,000                                   |
|   | Convertible Promissory Note Payable – Global                        Undervalued Investment Ltd., secured, payable in full on August 15, 2010,                        including interest at 10%, convertible at $0.08 per common                        share.  |  

                         

$ 250,000   |
|   | Convertible Promissory Note Payable – FE Global                        Leveraged Investment Ltd., secured, payable in full on August 15, 2010,                        including interest at 10%, convertible at $0.08 per common                        share. |  

                         

$ 250,000   |
|   |                                                                                                                                                                                                                                                                 |                                                |
|   | Total Principal Long-Term Convertible Promissory Notes                        Payable                                                                                                                                                                                | $ 4,000,000                                         |
|   |                                                                                                                                                                                                                                                                 |                                                |
|   | Less: unamortized discount                                                                                                                                                                                                                                           | ($ 2,924,305)                                       |
|   |                                                                                                                                                                                                                                                                 |                                                |

 

 

F-20

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

 

|   | Net book value | $ 1,075,695 |
|--------|----------------|-------------|

Note 6        – Long-term Convertible Promissory Notes (continued)

For the        year ended December 31, 2007, the Company recorded $176,849 as interest and financing        expense relating to long-term convertible promissory notes. Accrued interest as at December        31, 2007 for the outstanding long-term convertible promissory notes totaled        $176,849.

The fair        value of the conversion option on the long-term promissory notes of $3,425,000 as        calculated using the intrinsic value method was recorded as a discount on the face value of        the notes. This amount will be amortized using the straight-line method over the term of        the notes. In 2007, the Company recorded $500,696 as interest expense due to amortization        of the discount.

Note 7        – Long-term Notes Payable

 

|   | Note Payable - FAGEB AG, secured by drilling equipment,                        payable in quarterly installments of $25,119 through July 31, 2008,                        including interest at 12%.                                                 |  

                         

$156,515                                |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|
|   | Note Payable - Global                        Convertible Megatrend LTD., secured by drilling equipment, payable in                        quarterly installments of $50,238 through July 31, 2008, including interest                        at 12%. |  

                         

                         

352,608 |
|   | Note Payable - FAGEB AG, secured by drilling equipment,                        payable in quarterly installments of $37,722 through September 25, 2008,                        including interest at 12%.                                            |  

                         

264,802                                 |
|   | Note Payable – Bluemont Investment Ltd, payable in                        full by August 8, 2010, including interest at 10%.                                                                                                                   |  

                         

200,000                                 |
|   | Total                                                                                                                                                                                                                                                | 973,925                                                                         |
|   | Less current portion                                                                                                                                                                                                                                 | 773,925                                                                         |
|   |                                                                                                                                                                                                                                                 |                                                                            |
|   | Long-Term Notes Payable                                                                                                                                                                                                                              | $ 200,000                                                                       |

 

For the        year ended December 31, 2007, the Company recorded $99,775 as interest and financing        expense relating to long-term notes payable. Accrued interest as at December 31, 2007 for        the outstanding long-term notes payable totaled $128,670.

Note 8        – Convertible Debentures

Two        convertible debentures were issued during 2002 (May 3, 2002-$75,000 and May 6,        2002-$250,000), bearing interest at 7.5% per annum, which mature in three years. The        convertible debentures become immediately due and payable upon certain events of default        unless waived by the lender. Interest on the principal amount was due annually on the        anniversary date of the issue date. The conversion feature allowed the holder at any time        to convert any unpaid amount of principal or interest at $5.00 per share for a period of        three years from the date of issuance. Pursuant to the terms of the convertible debenture,        the

 

F-21

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Company        agrees to file a Registration Statement within 60 days of conversion with the U.S.        Securities and Exchange Commission. On January 14, 2004, the conversion price of the two        debentures was adjusted to $0.10 per share.

Note 8        – Convertible Debentures (continued)

The        convertible debentures are secured by substantially all of the Company’s assets        consisting of all tangible and intangible property.

The terms        for these two convertible debentures were extended to May 3, 2008 and May 6, 2010,        respectively pursuant to the terms of extension agreements dated March 31, 2005. The        extension agreements require certain additional conditions related to the Company’s        obligations as follows:

1. The interest payable on the convertible debentures, as of May 4, 2005,        accrues at a rate of ten percent (10%) per annum payable on a quarterly basis with the        initial quarterly interest payments due on September 30, 2005 and at the end of each        quarter thereafter until repayment or conversion.

2. The right to convert the whole part or any part of the principal amounts        and accrued interest into shares of the Company extends until May 3, 2008 and May 6, 2010        respectively.

3. Upon conversion or repayment of the principal amounts and accrued        interest, the holders of the convertible debentures are entitled to a ten percent (10%)        bonus on the amount due as of such date. The market value of this bonus on the date of the        extension was recorded as financing expense of $32,500.

On October        3, 2005 the Company reached an agreement with the beneficiaries of these two outstanding        debentures for payment of interest accrued to September 30, 2005. The Company issued        136,298 shares of common stock to Global Convertible Megatrend Ltd. for $13,629 owed, and        56,250 shares of common stock to Max Fugman for $5,625 owed.

On April        11, 2006, the principal amount of the $75,000 debenture to Max Fugman and $3,863 of accrued        interest were converted into shares of common stock at $0.10 per share. After applying the        10% bonus, the Company issued 867,493 shares of common stock to extinguish $86,749 of debt        consisting of $75,000 of principal repayment and $11,749 in accrued interest. The Company        recorded interest expense of $954,243 to reflect the value of the shares issued upon        conversion in excess of the book amounts.

On June 15,        2006, the interest accrued on the $250,000 debenture to Global Convertible Megatrend Ltd.        was converted into shares of common stock at $0.10 per share. The Company issued 167,810        shares for $16,781 of interest owed. The Company recorded interest expense of $192,982 to        reflect the value of the shares issued upon conversion of the book amount.

On December        31, 2006, the interest accrued on the $250,000 debenture to Global Convertible Megatrend        Ltd. was converted into shares of common stock at $0.10 per share. The Company issued        145,200 shares for $14,520 of interest owed. The Company recorded interest expense of        $65,340 to reflect the value of the shares issued upon conversion of the book        amount.

On June 13,        2007, the principal amount of the $250,000 debenture to Global Convertible Megatrend Ltd.        and $12,357 of accrued interest were converted into shares of common stock at $0.10 per        share. After applying the 10% bonus, the Company issued 2,873,563 shares of        common stock to extinguish $287,356 of debt consisting of $250,000 of principal repayment        and $37,356 in accrued interest and bonus. The Company recorded compensation expense of        $139,944 to reflect the value of the shares issued upon conversion in excess of the debt        and interest amounts.

 

 

F-22

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 8        – Convertible Debentures (continued)

On November        28, 2005, the Company issued seven convertible debenture certificates for the total        principal sum of $3,320,000 due in full with accrued and unpaid interest on November 30,        2010. The interest at a rate of 7.0% per annum is payable on a semi-annual basis with the        initial payment due on June 1, 2006. The holders of the debentures has the right to convert        all or part of the principal and accrued interest into common shares of the Company at        $0.35 per share at any time prior to maturity.

On August        24, 2006, the interest accrued on the seven debentures was partially converted into shares        of common stock at $0.35 per share. The Company issued 263,563 shares for $92,247 of        interest owed. The Company recorded an additional interest expense of $144,960 to reflect        the value of the shares issued upon conversion of the book amount.

On December        1, 2006, the interest accrued on the seven debentures was partially converted into shares        of common stock at $0.35 per share. The Company issued 260,712 shares for $91,249 of        interest owed. The Company recorded an additional interest expense of $52,142 to reflect        the value of the shares issued upon conversion of the book amount.

On December        1, 2007, the interest accrued on the seven debentures was partially converted into shares        of common stock at between $0.08 and $0.35 per share. The Company issued 994,516 shares for        $178,214 of interest owed.

For the        year ended December 31, 2007, the Company recorded $232,399 as interest and financing        expense relating to convertible debentures. Accrued interest as at December 31, 2007 for        all outstanding debentures totaled $124,101.

The total        value of the principal of the short-term note payable, the short-term convertible        promissory note, the seven convertible debentures, the seven long-term convertible        promissory notes and the four long-term notes payable outstanding as of December 31, 2007        was $9,793,925. Repayment of this principle is due according to the following        schedule:

|                                    | 2008      | 2009 | 2010      | 2011 | 2012 |
|-----------------------------------------|-----------|------|-----------|------|------|
| Short term note payable                 | 500,000   | -    | -         | -    | -    |
| Short-term convertible promissory notes | 1,000,000 | -    | -         | -    | -    |
| Convertible debentures                  | -         | -    | 3,320,000 | -    | -    |
| Long-term convertible promissory notes  | -         | -    | 4,000,000 | -    | -    |
| Long-term notes payable                 | 773,925   | -    | 200,000   | -    | -    |
|  

Total                           | 2,273,925 | -    | 7,520,000 | -    | -    |

 

 

F-23

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 9        — Related Party Transactions

The Company        has entered into an agreement with Markus Mueller, a director of the Company for consulting        services. The agreement has an automatic renewal provision unless terminated by either        party. During the years ended December 31, 2007 and 2006, the Company recognized consulting        expense of $90,000 and $64,500 respectively. In 2007, the Company also recognized        compensation expense of $22,500 which relates to shares issued to convert an outstanding        balance due to Mr. Mueller. In 2007, the Company issued 750,000 shares for $112,500 of        consulting fees owed to Mr. Mueller. The Company recorded compensation expense of $22,500        to reflect the value of the shares issued upon conversion of the book amount. The balance        of $52,500 was due to Mr. Mueller at December 31, 2007.

The Company        has entered into an agreement with Nora Coccaro, a director of the Company for consulting        services. The agreement has an automatic renewal provision unless terminated by either        party. During the years ended December 31, 2007 and 2006, the Company recognized consulting        expense of $109,500 and $406,500 respectively. Of the 2007 charge, $16,000 relates to the        deemed value of 100,000 shares of common stock issued to Ms. Coccaro. Of the 2006 charge,        $360,000 relates to the deemed value of 300,000 shares of common stock. The balance of        $8,000 was due to Ms. Coccaro at December 31, 2007.

The Company        has entered into an agreement with Gil Burciaga, a director of the Company for consulting        services. During the years ended December 31, 2007 and 2006, the Company recognized        consulting expense of $75,000 and $Nil respectively. The balance of $75,000 was due to Mr.        Burciaga at December 31, 2007.

Note 10        — Stockholders’ Equity Transactions

During the        year ended December 31, 2007, the Company issued 1,450,000 shares of common stock valued at        $285,000 for consulting and legal services. The Company recorded additional compensation        expense of $22,500 to reflect the value of the shares issued upon conversion in excess of        the debt and interest amounts.

During the        year ended December 31, 2007, the principal amount of a $250,000 convertible debenture to        Global Convertible Megatrend Ltd. and $12,357 of accrued interest were converted into        shares of common stock at $0.10 per share. After applying a 10% bonus, the Company issued        2,873,563 shares of common stock to extinguish $287,356 of debt consisting of $250,000 of        principal repayment and $37,356 in accrued interest and bonus. The Company recorded        compensation expense of $139,944 to reflect the value of the shares issued upon conversion        in excess of the debt and interest amounts.

During the        year ended December 31, 2007, the Company issued 994,516 shares of common stock to        extinguish $178,214 in accrued interest on convertible debentures.

During year        ended December 31, 2007, the Company issued 1,987,500 shares of common stock for total        proceeds of $236,700.

During the        year ended December 31, 2007, the Company recorded $4,091,667 of discount on promissory        notes to value their conversion option as calculated using the intrinsic value        method.

 

F-24

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 10        — Stockholders’ Equity Transactions (continued)

On July 25,        2006, the Company issued 1,336,992 units in an equity financing for a total of $8,021,952.        Each $6.00 unit comprised of 10 shares of common stock and 5 share purchase warrants, which        warrants are exercisable at $1.00 for a period of three years from the date of grant. A        total of 13,369,920 shares of common stock were issued and 6,684,960 warrants were issued.        The Company recorded $3,409,330 as a financing cost related to the issuance of the        warrants. As finder’s fees, the Company paid $225,096 in cash and issued 234,690        warrants exercisable at $0.72 for a period of three years from the date of grant. The        Company recorded $122,743 as a finder’s fee expense related to the issuance of these        warrants.

On        September 29, 2006, the Company issued 16,500,000 shares of common stock valued at        $13,200,000 pursuant to the acquisition of Providence Exploration. In connection with the        acquisition, the Company issued a further 3,500,000 shares of common stock valued at        $2,800,000 as payment of the outstanding balance for oil and gas leases in Val Verde        County.

The Company        acquired the following fixed assets upon acquisition:

|  

Drilling rig inventory   | $ 724,515    |
|----------------------------------|--------------|
| Property and equipment           | 47,979       |
| Oil and gas leases - undeveloped | 23,807,018   |
|                             | $ 24,579,512 |

During the        year ended December 31, 2006, the Company issued 2,004,778 shares of common stock valued at        $2,071,214 for debt.

Note 11        — Minority Interest

Minority        interest relates to the 10% interest in County Pipeline, LLC that is not held by the        Company. This subsidiary was formed in October of 2006 with the purpose of constructing an        oil and gas pipeline in Comanche County, Texas.

Note 12        — Preferred Stock

The        Company’s preferred stock may have such rights, preferences and designations and may        be issued in such series as determined by the Board of Directors. No shares were issued and        outstanding at December 31, 2007.

Note 13        — Warrants 

During        2005, in connection with the offering of 6,270,000 shares common stock and $3,320,000 of        convertible debentures during the year, a sales commission was partially paid in warrants.        The warrants are exercisable in whole or in part allowing the holders to purchase 348,000        shares at an exercise price of $0.30 before the expiry date of December 1, 2010. On the        date granted, the fair market value of these warrants, totaling $191,400, consisted of        $68,970 for warrants issued in connection with the common stock offering, and $122,430 for        warrants issued in connection with the debenture offering. The value of the warrants issued        in connection with the debenture offering was recorded as a financing expense.

 

F-25

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 13        — Warrants (Continued)

As part of        the equity financing completed in July 2006, the Company issued 6,684,960 warrants        exercisable until July 25, 2009 at $1.00 per share. The Company recorded $3,409,330 as a        financing expense related to the issuance of these warrants based on their value as        calculated using the Black-Scholes model.

The        following assumptions were used for the Black-Scholes valuation of the warrants granted in        2006:

|   | Risk-free interest rate | 4.50% |
|--------|-------------------------|-------|

|   | Expected life of options | 3.0 years |
|--------|--------------------------|-----------|

|   | Annualized volatility | 177% |
|--------|-----------------------|------|

|   | Dividend rate | 0.00% |
|--------|---------------|-------|

         

Transactions involving the Company’s warrant issuance are summarized        as follows:

         

|        |                           | Warrants Outstanding |                           |                    |                           |                                   | Warrants Exercisable           |
|-------------|--------------------------------|----------------------|--------------------------------|-------------------------|--------------------------------|----------------------------------------|--------------------------------|
| Year Issued |       | ExercisePrice        |       | NumberSharesOutstanding |       | WeightedAverageContractualLife (Years) |       | NumberExercisable |       | WeightedAverageExercisePrice |   |
| 2005        |                           | $                    | 0.30                           |                    |                           | 348,000                                |                           |   | 3.00 |   |   | 348,000 |   | $ | 0.30 |   |
| 2006        |                           | $                    | 1.00                           |                    |                           | 6,684,960                              |                           |   | 1.50 |   |   | 6,684,960 |   | $ | 1.00 |   |
| 2006        |                           | $                    | 0.72                           |                    |                           | 234,690                                |                           |   | 1.50 |   |   | 234,690 |   | $ | 0.72 |   |

         

|                                                                          |   | Number ofShares |      | WeightedAverageExercise Price |   |
|-------------------------------------------------------------------------------|--------|-----------------|-----------|-------------------------------|--------|
|                                                                          |   |            |      |                          |   |   |   |
| Outstanding at December 31, 2004                                              |   |            | —   |                          | $      | — |   |
|                                                                          |   |            |      |                          |   |   |   |
| Granted                                                                       |   |            | 348,000   |                          | $      | .30 |   |
| Exercised                                                                     |   |            | —   |                          | $      | — |   |
| Cancelled                                                                     |   |            | (—  | )                             | $      | (— | ) |
| Outstanding at December 31, 2005                                              |   |            | 348,000   |                          | $      | .30 |   |
|                                                                          |   |            |      |                          |   |   |   |
| Granted                                                                       |   |            | 6,919,650 |                          | $      | .99 |   |
| Exercised                                                                     |   |            | —   |                          | $      | — |   |
| Cancelled                                                                     |   |            |      |                          | $      |   |   |
| Outstanding at December 31, 2006 and December 31,                        2007 |   |            | 7,267,650 |                          | $      | .96 |   |

 

 

F-26

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 14        — Acquisition of Providence Exploration

On        September 29, 2006, the Company entered into a share purchase agreement pursuant to which        the Company acquired 100% control over Providence Exploration through the acquisition of        all of its outstanding member shares.

The        purchase price of the transaction required the Company to issue 20,000,000 common shares        with a deemed value of $16,000,000. The shares were used to eliminate $3,571,311 of debt        held by Providence Exploration. Prior to the transaction, Providence Exploration had a net        assets deficit of $1,961,149 which included $73,721 in cash. The excess of the deemed value        of the shares and fair value of the assets acquired amounted to $14,389,838 which was        allocated to the value of undeveloped oil and gas leases held by Providence Exploration at        the time of the acquisition. At the time of the acquisition, there was an intercompany        account balance of $9,189,364 for principal and interest of cash advances made by the        Company to Providence Exploration prior to the acquisition.

Note 15        - Agreements

In October        2005, the Company signed a joint exploration agreement with Harding Company. Under the        terms of the agreement, the Company and Harding Company intend to explore, develop and        produce oil and gas from Marble Falls and Barnett Shale formations in targeted areas of the        Ft. Worth basin. Harding Company is appointed as operator.

 

The Company        is required pursuant to the agreement to fund 100% of all costs of the management and        operation for a minimum of 3 wells. The Company will carry Harding for its 10% working        interest in all wells drilled and completed through the pipeline connection phase, in the        project.

 

Effective        February 22, 2006, the Company entered into an agreement to purchase oil and gas leases in        Val Verde County, Texas. The purchase price was $3,849,600, consisting of $1,924,800 in        cash and a $1,924,800 note payable. In March 2006, Harding Company paid the Company        $192,480 related to the purchase. In connection with the acquisition of Providence        Exploration, the Company issued 3,500,000 shares of common stock valued at $2,800,000 as        payment of the outstanding balance for the oil and gas leases in Val Verde        County.

 

In early        2007, the Company engaged TRNCO Petroleum Corporation of Midland, Texas to implement an I/O        System Two recording system in combination with the latest generation of state-of-the-art        acquisition and processing parameters to obtain high quality 3D seismic data for those        leases located in Val Verde County. The data is intended to illuminate deep gas targets at        depths ranging from 14,000 to 16,000 feet within the identified carbonates. TRNCO will        supervise the acquisition, processing, licensing and interpretation of all seismic data and        has engaged Dawson Geophysical Company to be responsible for obtaining the actual 3D        seismic data. Founded in 1952, Dawson is a leading provider of onshore seismic data        acquisition and processing services that operates two state-of-the-industry data processing        centers in Houston and Midland, Texas, staffed by experienced geophysicists. The processing        professionals use the latest kits of powerful processing tools and back their analytical        excellence with practical geophysical field experience in correlating complex producing        horizons. Dawson’s prior experience in the Val Verde Basin is expected to be of        considerable benefit to Providence in acquiring reliable 3D seismic data.

 

 

F-27

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 16        – Commitments and Contingencies

The        contract commitment cost for the agreement with TRNCO Petroleum Corporation (see Note 15)        was $4,553,787, payable in installments on or before August 1, 2007. The Company had paid        $5,000,000 to TRNCO by December 31, 2007 to cover project overruns of which all but $34,168        was used by the contractor by December 31, 2007.

 

The royalty        on the Company’s Val Verde property is 25% of net revenue. In addition, the Company        must make annual installments for property leases in the amounts of $2,858 on February 24        and $320 April 13.

Note 17        — Fair Value of Financial Instruments

The        Company’s financial instruments consist of cash, accounts receivable, accounts        payable and notes payable. The carrying amount of these items approximates fair value        because of their short-term nature and the notes payable bear interest at the market        interest rate.

Note 18        — Stock Based Compensation

The Company        has adopted the disclosure provisions of Statement of Financial Accounting Standards (SFAS)        No. 123 (R), “Share Based Payment” as described in Note 1. No stock options        were granted in 2007 and 2006. No stock options were outstanding at December 31,        2007.

Note 19        — Reverse Common Stock Split 

Effective        August 25, 2003, the Company approved a 1-for-20 reverse common stock split. All common        share amounts, common stock option amounts and per share information have been        retroactively adjusted to reflect this common stock split in the accompanying financial        statements.

Note 20        — Recent Accounting Pronouncements 

In February        2006 the Financial Accounting Standards Board (FASB) issued Statement of Financial        Standards No. 155 Accounting for Certain Hybrid Financial Instruments — an        amendment of FASB Statements No. 133 and 140 (SFAS 155). This standard permits        fair value remeasurement for any hybrid financial instrument that contains an embedded        derivative that otherwise would require bifurcation. SFAS 155 allows an entity to make        an irrevocable election to measure such a hybrid financial instrument at fair value on an        instrument-by-instrument basis. The standard eliminates the prohibition on a QSPE from        holding a derivative financial instrument that pertains to a beneficial interest other than        another derivative financial instrument. SFAS 155 also clarifies which interest-only        and principal-only strips are not subject to the requirements of SFAS 133, as well as        determines that concentrations of credit risk in the form of subordination are not embedded        derivatives. SFAS 155 is effective for all financial instruments acquired or issued        after the beginning of the fiscal year that begins after September 15, 2006. Adoption        of SFAS 155 is not expected to have a material impact on our consolidated financial        position or results of operations.

 

 

F-28

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 20        — Recent Accounting Pronouncements (continued) 

In        July 2006, the Financial Accounting Standards Board (“FASB”) issued        Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in        Income Taxes,” which clarifies the accounting for uncertainty in income taxes        recognized in the financial statements in accordance with FASB Statement No. 109,        “Accounting for Income Taxes.” FIN 48 provides guidance on the financial        statement recognition and measurement of a tax position taken or expected to be taken in a        tax return. FIN 48 also provides guidance on derecognition, classification, interest and        penalties, accounting in interim periods, disclosures, and transition. FIN 48 becomes        effective beginning with our first quarter 2007 fiscal period. We are currently evaluating        the impact of this standard on our Consolidated Financial Statements.

In        September 2006, the FASB issued FASB Statement of Financial Accounting Standards        (“SFAS”) No. 157, Fair Value Measurements, which establishes a framework        for reporting fair value and expands disclosures about fair value measurements. SFAS        No. 157 becomes effective beginning with our first quarter 2008 fiscal period. We are        currently evaluating the impact of this standard on our Consolidated Financial        Statements.

In        September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for        Defined Benefit Pension and Other Postretirement Plans. Effective for our fiscal year        ending 2006, we will be required to fully recognize the assets and obligations associated        with our defined benefit plans. Effective for fiscal year ending 2008, we will be required        to measure a plan’s assets and liabilities as of the end of the fiscal year instead        of our current measurement date of September 30. We are currently evaluating the impact of        this standard on our Consolidated Financial Statements.

In February        2007, the FASB issued SFAS No. 159, The Fair Value option for Financial Assets and        Financials Liabilities – Including an Amendment of FASB No. 115. This statements        objective is to improve financial reporting by providing the Company with the opportunity        to mitigate volatility in reported earnings caused by measuring related assets and        liabilities differently without having to apply complex hedge accounting provisions. This        statement is expected to expand the use of fair value measurement, which is consistent with        the FASB’s long-term measurement objective for accounting for financial instruments.        The adoption of SFAS 159 did not have an impact on the Company’s financial        statements. The Company presently comments on significant accounting policies (including        fair value of financial instruments) in Note 2 to the financial statements.

In December        2007, the FASB issued SFAS No. 160, Non-controlling interests in Consolidated Financial        Statements – An amendment of ARB No. 51. This statements objective is to improve the        relevance, comparability, and transparency of the financial information that a reporting        entity provides in its consolidated financial statements by establishing accounting and        reporting standards that require ownership interests in the subsidiaries held by parties        other than the parent be clearly identified. The adoption of SFAS 160 did not have an        impact on the Company’s financial statements.

In December        2007, the FASB issued SFAS No. 141 (revised), Business Combinations. This revision        statements objective is to improve the relevance, representational faithfulness, and        comparability of the information that a reporting entity provides in its effects on        recognizing identifiable assets and measuring goodwill. The adoption of SFAS 141 (revised)        did not have an impact on the Company’s financial statements.

 

F-29

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

Note 21        — Subsequent Events

On February        29, 2008, the Company amended the terms of the $500,000 note payable to Global Convertible        Megatrend Ltd. The amendment changed the maturity date to February 23, 2010 and conversion        price for accrued interest to $0.08 per common share.

On February 29, 2008, the Company amended the terms of the $1,000,000        convertible promissory note payable to Miller Energy LLC. The amendment changed the        maturity date to April 29, 2010 and conversion price for principal and accrued interest to        $0.08 per common share.

On February        29, 2008, the Company amended the terms of the $1,000,000 convertible promissory note        payable to Global Project Finance AG. The amendment changed conversion price for principal        and accrued interest to $0.08 per common share.

On March 4,        2008, the Company issued a convertible promissory note to FAGEB AG in the amount of        $496,174 with a maturity date of March 4, 2010. The convertible promissory note bears        interest at 12% per annum. The principal and interest on the note can be converted into        shares of common stock at a conversion price of $0.08. This note was issued in exchange for        the full release and discharge of two promissory notes due to FAGEB AG for the same        amount.

On March 4,        2008, the Company issued a convertible promissory note to Global Convertible Megatrend Ltd.        in the amount of $423,188 with a maturity date of March 4, 2010. The convertible promissory        note bears interest at 12% per annum. The principal and interest on the note can be        converted into shares of common stock at a conversion price of $0.08. This note was issued        in exchange for the full release and discharge of a promissory note due to Global        Convertible Megatrend Ltd. for the same amount.

 

 

End of        Notes to Financial Statements

 

F-30

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

**Supplemental Oil and Gas Information – FAS69**

 

The        following unaudited disclosures on standardized measures of discounted cash flows and        changes therein relating to proved oil and gas reserves are determined in accordance with        United States Statements of Financial Accounting Standards No. 69 “Disclosures About        Oil and Gas Producing Activities”.

 

*Standardized Measure of Discounted Future Net Cash Flows and Changes        Therein*

 

In        calculating the standardized measure of discounted future net cash flows, year-end constant        prices and cost assumptions were applied to the Company’s annual future production        from proved reserves to determine cash inflows. Future production and development costs are        based on constant price assumptions and assume the continuation of existing economic,        operating and regulatory conditions. Future income taxes are calculated by applying        statutory income tax rates to future pre-tax cash flows after provision for the tax cost of        oil and natural gas properties based upon existing laws and regulations. The discount was        computed by application of a 10 percent discount factor to the future net cash flows. The        calculation of the standardized measure of discounted future net cash flows is based upon        discounted future net cash flows prepared by the Company’s independent qualified        reserve evaluators in relation to the reserves they respectively evaluated, and adjusted by        the Company to account for management’s estimate obligations and future income taxes.        The Company cautions that the discounted future net cash flows relating to proved oil and        gas reserves are an indication of neither the fair market value of the Company’s oil        and gas properties, nor of the future net cash flows expected to be generated from such        properties. The discounted future net cash flows do not include the fair market value of        exploratory properties and probable or possible oil and gas reserves, nor is consideration        given to the effect of anticipated future changes in crude oil and natural gas prices,        development, asset retirement and production costs, and possible changes to tax and royalty        regulations. The prescribed discount rate of 10 percent may not appropriately reflect        future interest rates. The Company’s projections should not be interpreted as being        equivalent to fair market value.

 

| **Net Proved Reserves***(1,                        2)* |
|--------------------------------------------------------|

 

|                                     | **Natural Gas**

**(*****millions of cubic                        feet)*** |   | **Crude Oil and Natural Gas Liquids**

**(*****thousands of                        barrels)*** |
|------------------------------------------|----------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|
| December 31, 2005                        | -                                                                          |   | -                                                                                              |
| Purchase of reserves in place            | -                                                                          |   | -                                                                                              |
| Production                               | -                                                                          |   | -                                                                                              |
| Adjustment for uneconomic wells          | -                                                                          |   | -                                                                                              |
| December 31, 2006 and

December 31, 2007 | -                                                                          |   | -                                                                                              |
|                                     |                                                                       |   |                                                                                           |
| Developed                                | -                                                                          |   | -                                                                                              |
| Undeveloped                              | -                                                                          |   | -                                                                                              |
| Total                                    | -                                                                          |   | -                                                                                              |

 

 

 

F-31

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

**Supplemental Oil and Gas Information – FAS69        (continued)**

 

|   | *(1)* | *Definitions:* |
|--------|-------|----------------|

         

|   | *a.* | *“Net*” reserves are                        the remaining reserves of the Company, after deduction of estimated                        royalties and including royalty interests. |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | *b.* | *“Proved oil and gas reserves.”*Proved oil and gas reserves are the estimated quantities of                        crude oil, natural gas, and natural gas liquids which geological and                        engineering data demonstrate with reasonable certainty to be recoverable in                        future years from known reservoirs under existing economic and operating                        conditions, i.e. prices and costs as of the date the estimate is made.                        Prices include consideration of changes in existing prices provided only by                        contractual arrangements, but not on escalations based upon future                        conditions. |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Reservoirs are considered proved if economic product ability is supported by        either actual production or conclusive formation test. The area of a reservoir considered        proved includes that portion delineated by drilling and defined by gas-oil and /or        oil-water contacts, if any; and the immediately adjoining portions not yet drilled, but        which can be reasonably judged as economically productive on the basis of available        geological and engineering data. In the absence of information on fluid contacts, the        lowest known structural occurrence of hydrocarbons controls the lower proved limit of the        reservoir.

         

|   | i. | Reserves which can be produced economically through                        application of improved recovery techniques (such as fluid injection) are                        included in the “proved” classification when successful testing                        by a pilot project, or the operation of an installed program in the                        reservoir, provides support for the engineering analysis on which the                        project or program was based. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | ii. | Estimates of proved reserves do not include the                        following: |
|--------|-----|-----------------------------------------------------------------------------------|

         

Oil that may become available from known reservoirs but is classified        separately as “indicated additional reserves”;

         

Crude oil, natural gas, and natural gas liquids, the recovery of which is        subject to reasonable doubt because of uncertainty as to geology, reservoir        characteristics, or economic factors;

         

Crude oil, natural gas, and natural gas liquids, that may occur in undrilled        prospects; and

         

Crude oil, natural gas, and natural gas liquids, that may be recovered from        oil shales, coal, gilsonite and other such sources.

 

 

 

 

 

F-32

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

**Supplemental Oil and Gas Information – FAS69        (continued)**

 

|   | *c.* | *“Proved developed oil and gas                        reserves.”*Proved developed oil and gas                        reserves are reserves that can be expected to be recovered through existing                        wells with existing equipment and operating methods. Additional oil and gas                        expected to be obtained through the application of fluid injection or other                        improved recovery techniques for supplementing the natural forces and                        mechanisms of primary recovery should be included as “proved                        developed reserves” only after testing by a pilot project or after                        the operation of an installed program has confirmed through production                        response that increased recovery will be achieved. |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | *d.* | *“Proved undeveloped reserves.”*Proved undeveloped oil and gas reserves are reserves that                        are expected to be recovered from new wells on undrilled acreage, or from                        existing wells where a relatively major expenditure is required for                        recompletion. Reserves on undrilled acreage shall be limited to those                        drilling units offsetting productive unites that are reasonably certain of                        production when drilled. Proved reserves for other undrilled unites can be                        claimed only where it can be demonstrated with certainty that there is                        continuity of production from the existing productive formation. Under no                        circumstances should estimates, for proved undeveloped reserves be                        attributable to any acreage for which an application of fluid injection or                        other improved recovery technique is contemplated, unless such techniques                        have been proved effective by actual tests in the area and in the same                        reservoir. |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

*(2) The Company does not file any estimates of total net proved crude oil        or natural gas reserves with any U.S. federal authority or agency other than the        SEC.*

 

**Standardized Measure of Discounted Future Net Cash Flows Related to        Proved Oil and Gas Reserves**

 

The Company        has no proved reserves and no oil and gas production and therefore has not presented the        Standardized Measure of Discounted Future Net Cash Flows or operating results.

 

**Capitalized Costs**

 

| **December 31, 2007**           | **United States** |
|---------------------------------|-------------------|
| Proved oil and gas properties   | $ -               |
| Unproved oil and gas properties | 31,996,677        |
| Total capital costs             | 31,996,677        |
| Accumulated depletion           | (-)               |
| Net capitalized costs           | $ 31,996,677      |

 

 

 

 

 

F-33

 

----

 

PROVIDENCE RESOURCES, INC.

(A        Development Stage Company)

NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

**Supplemental Oil and Gas Information – FAS69        (continued)**

 

**Costs        Incurred**

|                              | **United States** |
|-----------------------------------|-------------------|
| **Years ended December 31, 2007** |              |
| Acquisitions:                     |              |
| Proved reserves                   | $ -               |
| Unproved reserves                 | -                 |
| Total acquisitions                | -                 |
| Exploration costs                 | 5,729,696         |
| Development costs                 | -                 |
| Asset retirement obligations      | -                 |
| Total costs incurred              | $ 5,729,696       |

 

 

F-34

 

----

 

 

 

| **ITEM 9.** | **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON                        ACCOUNTING AND FINANCIAL DISCLOSURE** |
|-------------|-----------------------------------------------------------------------------------------------------------------|

 

None.

 

| **ITEM 9A.** | **CONTROLS AND PROCEDURES (ITEM 9A (T))** |
|--------------|-------------------------------------------|

 

**Management's Annual Report on Internal Control over Financial        Reporting**

 

The        Company’s management, including our chief executive officer and chief financial        officer, is responsible for establishing and maintaining adequate internal control over our        financial reporting. Internal control over financial reporting is a process designed by, or        under the supervision of, our chief executive and chief financial officers and implemented        by our board of directors, management and other personnel, to provide reasonable assurance        regarding the reliability of financial reporting and the preparation of financial        statements for external purposes in accordance with generally accepted accounting        principles and includes those policies and procedures that: (i) pertain to the        maintenance of records that, in reasonable detail, accurately and fairly reflect the        transactions and dispositions of our assets; (ii) provide reasonable assurance that        transactions are recorded as necessary to permit preparation of financial statements in        accordance with generally accepted accounting principles, and that our receipts and        expenditures are being made only in accordance with authorizations of our management and        directors; and (iii) provide reasonable assurance regarding prevention or timely        detection of unauthorized acquisition, use or disposition of our assets that could have a        material effect on the financial statements. Because of their inherent limitations,        internal control over financial reporting may not prevent or detect misstatements. Also,        projections of any evaluation of effectiveness to future periods are subject to the risk        that controls may become inadequate because of changes in conditions, or that the degree of        compliance with the policies or procedures may deteriorate.

 

Under the        supervision and with the participation of our management, including our principal executive        officer and principal financial officer, we conducted an evaluation of the effectiveness of        our internal control over financial reporting based on the framework in*Internal Control* *— Integrated Framework*issued by the        Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation,        our management concluded that our internal control over financial reporting was effective        as of December 31, 2007.

 

This annual        report does not include an attestation report of our registered public accounting firm        regarding internal control over financial reporting. Management's report was not subject to        attestation by our registered public accounting firm pursuant to temporary rules of the        Commission that permit us to provide only the management’s report in this Form        10-K.

 

**Changes in Internal Controls over Financial Reporting**

 

During the        period ended December 31, 2007, there has been no change in internal control over financial        reporting that has materially affected, or is reasonably likely to materially affect our        internal control over financial reporting.

 

| **9B.** | **OTHER INFORMATION** |
|---------|-----------------------|

 

None.

 

 

23

 

----

 

**PART        III**

 

| **ITEM 10.** | **DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE                        GOVERNANCE** |
|--------------|------------------------------------------------------------------------------------|

 

**Officers and Directors**

 

The        following table sets forth the name, age and position of each director and executive        officer of the Company:

 

| ***Name***             | ***Age*** | ***Year***

***Elected/Appointed*** | ***Positions Held***               |
|------------------------|-----------|-------------------------------------|------------------------------------|
| Gilbert Burciaga       | 54        | 2007                                | CEO, CFO, PAO, and director        |
| Markus Mueller         | 49        | 2003                                | Chairman of the board of directors |
| Nora Coccaro           | 51        | 1999                                | Director                           |
| Christian Russenberger | 39        | 2008                                | Director                           |

 

***Gilbert Burciaga***was appointed as chief        executive officer, chief financial officer, principal accounting officer, and director on        July 2, 2007.

 

Mr. Burciaga is a director of Miller Energy, LLC, as well as the        chairman/chief executive officer of Miller’s recently created gas marketing company,        Vintage Gas Marketing, LLC. Mr. Burciaga has been involved in the natural gas supply and        marketing business for over 25 years in which time he was a founding member of Dynegy, Inc.        Mr. Burciaga served as one of six senior vice-presidents involved in the startup and        development of Dynegy, which became a Fortune 500 trading company. Between 1992 and 1997,        Mr. Burciaga was the president of NGC Energy Resources, a division of Dynegy. NGC Energy        Resources focused on the acquisition and operation of downstream assets.

 

The        appointment of Mr. Burciaga to the board of directors was included in the Agreement with        Miller. Mr. Burciaga is an affiliate of Miller, serving as a director of Miller and as a        director/chief executive officer of Miller’s subsidiary Vintage Gas Marketing. The        Agreement provides that both the Company and Miller waive any conflict of interest rights        that may arise as result of the relationships between the parties.

 

***Markus Mueller***was first appointed to        the Corporation’s board of directors on May 28, 2003.

 

Mr. Mueller        currently acts as a director of Scherrer & Partner Portfolio Management AG Zurich and        of First Equity Securities AG Zurich. He has held these positions since August of 2000.        Both companies are involved in asset management for private clients and manage investment        funds. Prior to Mr. Mueller’s current engagements, he acted as a director of        Jefferies (Switzerland) AG Zurich and as the managing director of Jefferies Management AG        Zug (Switzerland) from 1995 until 2000. The Jefferies companies are also involved in asset        management for private clients.

 

 

 

 

 

24

 

----

 

***Nora        Coccaro***was first appointed to the Company’s board of        directors on November 16, 1999.

 

Ms. Coccaro        attended medical school at the University of Uruguay before becoming involved in the        management of public entities. Ms. Coccaro serves with the following companies:

 

| **•** | an officer and director (November 2005 to present) of ASP                        Ventures, Inc., an OTC: BB quoted company without                        operations, |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | an officer and director (December 2005 to present) of                        Newtech Resources, Inc., an OTC:BB quoted company without operations,                        and |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | an officer and director (March 2007 to present) of                        Enwin Resources, Inc, an OTC: BB quoted company without                        operations. |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Ms. Coccaro        has also served as follows:

 

| **•** | an officer and director (January 2000 to June 2007) of                        Sibling Entertainment Corp. (formerly Sona Development Corp.) an OTC: BB                        quoted company formerly without operations, and |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | an officer and director (February 2000 to January 2004) of                        SunVesta Inc. (formerly OpenLimit, Inc.), an OTC: BB quoted company                        formerly involved in credit card encryption technology, and |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | a director (February 2004 to March 2007) of Solar                        Energy Limited an OTC:BB quoted company involved in the development of                        alternative sources of energy. |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Between        September 1998 and December 2005 Ms. Coccaro acted as the Consul of Uruguay to Western        Canada.

 

***Christian Russenberger***was appointed as        a director on March 31, 2008.

 

Mr.        Russenberger is the sole owner and director of CR Innovations Holding AG, CR Innovations AG        (financial consulting), Global Project Finance AG (long term investments), T2MConnect        International AG (telecom operations) and Satellutions GmbH (telecom operations). Since        2004 Mr. Russenberger has been involved in the management and direction of each of these        companies. Prior to his current experience Mr. Russenberger worked with Finter Bank in        Zurich, Switzerland (1993-2004) as a relationship manager and analyst. Before joining        Finter Bank, Mr. Russenberger worked in Zurich as an analyst with Anlage-und Kreditbank AKB        (1991-1993) and Bank Leu AG (1990-1991).

 

No persons        other than executive officers or directors of the Company are expected to make any        significant contributions to management.

 

***Term        of Office***

 

Our        directors are appointed for staggered terms of one (1) year, two (2) years and three (3)        years to hold office until the next annual meeting of our shareholders or until removed        from office in accordance with our bylaws. Our executive officers are appointed by our        board of directors and hold office until removed by the board.

 

***Family Relationships***

 

There are        no family relationships between or among the directors or executive officers

 

 

25

 

----

 

***Director Independence***

 

The Company        is quoted on the OTC Bulletin Board inter-dealer quotation system, which does not have        director independence requirements. However, for purposes of determining director        independence, we have applied the definitions set out in NASDAQ Rule 4200(a)(15). NASDAQ        Rule 4200(a)(15) states that a director is not considered to be independent if he or she is        also an executive officer or employee of the corporation. Accordingly, we consider Mr.        Berndt to be an independent director.

 

***Involvement in Certain Legal Proceedings***

 

To the best        of our knowledge, during the past five years, none of the following occurred with respect        to a present or former director, executive officer, or employee: (1) any bankruptcy        petition filed by or against any business of which such person was a general partner or        executive officer either at the time of the bankruptcy or within two years prior to that        time; (2) any conviction in a criminal proceeding or being subject to a pending criminal        proceeding (excluding traffic violations and other minor offences); (3) being subject to        any order, judgment or decree, not subsequently reversed, suspended or vacated, of any        court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending        or otherwise limiting his or her involvement in any type of business, securities or banking        activities; and (4) being found by a court of competent jurisdiction (in a civil action),        the Commission or the Commodities Futures Trading Commission to have violated a federal or        state securities or commodities law, and the judgment has not been reversed, suspended or        vacated.

 

**Compliance with Section 16(A) of the Exchange Act**

 

Based        solely upon a review of Forms 3, 4 and 5 furnished to the Company, we are not aware of any        persons who, during the period ended December 31, 2007, failed to file, on a timely basis,        reports required by Section 16(a) of the Securities Exchange Act of 1934.

 

***Code        of Ethics***

 

The Company        has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-B of the        Securities Exchange Act of 1934. The Code of Ethics applies to directors and senior        officers, such as the principal executive officer, principal financial officer, controller,        and persons performing similar functions. The Company has incorporated a copy of its Code        of Ethics as Exhibit 14 to this form 10-K. Further, our Code of Ethics is available in        print, at no charge, to any security holder who requests such information by contacting        us.

 

**Board        of Directors Committees**

 

The board        of directors has not established an audit committee. An audit committee typically reviews,        acts on and reports to the board of directors with respect to various auditing and        accounting matters, including the recommendations and performance of independent auditors,        the scope of the annual audits, fees to be paid to the independent auditors, and internal        accounting and financial control policies and procedures. Certain stock exchanges currently        require companies to adopt a formal written charter that establishes an audit committee        that specifies the scope of an audit committee’s responsibilities and the means by        which it carries out those responsibilities. In order to be listed on any of these        exchanges, the Company will be required to establish an audit committee. The board of        directors has not established a compensation committee.

 

 

26

 

----

 

**Director Compensation**

 

Directors        currently are not reimbursed for out-of-pocket costs incurred in attending meetings nor are        they compensated for their service as directors. However, we have entered into a consulting        agreement with the chairman of our board of directors for the rendition of services        pertinent to our operation (see the*Summary Compensation        Table,*below). The Company may adopt a provision for compensating        directors for their services in the future.

 

The        following table provides summary information for the year 2007 concerning cash and non-cash        compensation paid or accrued by the Company to or on behalf of our directors.

 

| ***Summary Compensation Table*** |
|----------------------------------|
|  

Name                     |  

Fees earned or paid in cash

($) |  

Stock awards

($) |  

Option

Awards

($) |  

Non-equity incentive plan compensation

($) |  

Nonqualified deferred compensation

($) |  

All other compensation

($)

                          |  

Total

($) |
|  

Markus Mueller           |  

90,000* |  

-

                          |  

-

                          |  

-

                          |  

-

                          |  

-

                          |  

90,000 |

         

| * | Fees earned in 2007 pursuant to a consulting agreement paid                        with 602,813 shares of our common stock. |
|---|-----------------------------------------------------------------------------------------------------------------------------|

 

| **ITEM 11.** | **EXECUTIVE COMPENSATION** |
|--------------|----------------------------|

 

**Compensation Discussion and Analysis**

 

The        objective of the Company’s compensation program is to provide compensation for        services rendered by our executive officer. Salaries are generally the only type of        compensation we utilize in our executive compensation program however we have used stock        compensation awards to further incentivize executive officers. We have utilized these forms        of compensation because we feel that same are adequate to retain and motivate our executive        officers. The amounts we deem appropriate to compensate our executive officers are        determined in accordance with market forces; we have no specific formula to determine        compensatory amounts at this time. While we have deemed that our current compensatory        program and the decisions regarding compensation are easy to administer and are        appropriately suited for our objectives, we may expand our compensation program to any        additional future employees to include options and other compensatory elements.

 

**Tables**

 

The        following table provides summary information for the years 2007, and 2006 concerning cash        and non-cash compensation paid or accrued by the Company to or on behalf of (i) the chief        executive officer and (ii) any other employee to receive compensation in excess of        $100,000.

 

 

 

 

 

 

27

 

----

 

 

| ***Summary Compensation Table***                                            |
|-----------------------------------------------------------------------------|
| Name and Principal Position                                                 | Year | Salary

($) | Bonus

($) | Stock Awards

($) | Option

Awards

($) | Non-Equity Incentive Plan Compensation

($) | Change in Pension Value and Nonqualified Deferred                        Compensation

($) | All Other Compensation

($)

                          | Total

($) |
| Gilbert Burciaga CEO, CFO, PAO and director*                                | 2007

2006

                         

                          | 75,000

-

                          | -

-

                          | -

-

                         

                          | -

-

                          | -

-

                          | -

-

                          | -

-

                          | 75,000

-

                         

                          |
| Nora Coccaro

CEO, CFO, PAO, and director**

                          | 2007

2006 | 93,500

64,500

                          | -

-

                          | 16,000

360,000 | -

- | -

- | -

- | -

- | 109,500

424,500

                          |

| ***** | Appointed to executive positions on July 2, 2007. |
|-------|---------------------------------------------------|

| ** | Resigned executive positions on July 2, 2007. |
|----|-----------------------------------------------|

         

We have no        “Grants of Plan-Based Awards”, “Outstanding Equity Awards at Fiscal        Year-End”, “Option Exercises and Stock Vested”, “Pension        Benefits”, or “Nonqualified Deferred Compensation”. Nor do we have any        “Post Employment Payments” to report.

         

| **ITEM 12.** | **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND                        MANAGEMENT AND RELATED STOCKHOLDER MATTERS** |
|--------------|---------------------------------------------------------------------------------------------------------------------------|

 

The        following table sets forth certain information concerning the ownership of the        Company’s 59,161,118 shares of common stock issued and outstanding as of April 1,        2008, with respect to: (i) all directors; (ii) each person known by us to be the beneficial        owner of more than five percent of our common stock; and (iii) our directors and executive        officers as a group.

 

| ***Names and Addresses of Managers and Beneficial                        Owners***                 | ***Title of Class*** | ***Number of Shares*** | ***Percent of***

***Class*** |
|----------------------------------------------------------------------------------------------------|----------------------|------------------------|-------------------------------|
| Gilbert Burciaga, CEO, CFO, PAO, director

5300 Bee Caves Rd Bldg 1 Suite 240

Austin, Texas 78746 | Common               | 0                      | 0%                            |
| Markus Mueller, director

Bleicherweg 66, 8022

Zurich, Switzerland                                | Common               | 7,934,384              | 13.41%                        |
| Nora Coccaro, director

2610-1066 West Hastings St.,

Vancouver, BC. Canada                        | Common               | 453,520                | 0.77%                         |
| Christian Russenberger*, director

Meierhofrain 36

8820 Wädenswil                            | Common               | 1,120,000              | 1.89%                         |
| Nicolas Mathys

Weinberghohe 17, 6340

Baar, Switzerland                                           | Common               | 3,366,670              | 5.69%                         |

 

| Officer and directors (4) as a group | Common | 9,507,904 | 16.07% |
|--------------------------------------|--------|-----------|--------|

*Christian Russenberger is considered the beneficial owner of 1,000,000        shares held by Global Project Finance AG.

 

28

 

----

 

| **ITEM 13.** | **CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND                        DIRECTOR INDEPENDENCE** |
|--------------|-----------------------------------------------------------------------------------------------------|

 

None of our        directors or executive officers, nor any proposed nominee for election as a director, nor        any person who beneficially owns, directly or indirectly, shares carrying more than 5% of        the voting rights attached to all of our outstanding shares, nor any members of the        immediate family (including spouse, parents, children, siblings, and in-laws) of any of the        foregoing persons has any material interest, direct or indirect, in any transaction since        the beginning of our last fiscal year or in any presently proposed transaction which, in        either case, has or will materially affect us, except as listed below.

 

During the        year ended December 31, 2007 the Company recognized a consulting expense of $75,000 to        Gilbert Burciaga, our chief executive officer, chief financial officer and principal        accounting officer and one of our directors, which was due to Mr. Burciaga at December 31,        2007.

 

During the        year ended December 31, 2007, the Company issued 750,000 shares of its common stock to Mr.        Mueller, the chairman of our board of directors, to satisfy $112,500 due for consulting        fees incurred pursuant to a consulting agreement dated July 1, 2003. The Company recorded a        compensation expense of $22,500 to reflect the value of the shares issued upon conversion        of the book amount due. A balance of $52,500 was due to Mr. Mueller at December 31, 2007.        For the year ended December 31, 2007, the Company recognized a consulting expense of        $90,000 pursuant to this agreement.

 

During the        year ended December 31, 2007 the Company recognized a consulting expense of $109,500 to        Nora Coccaro, formerly our chief executive officer, chief financial officer and principal        accounting officer, currently our vice-president of corporate affairs and one of our        directors pursuant to a consulting agreement dated March 16, 2000. For the 2007 charge,        $16,000 is the deemed value attributed to100,000 shares of common stock issued to Ms.        Coccaro. A balance of $8,000 was due to Ms. Coccaro at December 31, 2007.

 

During the        year ended December 31, 2007 the Company issued an aggregate of $3,000,000 in convertible        promissory notes to entities owned by Christian Russenberger, one of our directors. Each        note bears 10% interest, is convertible at the holder’s option into the        Company’s common stock at $0.08 a share on or before the maturity dates ranging from        May 31, 2010 to August 15, 2010 and are secured by all seismic data obtained in connection        with the Carson/Cole Ranch leases in Val Verde County, Texas on a pro rata basis with like        holders of the security.

 

| **ITEM 14.** | **PRINCIPAL ACCOUNTANT FEES AND SERVICES** |
|--------------|--------------------------------------------|

 

***Audit        Fees***

 

Chisholm,        Bierwolf & Nilson, LLC provided audit services to the Company in connection with its        annual report for the fiscal year ended December 31, 2007 and 2006. The aggregate fees        billed by Chisholm, Bierwolf & Nilson, LLC for the 2007 and 2006 audit of our annual        financial statements and a review of our quarterly financial statements was $25,000 and        $19,000, respectively.

 

***Audit        Related Fees***

 

Chisholm,        Bierwolf & Nilson, LLC billed to the Company no fees in 2007 or 2006 for professional        services that are reasonably related to the audit or review of our financial statements        that are not disclosed in “Audit Fees” above.

 

 

29

 

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***Tax        Fees***

 

Chisholm,        Bierwolf & Nilson, LLC billed to the Company no fees in 2007 or 2006 for professional        services rendered in connection with the preparation of our tax returns for the        period.

 

***All        Other Fees***

 

Chisholm,        Bierwolf & Nilson, LLC billed to the Company no fees in 2007 or 2006 for other        professional services rendered or any other services not disclosed above.

 

***Audit        Committee Pre-Approval***

 

The Company        does not have a standing audit committee. Therefore, all services provided to us by        Chisholm, Bierwolf & Nilson, LLC, as detailed above, were pre-approved by our board of        directors. Our independent auditors, Chisholm, Bierwolf & Nilson, LLC, performed all        work using only their own full time permanent employees.

 

| **ITEM 15.** | **EXHIBITS AND FINANCIAL STATEMENT SCHEDULES** |
|--------------|------------------------------------------------|

 

***(a)        Consolidated Financial Statements***

 

The        following documents are filed under “*Item 8. Financial        Statements and Supplementary Data,*” pages F-1 through F-11,        and are included as part of this Form 10-K:

 

|   | Financial Statements of the Company for the years ended                        December 31, 2007 and 2006: |
|--------|------------------------------------------------------------------------------------------------------------|

|   | Report of Independent Registered Public Accounting                        Firm |
|--------|--------------------------------------------------------------------------------|

ConsolidatedBalance Sheets

ConsolidatedStatements of Income

Consolidated Statementsof Stockholders’ Equity

ConsolidatedStatements of Cash Flows

Notes to Consolidated Financial Statements

 

***(b)        Exhibits***

         

The        exhibits required to be attached by Item 601 of Regulation S-B are listed in the Index to        Exhibits on page 32 of this Form 10-K, and are incorporated herein by this        reference.

 

***(c)        Financial Statement Schedules***

 

We are not        filing any financial statement schedules as part of this Form 10-K because such schedules        are either not applicable or the required information is included in the financial        statements or notes thereto.

 

30

 

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**SIGNATURES**

 

In        accordance with the requirements of the Securities Exchange Act of 1934, the registrant        caused this report to be signed on its behalf by the undersigned thereunto duly authorized        this 1st day of April, 2008.

 

**PROVIDENCE RESOURCES, INC.**

 

 

/s/ Gilbert Burciaga

Gilbert Burciaga

Chief Executive Officer, Chief Financial Officer, and Principal Accounting        Officer

         

 

In        accordance with the Exchange Act, this report has been signed below by the following        persons on behalf of the registrant and in the capacities and on the dates        indicated.

 

|   | ***Signature*** | ***Title*** | ***Date*** |
|--------|-----------------|-------------|------------|

         

         

|   | /s/ Markus Mueller | Director | April 1, 2008 |
|--------|--------------------|----------|---------------|

Markus Mueller

         

|   | /s/ Gilbert Burciaga | Director | April 1, 2008 |
|--------|----------------------|----------|---------------|

Gilbert Burciaga

         

|   | /s/ Nora Coccaro | Director | April 1, 2008 |
|--------|------------------|----------|---------------|

Nora Coccaro

         

|   | /s/ Christian Russenberger | Director | April 1, 2008 |
|--------|----------------------------|----------|---------------|

Christian Russenberger

 

 

31

 

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**INDEX        TO EXHIBITS**

         

| ***Exhibit*** | ***Description*** |
|---------------|-------------------|

         

| 3(i)(a)*   | Articles of Incorporation (incorporated by reference from                        the Form 10-SB filed with the Commission on April 17, 2000). |
|----------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

| 3(i)(b)(c)*   | Amendment to Articles of Incorporation (incorporated by                        reference from the Form 10-SB filed with the Commission on April 17,                        2000).      |
|-------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(i)(d)* | Amended and Restated Articles of Incorporation (incorporated                        by reference from the Form 10-SB filed with the Commission on April 17,                        2000).         |
|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(i)(e)* | Articles of Amendment to the Amended and Restated Articles                        of Incorporation (incorporated by reference from the Form 10-QSB filed with                        the Commission on November 17,                        2003).       |
|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(i)(f)* | Amendment to the Amended and Restated Articles of                        Incorporation (incorporated by reference from the Form 8-K filed with the                        Commission on October 2,                        2006).         |
|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(i)(g)* | Amendment to the Amended and Restated Articles of                        Incorporation. |
|----------|-----------------------------------------------------------------------------------------|

| 3(ii)(a)* | Bylaws of the Company (incorporated by reference from the                        Form 10-SB filed with the Commission on April 17, 2000). |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------|

| 3(ii)(b)*   | Amended and Restated Bylaws of the Company (incorporated by                        reference from the Form 8-K filed with the Commission on October 26,                        2006).        |
|-----------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(i)*   | Joint Venture Agreement between Providence Exploration and                        Harding Company, dated October 1, 2005 (incorporated by reference from the                        Form 8-K filed with the Commission on October 2,                        2006).         |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(ii)*   | Extension of the Term of Series “A” Convertible                        Debenture Certificate with Max Fugman (incorporated by reference from the                        Form 10-KSB/A filed with the Commission on October 11,                        2005).             |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(iii)*   | Extension of the Term of Series “A” Convertible                        Debenture Certificate with Global Convertible Megatrend Ltd. (incorporated                        by reference from the Form 10-KSB/A filed with the Commission on October                        11,                        2005).           |
|----------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(iv)*   | Agreement for Purchase and Sale between Providence                        Exploration and Global Mineral Solutions, L.P., dated February 22, 2006                        (incorporated by reference from the Form 8-K filed with the Commission on                        October 2, 2006).   |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(v)*   | Letter Agreement between Providence Exploration and Harding                        Company, dated March 30, 2006 (incorporated by reference from the Form                        SB2/A-2 filed with the Commission on February 28,                        2007).          |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(vi)*   | Consulting Agreement with Eastgate Associates Ltd., dated                        April 1, 2006 (incorporated by reference from the Form 10-QSB filed with                        the Commission on November 13,                        2006).          |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(vii)*   | Securities Exchange Agreement dated April 10, 2006, between                        the Company, Providence Exploration, and the membership unit holders of                        Providence Exploration (filed on Form 8-K with the Commission on April 14,                        2006).        |
|----------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(viii)*   | Note Exchange Agreement dated April 10, 2006, between the                        Company and the holders of certain promissory notes issued by Providence                        Exploration (filed on Form 8-K with the Commission on April 14,                        2006). |
|-----------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

32

 

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| 10(ix)*   | Amendment to the Terms of the Securities Exchange Agreement                        dated effective as of May 26, 2006, between the Company, Providence                        Exploration, and the membership unit holders of Providence Exploration                        (filed on Form 8-K with the Commission on July 3,                        2006).          |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(x)*   | Amendment to the Terms of the Note Exchange Agreement dated                        effective as of May 26, 2006, between the Company and the holders of                        certain promissory notes issued by Providence Exploration (filed on Form                        8-K with the Commission on July 3,                        2006).               |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(xi)*   | Exploration and development agreement with Miller Energy,                        LLC and certain of its affiliates dated June 29, 2007 (filed on Form 8-K                        with the Commission on July 11, 2007). |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(xii)*   | Secured Revolving Convertible Promissory Note with Miller                        Energy, LLC dated June 29, 2007 (filed on Form 8-K with the Commission on                        July 11,                        2007).                  |
|----------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 14*   | Code of Ethics, adopted as of March 1, 2004 (incorporated by                        reference from the form 10QSB filed with the Commission on November 17,                        2004). |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 21 | Subsidiaries of the Company |
|----|-----------------------------|

| 31 | Certification of the Chief Executive Officer and Chief                        Financial Officer pursuant to Rule 13a-14 of the Securities and Exchange                        Act of 1934, as amended, as adopted pursuant to Section 302 of the                        Sarbanes-Oxley Act of 2002. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 32 | Certification of the Chief Executive Officer and Chief                        Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to                        Section 906 of the Sarbanes-Oxley Act of 2002. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | * | Incorporated by reference to previous filings of the                        Company. |
|--------|---|--------------------------------------------------------------------------------------|

         

 

33

 

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