UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012.
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
06-1538201
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
700 Lavaca Street, Suite 1400, Austin, Texas 78701
(Address of principal executive offices) (Zip Code)
(210) 807-4204
(Registrant’s telephone number, including area code)
n/a
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 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 No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o 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). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date. The number of shares outstanding of the issuer’s common stock, $0.0001 par value (the only
class of voting stock), at May 14, 2012, was 15,346,586.
TABLE OF CONTENTS
PART 1- FINANCIAL INFORMATION
Item1.
Financial Statements:
3
Condensed Balance Sheets as of March 31, 2012 (unaudited) and December 31,
4
2011
Unaudited Consolidated Statements of Opersions for the Three month periods
5
ended March 31, 2012 and 2011 and cumulative amounts since inception
Unaudited Consolidated Statements of Cash Flows for the Three month periods
6
ended March 31, 2012 and 2011and cumulative amounts since inception
Notes to Unaudited Consolidated Financial Statements
7
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
11
Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
16
Item 4.
Controls and Procedures
16
PART II-OTHER INFORMATION
Item 1.
Legal Proceedings
17
Item 1A.
Risk Factors
17
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
22
Item 3.
Defaults Upon Senior Securities
22
Item 4.
(Removed and Reserved)
22
Item 5.
Other Information
22
Item 6.
Exhibits
22
Signatures
23
Index to Exhibits
24
2
PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
As used herein, the terms “Company,” “we,” “our,” and “us” refer to Providence Resources, Inc., a Texas
corporation, unless otherwise indicated. In the opinion of management, the accompanying unaudited
consolidated financial statements included in this Form 10-Q reflect all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of operations for the periods
presented. The results of operations for the periods presented are not necessarily indicative of the results
to be expected for the full year.
3
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
March 31,
December 31,
2012
2011
ASSETS
(Unaudited)
Current assets:
Cash
$
3,239
$
10,857
Total current assets
3,239
10,857
Restricted cash
1,000,000
1,000,000
Deposit
25,000
25,000
Total assets
$
1,028,239 $
1,035,857
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable
$
78,880
$
58,003
Related party payables
19,745
8,960
Total current liabilities
98,625
66,963
Accrued expenses
1,851,124
1,557,635
Related party payables
3,144,405
3,072,203
Long-term debt
11,269,905
11,269,905
Total liabilities
16,364,059
15,966,706
Commitments and contingencies
Stockholders' deficit:
Providence Resources, Inc. stockholders' deficit:
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, 15,346,586 shares issued and outstanding
1,535
1,535
Additional paid-in capital
52,135,155
52,135,155
Accumulated deficit before current exploration stage
(11,834,164)
(11,834,164)
Deficit accumulated during the exploration stage
(55,789,319)
(55,384,348)
Total Providence Resources, Inc. stockholders' deficit
(15,486,793)
(15,081,822)
Non-controlling interest
150,973
150,973
Total stockholders' deficit
(15,335,820)
(14,930,849)
Total liabilities and stockholders' deficit
$
1,028,239 $
1,035,857
The accompanying notes are an integral part of these financial statements
4
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2012 and 2011 and Cumulative Amounts
Cumulative
2012
2011
Amounts
Revenues
$
- $
- $
-
General and administrative expenses
39,280
173,381
10,496,567
Loss from operations
(39,280)
(173,381)
(10,496,567)
Other income (expense):
Interest income
-
-
144,450
Interest expense
(365,691)
(334,109)
(14,553,950)
Impairment of capital assets
-
-
(32,251,552)
Debt extinguishment and conversion income
-
-
195,337
Gain on sale of assets
-
-
1,119,109
Loss before income taxes
(404,971)
(507,490)
(55,843,173)
Provision for income taxes
-
-
-
Net loss
(404,971)
(507,490)
(55,843,173)
Net loss attributable to the non-controlling interest
-
-
53,854
Net loss attributable to Providence Resources, Inc.
$
(404,971) $
(507,490) $
(55,789,319)
Loss per common share -
basic and diluted
$
(0.03) $
(0.04)
Weighted average common shares outstanding -
basic and diluted
15,346,586
13,957,697
The accompanying notes are an integral part of these financial statements
5
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2012 and 2011 and Cumulative Amounts
Cumulative
2012
2011
Amounts
Cash flows from operating activities:
Net loss
$
(404,971) $
(507,490) $
(55,789,319)
Adjustments to reconcile net loss to net cash
used in operating activities:
Shares and options issued for services
-
71,695
3,621,419
Shares issued for debt and accrued interest
-
-
4,792,207
Amortization of conversion rights on debt
-
-
4,671,394
Depreciation, amortization, and impairment
-
-
32,351,685
Non-controlling interest
-
-
(53,854)
Gain from debt extinguishments
-
-
(406,452)
Loss on sale of assets
-
-
(1,119,109)
Allowance for losses on receivables, net
-
-
33,123
Increase (decrease) in:
Receivables and prepaid expenses
-
-
441,692
Inventory
-
-
374,515
Deposit
-
-
(25,000)
Increase (decrease) in:
Accounts payable
20,877
(18,013)
1,391,671
Accrued expenses
293,489
268,470
4,775,884
Related party payables
82,987
97,682
314,238
Net cash used in operating activities
(7,618)
(87,656)
(4,625,906)
Cash flows from investing activities:
Restricted cash
-
-
(1,000,000)
Acquisition of property, equipment and
intangibles
-
-
(12,131,455)
Proceeds from sale of assets
-
-
7,212,800
Payments received on notes receivable
-
-
316,877
Issuance of notes receivable
-
-
3,124
Net cash used in investing activities
-
-
(5,598,654)
Cash flows from financing activities:
Proceeds from long-term debt
-
-
5,700,000
Issuance of common stock
-
-
519,500
Collection of stock subscription
-
142,200
142,200
Purchase of common stock
-
-
(100,000)
Commissions paid to raise convertible debentures
-
-
75,000
Minority investment in subsidiary
-
-
136,915
Payments on long-term debt
-
-
(62,841)
Net cash provided by financing activities
-
142,200
6,410,774
Net increase (decrease) in cash
(7,618)
54,544
(3,813,786)
Cash, beginning of period
10,857
742
3,817,025
Cash, end of period
$
3,239 $
55,286 $
3,239
The accompanying notes are an integral part of these financial statements
6
PROVIDENCE RESOURCES INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
Note 1 – Organization and Summary of Significant Accounting Policies
Organization
The consolidated financial statements consist of Providence Resources, Inc. (Providence Resources) and
its wholly owned subsidiary PRE Exploration, LLC (PRE). PRE has three subsidiaries: PDX Drilling I,
LLC (PDX) and PRT Holdings, LLC (PRT) are wholly owned and Comanche County Pipeline, LLC
(CCP) is ninety percent owned. Collectively, these entities are referred to as the Company.
The Company was organized on February 17, 1993 under the laws of the State of Texas and began its
current exploration stage on October 1, 2006. Cumulative amounts recorded in the financial statements
are from October 1, 2006 to the current period end. PRE was formed to acquire leases in Texas for oil and
gas exploration and development. PDX was formed to acquire drilling and service rigs for the purpose of
drilling oil and gas wells in Texas. CCP was formed for constructing an oil and gas pipeline. PDX and
CCP had no activity during 2011. PRT has been without operations since inception.
PRE is involved in exploration activities for the recovery of oil or natural gas products from the
Ellenberger carbonate, Strawn carbonate, and Pennsylvanian-Wolfcamp sandstone reservoirs underlying
approximately 13,341 gross acres of oil and gas leases in Val Verde County, Texas.
The Company is an exploration stage company as defined by applicable accounting standards.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by management in
accordance with the instructions in Form 10-Q and, therefore, do not include all information and
footnotes required by generally accepted accounting principles and should, therefore, be read in
conjunction with the Company’s Form 10-K for the year ended December 31, 2011, filed with the
Securities and Exchange Commission. These statements do include all normal recurring adjustments
which the Company believes necessary for a fair presentation of the statements. The interim operations
are not necessarily indicative of the results to be expected for the full year ended December 31, 2012.
Additional Footnotes Included By Reference
Except as indicated in the following Notes, there have been no other material changes in the information
disclosed in the notes to the financial statements included in the Company’s Form 10-K for the year
ended December 31, 2011, filed with the Securities and Exchange Commission. Therefore, those
footnotes are included herein by reference.
7
PROVIDENCE RESOURCES INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
Note 2 – Going Concern
As of March 31, 2012, the Company’s anticipated revenue generating activities have not begun and the
Company has negative cash flows from operations, has incurred significant losses since inception, has
negative working capital, and has an accumulated deficit in the current exploration stage of over
$55,000,000. These factors raise substantial doubt about the Company’s ability to continue as a going
concern. The accompanying financial statements do not include any adjustments relating to the
recoverability and classification of assets that might be necessary if the Company is unable to continue as
a going concern.
The Company will require additional funding over the next twelve months in the form of debt or equity
financing. However, the Company has no financing in place and has no assurance that it will be able to
generate funding sufficient to fund business operations. Unless the Company is able to generate funding
in the near term, its ability to continue as a going concern will be in doubt.
Note 3 – Restricted Cash
During 2010, PRE extended its Carson acreage leases until February 28, 2013. The extension obligates
PRE to drill two additional wells on the Carson acreage. PRE can secure the leases past February 28,
2013 with continuous development of the acreage. Per the leases’ terms, PRE has deposited $1,000,000
with a bank, and these funds must be held in escrow until the Company drills the two additional wells. If
the Company fails to drill the two additional wells and the leases expire, the Company must pay $100 per
acre to Carson. Correspondingly, the bank has issued a $1,000,000 letter of credit to Carson.
As of March 31, 2012 no funds had been drawn against this letter of credit.
Note 4 – Related Party Transactions
The Company has 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 three
months ended March 31, 2012 and 2011, the Company recognized consulting expense of $18,000 and
$30,120 respectively.
8
PROVIDENCE RESOURCES INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
Note 5 – Related Party Payables
Related party payables consist of:
December
March 31,
31,
2012
2011
Convertible Promissory Notes Payable - secured,
maturing between May 2015 and August 2015,
including interest at 10%, and convertible at
approximately $0.16 per common share, and with
anti-dilution features
$
2,662,000 $
2,662,000
Accrued interest on related party convertible
promissory notes payable
482,405
410,203
Amounts due to directors of the Company for
consulting fees
19,745
8,960
3,164,150
3,081,163
Less current portion
(19,745)
(8,960)
$
3,144,405 $
3,072,203
Notes previously identified as being secured are collateralized by one or more of the following:
• All seismic data obtained in connection with the 3D Seismic Project Proposal and Agreement
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.
• Any and all proceeds arising from or attributable to the assets.
• Oil and gas lease interests held by the Company.
• Properties, rights, and assets of the Company.
9
PROVIDENCE RESOURCES INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
Note 6 – Supplemental Cash Flow Information
Actual amounts paid for interest and income taxes are as follows:
2012
2011
Interest
$
-
-
Income tax
$
-
-
Note 7 – Commitments and Contingencies
The Company has a royalty commitment of 25% of net revenue on certain oil and gas leases.
Note 8 – Subsequent Events
The Company has evaluated subsequent events from the balance sheet date through the date the financial
statements were issued and is unaware of any subsequent events which would require recognition or
disclosure hereto.
Note 9 – Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2011-11, “Disclosures about Offsetting Assets and Liabilities”, which will require
disclosures for entities with financial instruments and derivatives that are either offset on the balance
sheet in accordance with ASC 210-20-45 or ASC 815-10-45, or are subject to a master netting
arrangement. ASU No. 2011-11 is effective for interim and annual periods beginning on or after January
1, 2013. The Company is currently evaluating the impact of the adoption of ASU 2011-04 on its financial
position, results of operations, and disclosures.
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future
effective dates are either not applicable or are not expected to be significant to the financial statements of
the Company.
10
ITEM 2.
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.
All information presented herein is based on the three month period ended March 31, 2012.
During the three month period ended March 31, 2012 the Company was involved in (i) assessing the
drilling results associated with the Carson 10-1 and Carson 12-1 wells in Val Verde County, (ii) seeking
out prospective financing or joint venture partners to fund the completion of the Val Verde County wells,
and (iii) satisfying continuous public disclosure requirements.
The Company intends to complete its Carson 10-1 and Carson 12-1 wells in Val Verde County, Texas,
over the next twelve months subject to the availability of financing and may test the Strawn formation.
Efforts to complete the wells to date and the testing of the Strawn formation have been delayed pending
the receipt of financing commitments. Development of the Val Verde County leases going forward will
be dependent on the Carson completion results. Reentry and completion of the existing well bores will
require $4,000,000 in funding. The Company does not have a commitment for this funding in place
though management continues to seek out prospective investors and partners.
Our business is prone to significant risks and uncertainties that can have an immediate impact on efforts to
generate a positive cash flow. Since we have no assurance that future expectations of natural gas
production will be realized, or that revenue realized from such anticipated production will be sufficient to
support our continued operation, we will continue to rely on debt or equity financing over the near term to
remain in business. We have no commitments for additional debt or equity financing at this time though
management is diligently investigating sources for such financing.
Results of Operations
Net Losses
For the period from re-entering the current exploration stage on October 1, 2006 or inception until March
31, 2012, the Company incurred net losses of $55,789,319. Net losses for the three months ended March
31, 2012 were $404,971 as compared to $507,490 for the three months ended March 31, 2011. The
decrease in net losses over the comparable periods can be attributed primarily to the decrease in general
and administrative expenses over the comparable periods. We expect to continue to operate at a loss
through 2012 due to the nature of our exploration and development activities and cannot determine
whether we will ever generate revenue from operations.
11
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2012 were $39,280 as
compared to $173,381 for the three months ended March 31, 2011. The decrease in general and
administrative expenses over the comparable three month periods can be primarily attributed to decreases
in consulting expenses professional fees and stock compensation expense. General and administrative
expenses include accounting costs, consulting fees, leases, employment costs, professional fees and costs
associated with the preparation of disclosure documentation. We expect that general and administrative
expenses will remain relatively consistent in future periods as management continues to look to operating
efficiencies pending the return to development activities.
Other Expense
Interest expense for the three months ended March 31, 2012 increased to $365,691from $334,109 for the
three months ended March 31, 2011. We expect that interest expense will continue to increase in future
periods.
Income Tax Expense (Benefit)
The Company has a prospective income tax benefit resulting from a net operating loss carry-forward and
start up costs that will offset any future operating profit.
Impact of Inflation
We believe that inflation has had a negligible effect on operations over the past three years and that any
inflationary pressure on our activities can be offset by improved operating efficiencies.
Capital Expenditures
The Company has spent significant amounts of capital for the period from inception of the current
exploration stage to December 31, 2011, on unproved oil and gas properties, pipeline construction, and
related exploration costs though all such capital was impaired and expensed as of December 31, 2011.
Liquidity and Capital Resources
The Company has been in the exploratory stage since re-entering the current exploration stage and has
experienced significant changes in liquidity, capital resources, and stockholders’ equity. The Company
had a working capital deficit of $95,386 at March 31, 2012. Current assets were $3,239 in cash. Total
assets were $1,028,239 including current assets, $1,000,000 in restricted cash held for the benefit of the
owners of the leasehold interests held by the Company, and $25,000 held for the benefit of the Texas
Railroad Commission. Current liabilities were $98,625, consisting of accounts payable of $78,880 and
related party payables of $19,745. Total liabilities were $16,364,059 including current liabilities, accrued
expenses of $1,851,124, related party payables of $3,144,405, and long term debt of $11,269,905. Total
stockholders’ deficit was $15,335,820 as of March 31, 2012.
12
For the period from inception of its current exploration stage until March 31, 2012, Company cash flow
used in operating activities was $4,625,906. Cash flow used in operating activities for the three month
period ended March 31, 2012, was $7,618 as compared to $87,656 for the three month period ended
March 31, 2011. The change in cash flow used in operating activities can be attributed to the differences
in accounts payable and accrued expenses over the respective periods. The Company expects to continue
to use cash flow in operating activities until such time as it can generate revenue from operations.
For the period from inception of its current exploration stage until March 31, 2012, the Company’s cash
flow used in investing activities was $5,598,654. Cash flow used by investing activities for the respective
three month periods ended March 31, 2012 and March 31, 2011 was $0. The Company expects to use
cash flow in investing activities in future periods in connection with the further development of its leases.
For the period from inception of its current exploration stage until March 31, 2012, the Company’s cash
flow provided by financing activities was $6,410,774. Cash flow provided by financing activities for the
three month period ended March 31, 2012 was $0 compared to $142,200 for the three month period ended
March 31, 2011. Cash flow provided by financing activities in the three month period ended March 31,
2011 was in connection with the realization of a stock subscription receivable. The Company expects to
continue to rely on cash flow provided by financing activities until such time as it can generate revenue
from operations.
Our current assets are insufficient to conduct exploration and development activities over the next twelve
(12) months or to maintain operations. We need a minimum of $4,000,000 in debt or equity financing to
fund the reentry and completion of the Carson 10-1 and Carson 12-1 and to meet minimum operational
requirements. We may also require an additional $4,000,000 to fund the drilling of two additional wells
on the Carson leases in order to maintain the leases. However, we have no commitments or arrangements
for either the first or second tier of these requisite financings, though our shareholders are the most likely
source of loans or equity placements in order for us to maintain operations. Our inability to obtain
financing to complete our development plan for the Carson leases would have a material adverse effect on
our business operations.
We have no intention of paying cash dividends in the foreseeable future.
We have no lines of credit or other bank financing arrangements in place.
We have material commitments to the owners of the Val Verde County leases for future capital
expenditures related to exploration activities which require us to drill two additional wells and produce
commercial quantities of natural gas from the leases on or before February 28, 2013. The material
commitment is approximately $8,000,000.
We have no defined benefit plan except our 2008 Stock Option Plan and currently have no contractual
commitment with our sole executive officer.
We have 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.
13
Future Financings
The Company will have to continue to rely on debt financing or equity sales of our shares of common
stock to fund our business operations. Nevertheless, there is no assurance that the Company will be able
to arrange any additional sales of equity or arrange for debt or other financing to fund operations.
Off Balance Sheet Arrangements
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 are material to stockholders.
Going Concern
Our auditor 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 during the
current exploration stage of $55,384,348 as of December 31, 2011. These conditions raise substantial
doubt about our future.
Management’s plan to address the Company’s ability to continue as a going concern includes the
completion of private equity or debt offerings, the development of natural gas exploration activities to
commercial production, 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.
Forward Looking Statements and Factors That May Affect Future Results and Financial Condition
The statements contained in the section titled “Results of Operations” and “Discussion and Analysis,”
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;
• movement in energy prices;
• 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.
14
Stock-Based Compensation
We have adopted Accounting Standards Codification Topic (“ASC”) 718, 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.
We account for equity instruments issued in exchange for the receipt of goods or services from other than
employees in accordance with ASC 505. 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.
Critical Accounting Policies
In the notes to the audited consolidated financial statements for the Company for the years ended
December 31, 2011 and 2010, included on Form 10-K, the Company discussed those accounting policies
that are considered to be significant in determining the results of operations and financial position. The
Company’s management believes 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 recorded upon the completion of 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
Please see Note 9 to our consolidated financial statements for recent accounting pronouncements.
15
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not required.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this report on Form 10-Q, an evaluation was carried out by the
Company’s management, with the participation of the chief executive officer/chief financial officer, of
the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)). Disclosure controls and
procedures are designed to ensure that information required to be disclosed in reports filed or submitted
under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in the Commission’s rules and forms and that such information is accumulated and
communicated to management, including the chief executive officer/chief financial officer, to allow
timely decisions regarding required disclosures.
Based on that evaluation, the Company’s management concluded, as of the end of the period covered by
this report, that the Company’s disclosure controls and procedures were not effective in recording,
processing, summarizing, and reporting information required to be disclosed, within the time periods
specified in the Commission’s rules and forms, and that such information was not accumulated and
communicated to management, including the chief executive officer and chief financial officer, to allow
timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of
the Exchange Act) during the period ended March 31, 2012 that materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
16
PART II – OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
None.
ITEM 1A.
RISK FACTORS
The Company’s operations and securities are subject to a number of risks. Below we have identified and
discussed the material risks that we are likely to face. Should any of the following risks occur, they will
adversely affect our operations, business, financial condition and/or operating results as well as the future
trading price and/or the value of our securities.
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 current exploration stage inception in 2006, our operations have resulted in a
continuation of losses. We will continue to incur operating losses until such time as we begin producing
revenue, which may or may not eventuate. Should the Company fail to produce revenue it will continue to
operate at a loss.
The Company has a limited operating history as an oil and gas exploration company.
The Company acquired PRE Exploration on September 29, 2006, which first began oil and gas
exploration during the fourth quarter of 2005 and has yet to successfully develop commercial production
of oil or gas. As such, our limited, and to date unsuccessful, operating history in the energy 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, 2011 and 2010 expressed substantial doubt as
to its ability to continue as a going concern due to the lack of revenue generating activities and the
accumulation of significant losses in the current exploration stage of $55,384,348 as of December 31,
2011. Unless we are able to overcome our dependence on successive financings and generate revenue
from operations, our ability to continue as a going concern is in jeopardy.
The Company cannot represent that it will be successful in continuing operations.
The Company has not generated revenue from operations and may not generate revenue over the next
twelve months. Since the Company may be unable to realize revenue in the near term, it will be forced to
continue to raise capital to remain in operation. We have no commitments for the provision of additional
capital and can offer no assurance that such capital will be available as necessary to sustain operations.
17
Risks Related to the Oil and Gas Industry
Oil and natural gas drilling and producing operations involve 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:
• encountering well blowouts;
• cratering, explosions and fires;
• pipe failure;
• 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 would
contribute to net losses.
18
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.
Climate change legislation or regulations restricting emissions of “greenhouse gases” could result in
increased operating costs and reduced demand for oil and natural gas.
On December 15, 2009, the U.S. Environmental Protection Agency (“EPA”) officially published its
findings that emissions of carbon dioxide, methane and other “greenhouse gases” present an
endangerment to human health and the environment because emissions of such gases are contributing to
warming of the Earth’s atmosphere and other climatic changes. These findings by the EPA allow the
agency to proceed with the adoption and implementation of regulations that would restrict emissions of
greenhouse gases under existing provisions of the federal Clean Air Act. In late September 2009, the EPA
had proposed two sets of regulations in anticipation of finalizing its findings that would require a
reduction in emissions of greenhouse gases from motor vehicles and that could also lead to the imposition
of greenhouse gas emission limitations in Clean Air Act permits for certain stationary sources. In
addition, on September 22, 2009, the EPA issued a final rule requiring the reporting of greenhouse gas
emissions from specified large greenhouse gas emission sources in the United States beginning in 2011
for emissions occurring in 2010. The adoption and implementation of any regulations over greenhouse
gases could require us to incur costs to reduce emissions of greenhouse gases associated with our
operations or could adversely affect demand for the oil and natural gas that we intend to produce.
On June 26, 2009, the U.S. House of Representatives passed the “American Clean Energy and Security
Act of 2009,” or “ACESA,” which would establish an economy-wide cap-and-trade program to reduce
U.S. emissions of greenhouse gases including carbon dioxide and methane. ACESA would require a 17%
reduction in greenhouse gas emissions from 2005 levels by 2020 and just over an 80% reduction of such
emissions by 2050. Under this legislation, the EPA would issue a capped and steadily declining number
of tradable emissions allowances to certain major sources of greenhouse gas emissions so that such
sources could continue to emit greenhouse gases into the atmosphere. These allowances would be
expected to escalate significantly in cost over time. The net effect of ACESA will be to impose increasing
costs on the combustion of carbon-based fuels such as oil, refined petroleum products, and natural gas.
The U.S. Senate has begun work on its own legislation for restricting domestic greenhouse gas emissions
and the President Obama Administration has indicated its support of legislation to reduce greenhouse gas
emissions through an emission allowance system. Although it is not possible at this time to predict when
the Senate may act on climate change legislation or how any bill passed by the Senate would be
19
reconciled with ACESA, any future federal laws or implementing regulations that may be adopted to
address greenhouse gas emissions could adversely affect demand for the oil and natural gas that we intend
to produce.
The results of the Company’s current operations depend on the exploration and operational efforts of
third parties.
Our oil and gas exploration efforts through seismic exploration, processing, interpretation, drilling and
operation have been performed by third parties. We will continue to be dependent on third parties as we
pursue additional exploration. Despite such third parties being experienced in their respective fields, our
dependence on such to initiate, determine and conduct operations could impede our prospects of success.
Since oil and natural gas prices are volatile, any substantial decrease in prices could cause the
Company to continue to operate at a loss even 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, if any. 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 expect to 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 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 requires additional capital funding.
The Company requires additional funds, either through equity offerings, debt placements or joint ventures
to develop our operations. Such additional capital will result in dilution to our current shareholders. Our
ability to meet long-term financial commitments will depend on future cash. There can be no assurance
that any future income will generate sufficient funds to enable us to meet our financial commitments.
20
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.
Our internal controls over financial reporting may not be considered effective, which conclusion 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. Since we are unable 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.
21
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 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3.
DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4.
(REMOVED AND RESERVED)
Removed and reserved.
ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page
25 of this Form 10-Q, and are incorporated herein by this reference.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
Providence Resources, Inc.
Date
/s/ Christian Russenberger
May 14, 2012
By: Christian Russenberger
Chief Executive Officer, Chief Financial Officer, Principal
Accounting Officer and Director
23
INDEX TO EXHIBITS
Exhibit
Description
3.1.1*
Articles of Incorporation (incorporated by reference from the Form 10-SB filed with the
Commission on April 17, 2000).
3.1(2 & 3)*
Amendments to Articles of Incorporation (incorporated by reference from the Form 10-
SB filed with the Commission on April 17, 2000).
3.1.4*
Amended and Restated Articles of Incorporation (incorporated by reference from the
Form 10-SB filed with the Commission on April 17, 2000).
3.1.5*
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).
3.1.6*
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).
3.1.7*
Amendment to the Amended and Restated Articles of Incorporation (incorporated by
reference from the Form 10-QSB filed with the Commission on August 14, 2007).
3.2.1*
Bylaws of the Company (incorporated by reference from the Form 10-SB filed with the
Commission on April 17, 2000).
3.2.2*
Amended and Restated Bylaws of the Company (incorporated by reference from the
Form 8-K filed with the Commission on October 26, 2006).
10.1*
Project Participation Agreement with Elm Ridge Exploration Company, LLC, dated July
31, 2008 (filed on Form 10-Q/A with the Commission on October 20, 2008).
10.2*
Extension and Amendment Re Oil and Gas Leases with I.W. Carson LLC, dated February
29, 2010 (filed on Form 8-K with the Commission on April 6, 2010).
10.3*
Assignment, Bill of Sale and Conveyance with Elm Ridge dated March 1, 2010 (filed on
Form 8-K with the Commission on April 6, 2010).
14*
Code of Ethics, adopted as of March 1, 2004 (incorporated by reference from the Form
10-QSB filed with the Commission on November 17, 2004).
21*
Subsidiaries of the Company (incorporated by reference from the Form 10-Q/A with the
Commission on August 31, 2011).
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 (attached).
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 (attached).
101. INS
XBRL Instance Document†
101. PRE
XBRL Taxonomy Extension Presentation Linkbase†
101. LAB
XBRL Taxonomy Extension Label Linkbase†
101. DEF
XBRL Taxonomy Extension Label Linkbase†
101. CAL
XBRL Taxonomy Extension Label Linkbase†
101. SCH
XBRL Taxonomy Extension Schema†
*
Incorporated by reference from previous filings of the Company.
†
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed
“furnished” and not “filed” or part of a registration statement or prospectus for purposes
of Section 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed”
for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is
not subject to liability under these sections.
24
