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, 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)
Registrant’s telephone number, including area code: 598 94 74 82 67
Securities registered under Section 12(b) of the Act: none.
Securities registered under Section 12(g) of the Act: common stock (title of class), $0.0001 par value.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o 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 Act.
Yes o No þ
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 þNo o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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-K. 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. Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
The aggregate market value of the registrant's common stock, $0.0001 par value (the only class of voting stock), held by
non-affiliates (16,945,545 shares) was approximately $550,730 based on the average closing bid and ask prices ($0.0325) for the
common stock on March 28, 2013.
At April 1, 2013 the number of shares outstanding of the registrant's common stock, $0.0001 par value (the only class of voting
stock), was 24,846,586.
1
TABLE OF CONTENTS
PART I
Item1.
3
Item 1A.
9
Item 1B.
Unresolved Staff Comments
14
Item 2.
14
Item 3.
Legal Proceedings
16
Item 4.
Mine Safety Disclosures
16
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
17
Equity Securities
Item 6.
Selected Financial Data
20
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
20
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
25
Item 8.
Financial Statements and Supplementary Data
25
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
26
Item 9A.
Controls and Procedures
26
Item 9B.
Other Information
28
PART III
Item 10.
Directors, Executive Officers, and Corporate Governance
29
Item 11.
Executive Compensation
32
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
34
Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
34
Item 14.
Principal Accountant Fees and Services
35
PART IV
Item 15.
Exhibits, Financial Statement Schedules
36
37
2
PART I
ITEM 1.
As used herein the terms “Company,” “we,” “us,” and “our,” refer to Providence Resources, Inc., a
Texas corporation, and its subsidiaries. All references herein to “PRE” refer to PRE Exploration, LLC,
the Company’s wholly owned subsidiary, and its subsidiaries.
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 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 related to these rights due to our inability to commercialize the technology.
Management’s focus then turned to opportunities existing in the oil and gas sector. The search ultimately
caused the Company to acquire PRE Exploration LLC on September 29, 2006 in connection with
prospective oil and gas production from lease hold interests in Comanche, Hamilton and Val Verde
Counties, Texas. On completing the acquisition of PRE the Company changed its name to “Providence
Resources, Inc.”
The Company subsequently abandoned exploration and development efforts in Comanche and Hamilton
Counties.
The Val Verde County leases expired in February of 2013. The Company is currently in discussions with
the land owners for the purpose of renewing the Val Verde County leases. Should developmental resources
become available and we are able to reach an agreement to renew these leasehold interests, our focus will
return to the completion of wells drilled in Val Verde County.
The Company’s principal place of business is located at 700 Lavaca Street, Austin, Texas 78701, and our
telephone number is (210) 807-4204. Our registered statutory office is located at 408 West 17th Street,
Suite 101, Austin, Texas 78701.
The Company
Oil and Gas Exploration in Val Verde County
Leases
On March 30, 2006, PRE acquired approximately 12,832 gross acres of oil and gas leases over 57 square
miles in Val Verde County, Texas from Global Mineral Solutions, L.P. (“Global”). The leases included
underlying multiple oil and gas target zones delineated by 3D seismic data and drilling in the area, along a
trend that has produced from multiple large gas fields, including the Gomez field, the Brown Bassett field,
and the JM field. Effective December 12, 2008, the lease terms on 9,989.2 of the acres under lease were
extended pursuant to an agreement with I.W. Carson LLC (“Carson”), the owner of the acreage. On
December 22, 2008, PRE acquired from Global an additional 3,352.1 acres of oil and gas leases underlying
acreage owned by Carson for an aggregate of 13,341.3 acres in Val Verde County. On February 28, 2010,
PRE entered into an Extension and Amendment Re Oil and Gas Leases with Carson to extend the primary
term of the leases until February 28, 2013. The extension obligated PRE to drill two additional wells on the
leases with the option to secure the leases past February 28, 2013 with continuous development.
3
The Company allowed leases on approximately 2,843 acres of that acreage acquired in 2006 to lapse.
Investment in that acreage was fully impaired in the year ended December 31, 2009.
Since the expiration of the leases subsequent to period end, the Company has been in discussions with
Carson to negotiate the terms of a renewal in order to continue development activities in Val Verde County.
Seismic Exploration
On March 27, 2007, PRE engaged TRNCO Petroleum Corporation to implement an I/O two recording
system using the latest in state-of-the-art acquisition and processing parameters to generate high quality 3D
seismic data from the Val Verde County leases. Dawson Geophysical Company was concurrently engaged
to obtain the actual 3D seismic data while Fairfield Industries Incorporated was subsequently engaged to
interpret the data in concert with consulting geologists familiar with the geophysical applications of seismic
data. The 3D seismic data collected and interpreted illuminated deep gas targets at depths ranging from
14,000 to 16,000 feet in the Ellenberger carbonate, in addition to targets within the Strawn carbonate and
Pennsylvanian-Wolfcamp sandstone reservoirs at lesser depths. PRE identified 25 prospective drilling
locations on the Val Verde leases based on this information.
Drilling
On August 8, 2008, PRE entered into a Prospect Participation and Joint Operating Agreement with Elm
Ridge Exploration Company, LLC (“Elm Ridge”) pursuant to which Elm Ridge acquired a 50% working
interest in the Val Verde leases in exchange for $7,212,800 and a $2,000,000 carried interest in the drilling
of two exploratory wells. R.K Ford & Associates, Inc. (“R.K. Ford”) was then engaged to drill two
exploratory wells to the Ellenberger formation to test the structure at a depth of approximately 16,000 feet.
R.K. Ford finished drilling the Carson 10-1 in early March of 2009 and the Carson 12-1 in late April of
2009. Despite promising results the wells were not completed and the Carson 12-1 was plugged and
abandoned.
PRE and Elm Ridge executed an Assignment, Bill of Sale and Conveyance, effective March 1, 2010, that
assigned all of Elm Ridge’s right, title and interest in the Val Verde County leases back to PRE, including
the wells, rights, and intellectual property, subject to existing royalties, and agreements with Global.
Reentry/Completion
PRE intends to complete the Carson 10-1 and Carson 12-1 wells by reentering the well bore to test the
Strawn formation and, based on completion results, develop the Ellenberger formation. The development
program is contingent on the availability of financing, the renewal of leases on the acreage that have expired
since period end and consideration of the economics of the program based on future projections for natural
gas prices.
The Company’s wholly owned subsidiary PRT Holdings, LLC, has posted a $25,000 bond with the Texas
Railroad Commission and is now mandated as the operator of the Val Verde leases.
The Company fully impaired the capitalized costs associated with the Val Verde County oil and gas
properties in the year ended December 31, 2011.
4
Competition
The oil and gas business in Texas is highly competitive. Companies with greater financial resources,
existing staff and labor forces, equipment for exploration, and experience are in a better position than us to
compete for leases and production. In addition, our ability to market any oil and gas which we might
produce could be severely limited by our inability to compete with larger companies operating in the same
area, which may be willing or able to offer oil and gas at a lower price.
The Company competes in Texas with over 1,000 independent companies and 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 the Company can successfully compete against other independent companies by utilizing
the expertise of consultants familiar with the structures to be developed, maintaining low corporate
overhead and otherwise efficiently developing current lease interests.
Marketability
The Company does not produce oil or gas products for market at this time.
The products that the Company intends to market - oil and natural gas products - 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.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements and Labor Contracts
We currently have no patents, trademarks, licenses, franchises, concessions, or labor contracts, except the
leases we have acquired for oil, gas and mineral interests to provide for the payment of royalties in the event
production is realized.
Governmental and Environmental Regulation
The Company’s oil and gas exploration activities, 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 could result in substantial penalties. The regulatory burden on the oil and gas
industry adds to our cost of doing business and may affect future profitability. Since 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.
5
The Company’s oil and gas exploration activities and the possibility of future production 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 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.
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 various
substances 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.
The following environmental laws and regulatory programs appear to be the most significant to our
operations in 2012:
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.
6
Clean Air Regulatory Programs — The Company’s 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. The Company is not
presently aware of any potential adverse claims in this regard.
Waste Disposal Regulatory Programs — The Company’s 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”. Since hazardous wastes require 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.
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. The
Company believes that it functions in compliance with these rules.
Climate Change Legislation and Greenhouse Gas Regulation — Many studies over the past couple
decades have indicated that emissions of certain gases contribute to warming of the Earth’s atmosphere. In
response to these studies, many nations have agreed to limit emissions of “greenhouse gases” or “GHGs”
pursuant to the United Nations Framework Convention on Climate Change, and the “Kyoto Protocol.”
Although the United States elected not to participate in the Kyoto Protocol, several states have adopted
legislation and regulations to reduce emissions of greenhouse gases. Restrictions on emissions of methane
or carbon dioxide that may be imposed in various nations and states could adversely affect our operations
and demand for our prospective products.
7
The United States Supreme Court has ruled, in Massachusetts, et al. v. EPA, that the EPA abused its
discretion under the Clean Air Act by refusing to regulate carbon dioxide emissions from mobile sources.
As a result of the Supreme Court decision the EPA issued a finding that serves as the foundation under the
Clean Air Act to issue other rules that would result in federal greenhouse gas regulations and emissions
limits under the Clean Air Act, even without Congressional action. As part of this array of new regulations
the EPA also issued a GHG monitoring and reporting rule that requires certain parties, including
participants in the oil and natural gas industry, to monitor and report their GHG emissions, including
methane and carbon dioxide, to the EPA. These regulations may apply to our operations. The EPA has
proposed two other rules that would regulate GHGs, one of which would regulate GHGs from stationary
sources, and may affect sources in the oil and natural gas exploration and production industry and the
pipeline industry. The EPA’s finding, the greenhouse gas reporting rule, and the proposed rules to regulate
the emissions of greenhouse gases would result in federal regulation of carbon dioxide emissions and other
greenhouse gases, and may affect the outcome of other climate change lawsuits pending in United States
federal courts in a manner unfavorable to our industry. Acts of Congress, particularly such as the
“American Clean Energy and Security Act of 2009,” also known as the “Waxman-Markey cap-and-trade
legislation,” approved by the United States House of Representatives on June 26, 2009, as well as the
decisions of lower courts, large numbers of states, and foreign governments which affect climate change
regulation could have a material adverse effect on our business, financial condition, and results of
operations.
Compliance
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 on 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 one employee and relies on independent contractors to assist it in managing the
development of oil and gas interests. We also rely on geophysicists, geologists, attorneys, and accountants
as necessary to assist us in moving our business forward.
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 100 F Street, N.E., 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.
8
ITEM 1A.
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 inception of the exploration stage in 2006, 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, 2012 and 2011 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 $57,080,934 as of December 31, 2012.
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.
The Company has no assurance that it will be able to renew the leases that expired in Val Verde County
subsequent to period end.
The Company’s leases in Val Verde County expired subsequent to period end despite discussions with the
land owners to extend same. We are currently in negotiations to renew the Val Verde leases in order to
complete our development plan for those wells drilled to date. Despite our efforts, we can provide our
shareholders with no assurance that negotiations will ultimately result in a renewal of the Val Verde leases.
Should we be unable to reach an agreement to renew the leases our plan of operating going forward is
uncertain and may cause us to abandon efforts to date in oil and gas development activities.
9
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 could
contribute to 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.
10
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 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.
11
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.
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.
12
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.
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.
13
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.
Oil and Gas Properties
As of the period end December 31, 2012, the Company held an aggregate of 13,341.3 acres of oil and gas
leases located in Val Verde County, Texas. Subsequent to period end said leases expired. The Company
remains in negotiations with the acreage owners to renew the leases.
On March 30, 2006, PRE acquired 9,989.2 of its acres of oil and gas leases pursuant to an agreement with
Global. Effective December 12, 2008, the terms of the leases were extended pursuant to an Agreement re
Oil and Gas Lease with Carson.
Abstract
Survey
Block
Original Grantee
Acres
2014
W. pt. 10
S-10
Monroe Ashworth
1,098.80
2301
W. pt. 14
S-14
M. A. Allen
955.40
2159
NW pt. 12
C-15
R. A. Ashley
126.00
2575
SW pt. 12
C-15
R. A. Ashley
398.30
1483
10
C-15
E. J. Hullum
556.85
1484
11 1/2
C-15
M. J. Main
556.85
2051
30
G
C G & S F
643.60
1519
31
G
G C & S F
643.60
2302
16
S-10
E. C. Hamilton
1,334.80
1518
29
G
GC & SF RR Co.
640.00
2387
14
G
GC & SF RR Co.
640.00
2059
10
G
GC & SF RR Co.
640.00
1509
11
G
GC & SF RR Co.
640.00
1489
9
C-15
B P. Simmons
1,115.00
Total
9,989.20
14
On December 22, 2008 PRE acquired from Global an additional 3,352.1 acres of oil and gas leases
underlying acreage owned by Carson.
Abstract
Part; Section
Block
Original Grantee
Acres
2300
All; 9
S-10
S. Bailey
1,335.80
2303
All; 4
S-10
M. M. Norman
1,335.80
1922
W/2, 3
S-10
H. Lawson
680.50
Total
3,352.10
On February 28, 2010, PRE entered into an Extension and Amendment Re Oil and Gas Leases with Carson
to extend the primary term of the leases until February 28, 2013. The extension obligated PRE to drill two
additional wells on the leases with the right to secure the leases past February 28, 2013 with continuous
development of the acreage. The leases expired in February of 2013.
Drilling Activity
During 2009 PRE engaged R.K. Ford to drill two exploratory wells to the Ellenberger formation underlying
the leases in Val Verde County, one of which was plugged and abandoned subject to reentry. PRE’s
analysis of the exploratory wells identified prospective secondary production targets in the Strawn and
Pennsylvanian Wolfcamp/Canyon Sands. The Company analyzed the drill results and made a
determination to complete both wells in 2012 subject to financing. Since financing did not materialize over
the period, anticipated completion efforts were suspended.
PRE is not in the process of installing waterfloods, performing pressure maintenance operations, or
performing any other related operations of material importance.
Delivery Commitments
PRE has no contracts to provide a fixed and determinable quantity of oil or gas.
Undeveloped Acreage
All acreage in which PRE maintained 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. PRE’s interest in undeveloped acreage expired subsequent to
period end.
Oil and Gas Reserves
The existence of oil and gas reserves for our properties had not been determined as of December 31, 2012.
15
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 Facility
The Company currently maintains limited executive office space at 700 Lavaca Street, Suite 1400, Austin,
Texas 78701 for which it pays rent of $75 a month on a recurring basis.
ITEM 3.
LEGAL PROCEEDINGS
None.
ITEM 4.
MINE SAFETY DISCLOSURES
Not Applicable.
16
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 Financial Industry Regulatory Authority, 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 which may not necessarily reflect actual transactions. The adjusted
high and low bid prices for the common stock for each of the quarters listed below are as follows:
Year
Quarter Ended
High
Low
2012
December 31
$0.13
$0.02
September 30
$0.10
$0.02
June 30
$0.13
$0.02
March 31
$0.25
$0.03
2011
December 31
$0.25
$0.04
September 30
$0.25
$0.16
June 30
$0.25
$0.23
March 31
$0.51
$0.12
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 December 31, 2012, there were 162 shareholders of record holding a total of 24,846,586 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 December 31, 2012, 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.
Warrants
As of December 31, 2012, the Company has no warrants issued and outstanding.
17
Stock Options
As of December 31, 2012, the Company has 3,350,000 outstanding vested stock options to purchase shares
of our common stock. Options to purchase 350,000 shares of our common stock were granted pursuant to
the Providence Resources, Inc. 2008 Stock Option Plan, with an exercise price of $1.20 per share over a
term of ten years from the date of each respective grant subject to the terms and conditions of the Plan and
respective stock option agreements. The remaining 3,000,000 outstanding vested options to purchase shares
of our common stock were granted pursuant to a stock option award agreement, with an exercise price of
$0.25 per share over a term of three years from the date of grant subject to the terms and conditions of the
stock option award agreement.
Convertible Debentures and Notes
As of December 31, 2012, the Company had convertible debentures, issued as of November 30, 2010, to
replace those issued on November 28, 2005, that bear interest at 10% per annum, permit the conversion of
principal and interest into shares of common stock at any time on or before November 30, 2015, as follows:
Holder
Amount
Conversion
($)
Rate (Common
Shares)
Desmodio Management, Inc.
443,410
0.12
Capriccio Investments, Inc.
443,410
0.12
FE Global Convertible Investment Ltd. (assigned by “FE
1,410,422
0.12
Global Leveraged Investment Ltd.”)
FE Global Undervalued Investment Ltd.
287,250
0.12
Sunshine, Inc. (formerly “First Equity Bancorp Ltd.”)
114,900
0.12
FAGEB AG
1,149,001
0.12
Total
3,848,393
18
As of December 31, 2012 the Company’s outstanding secured convertible promissory notes are as follows:
Holder
Date Issued
Amount
Interest
Due Date
Conversion
($)
Rate
(Common
Shares)
Global Convertible Megatrend Ltd.
June 25, 2010
834,130
10%
June 25, 2015
0.12
Bluemont Investments Ltd.
August 27, 2010
266,200
10%
August 27, 2015
0.12
Global Project Finance AG *
May 31, 2010
1,331,000
10%
May 31, 2015
0.12
Global Convertible Megatrend Ltd.
August 8, 2010
1,863,000
10%
August 8, 2015
0.12
Golden Beach Company Ltd.
August 8, 2010
133,100
10%
August 8, 2015
0.12
CR Innovations AG*
August 8, 2010
798,600
10%
August 8, 2015
0.12
Global Project Finance AG*
August 8, 2010
532,400
10%
August 8, 2015
0.12
Global Undervalued Investment Ltd.
August 15, 2010
332,750
10%
August 15, 2015
0.12
FE Global Leveraged Investment Ltd.
August 15, 2010
332,750
10%
August 15, 2015
0.12
Miller Energy LLC
April 29, 2010
1,331,000
10%
April 29, 2015
0.12
Global Convertible Megatrend Ltd.
February 23, 2010
665,334
8%
February 23, 2015
0.12
Global Convertible Megatrend Ltd.
February 26, 2010
510,000
8%
February 26, 2015
0.12
FAGEB AG
March 4, 2010
622,401
8%
March 4, 2015
0.12
Global Convertible Megatrend Ltd.
March 4, 2010
530,847
8%
March 4, 2015
0.12
Total
10,083,512
* Related party convertible promissory notes.
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
On December 31, 2012, the Company authorized the issuance of 7,000,000 restricted common shares to
certain persons or entities in exchange for $140,000 or $0.02 a share received throughout 2012 in reliance
upon the exemptions from registration provided by Section 4(2) and Regulation S of the Securities Act of
1933, as amended (“Securities Act”) as follows:
19
Name
Shares
Price Per Share
Consideration
Exemption
Project Global Finanze
2,500,000
$0.02
$50,000
Reg. 4(2)/S
Bruno Sauter
3,500,000
$0.02
$70,000
Reg. 4(2)/S
Christian Russenberger
1,000,000
$0.02
$20,000
Reg. 4(2)/S
The Company complied with the exemption requirements of Section 4(2) of the Securities Act based on the
following factors: (1) the issuances were isolated private transactions by the Company which did not
involve a public offering; (2) the offerees had access to the kind of information which registration would
disclose; and (3) the offerese are financially sophisticated.
The Company complied with the exemption requirements of Regulation S by having directed no offering
efforts in the United States, by offering common shares only to offerees who were outside the United States
at the time of the offering, and ensuring that the offerees to whom the securities were offered and authorized
were non-U.S. offerees with addresses in foreign countries.
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, 2012 the Company was involved in (i) seeking out prospective
financing or joint venture partners to fund the completion of the Val Verde County wells, (ii) negotiating
with the owners of the leasehold acreage for either an extension or renewal of the Carson leases in Val
Verde County; and (iii) satisfying continuous public disclosure requirements.
The Company would like to complete its Carson 10-1 and Carson 12-1 wells in Val Verde County, Texas,
over the next twelve months subject to a renewal of the Carson leases and the availability of financing.
Efforts to complete the wells to date have been delayed pending the receipt of financing commitments and
may now prove impossible in the event the Company is not able to renew the Carson leases. Should a
renewal of the Carson leases be procured, 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 though management
continues to seek out prospective investors and partners.
20
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 exploration stage on October 1, 2006 or inception until December 31,
2012, the Company incurred net losses of $57,080,934. Net losses for the year ended December 31, 2012,
were $1,696,586 as compared to $11,952,178 for the year ended December 31, 2011. The decrease in net
losses over the comparable periods can be attributed primarily to the impairment of assets amounting to
$9,354,030 in the prior period associated with capital costs expended on the Val Verde County leases. We
expect to continue to operate at a loss through fiscal 2013 due to the nature of our exploration and
development activities and cannot determine whether we will ever generate revenue from operations.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2012, were $160,281 as compared to
$1,197,894 for the year ended December 31, 2011. The decrease in general and administrative expenses
over the comparable periods can be primarily attributed to the decrease in stock compensation expense to
$0 in the current period from over $900,000 in the prior period. We expect that general and administrative
expenses will remain relatively consistent until such time as financing is made available to continue with
development activities.
Other Expense
Interest expense for the year ended December 31, 2012, increased to $1,536, 305 from $1,400,254 for the
year ended December 31, 2011, in connection with outstanding convertible debt.
Impairment of capital assets for the year ended December 31, 2012, was $0 compared to $9,354,030 for the
year ended December 31, 2011. The impairment expenses in the prior period were in connection with
amounts expended on the development of the leases in Val Verde County.
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.
Capital Expenditures
The Company has spent significant amounts of capital for the period from inception to December 31, 2012,
on unproved oil and gas properties, pipeline construction, and related exploration costs though some
amount of such prior oil and gas capital expenditures have since been impaired and expensed. Unimpaired
unproved oil and gas property costs as of December 31, 2012 and 2011 were zero, respectively.
21
Liquidity and Capital Resources
The Company has been in the exploratory stage since inception and has experienced significant changes in
liquidity, capital resources, and stockholders’ equity.
The Company had a working capital deficit of $26,386 at December 31, 2012. Current assets were $25,096
in cash and $3,925 in prepaid expenses. Total assets were $1,054,021 including current assets, $1,000,000
in restricted cash held for the benefit of the owners of the Val Verde leasehold interests, and $25,000 held
for the benefit of the Texas Railroad Commission. Current liabilities were $55,407, consisting solely of
accounts payable. Total liabilities were $17,491,456 including current liabilities, accrued expenses of
$2,786,720, related party payables of $3,379,424, and long term debt of $11,269,905. Total stockholders’
deficit was $16,437,435 as of December 31, 2012.
For the period from inception of its current exploration stage until December 31, 2012, the Company’s cash
flow used in operating activities was $4,794,049. Cash flow used in operating activities for the year ended
December 31, 2012, was $175,761 compared to $282,085 for the year ended December 31, 2011. The
change in cash flow used in operating activities during the current period is primarily due to the increase in
related party payables and accrued expenses. 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 December 31, 2012, the Company’s cash
flow used in investing activities was $5,598,654. Cash flow provided by investing activities for the year
ended December 31, 2012 was zero compared to cash flow provided by investing activities of $25,000 for
the year ended December 31, 2011. Cash flow provided by investing activities in the prior period can be
attributed to that amount placed on deposit with the Texas Railroad Commission. The Company expects to
use cash flow in investing activities in future periods in connection with oil and gas exploration.
For the period from inception of its current exploration stage until December 31, 2012, the Company’s cash
flow provided by financing activities was $6,600,774. Cash flow provided by financing activities for the
year ended December 31, 2012 was $190,000 compared to $267,200 for the year ended December 31,
2011. Cash flow provided by financing activities in the current period was from the issuance of common
stock. 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 in the event that we can renew the
leases in Val Verde County. We may also require an additional $4,000,000 to fund the drilling of two
additional wells on the Carson leases in order to renew 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 will 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.
22
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. Subsequent to period end, the leases expired. We are currently in
the process of discussions to renew the leases.
We have no defined benefit plan except our 2008 Stock Option Plan and have no contractual commitment
with our sole executive officer outside of a consulting agreement that is renewable on an annual basis.
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.
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
The Company’s 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 in
the current exploration stage of $57,080,934 as of December 31, 2012. 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 includes the
completion of private equity or debt offerings, procuring joint venture partners, 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.
23
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
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 year ended December
31, 2012 and 2011 included in this 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 16 to our consolidated financial statements for recent accounting pronouncements.
24
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements for the years ended December 31, 2012 and 2011 are attached hereto
as F-1 through F-18.
25
PROVIDENCE RESOURCES, INC.
(An Exploratory Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2011
Page
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets
F-3
Consolidated Statements of Operations
F-4
Consolidated Statement of Stockholders’ Deficit and Comprehensive Loss
F-5
Consolidated Statements of Cash Flows
F-8
Notes to Consolidated Financial Statements
F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Providence Resources, Inc.
We have audited the accompanying consolidated balance sheets of Providence Resources, Inc. (an exploration stage company) as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ deficit and comprehensive loss, and cash flows for the years ended December 31, 2012 and 2011, and for the period from October 1, 2006 (inception of exploration stage) to December 31, 2012. Providence Resources, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we
express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Providence Resources, Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows
for the years ended December 31, 2012 and 2011, and for the period October 1, 2006 (inception of exploration stage) to
December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going
concern. As discussed in Note 2, the Company has a history of operating losses, has limited cash resources, and its viability
is dependent upon its ability to meet its future financing requirements, and the success of future operations. These factors
raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those
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/ MartinelliMick PLLC
Martinelli Mick PLLC
Spokane, WA
April 1, 2013
F-2
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31, 2012 and 2011
December 31,
December 31,
ASSETS
2012
2011
Current assets:
Cash
$
25,096 $
10,857
Prepaid expenses
3,925
-
Total current assets
29,021
10,857
Restricted cash
1,000,000
1,000,000
Deposit
25,000
25,000
Total assets
$
1,054,021 $
1,035,857
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable
$
55,407 $
58,003
Related party payables
-
8,960
Total current liabilities
55,407
66,963
Accrued expenses
2,786,720
1,557,635
Related party payables
3,379,424
3,072,203
Long-term debt
11,269,905
11,269,905
Total liabilities
17,491,456
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, 24,846,586 and 15,346,586 shares issued and
outstanding, respectively
2,485
1,535
Additional paid-in capital
52,324,205
52,135,155
Accumulated deficit before current exploration stage
(11,834,164)
(11,834,164)
Deficit accumulated during the exploration stage
(57,080,934)
(55,384,348)
Total Providence Resources, Inc. stockholders' deficit
(16,588,408)
(15,081,822)
Non-controlling interest
150,973
150,973
Total stockholders' deficit
(16,437,435)
(14,930,849)
Total liabilities and stockholders' deficit
$
1,054,021 $
1,035,857
The accompanying notes are an integral part of these consolidated financial statements.
F-3
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2012 and 2011 and Cumulative Amounts
Cumulative
2012
2011
Amounts
Revenues
$
- $
- $
-
General and administrative expenses
160,281
1,197,894
10,617,568
Loss from operations
(160,281)
(1,197,894)
(10,617,568)
Other income (expense):
Interest income
-
-
144,450
Interest expense
(1,536,305)
(1,400,254)
(15,724,564)
Impairment of capital assets
-
(9,354,030)
(32,251,552)
Debt extinguishment and conversion income
-
-
195,337
Gain on sale of assets
-
-
1,119,109
(1,536,305)
(10,754,284)
(46,517,220)
Loss before income taxes
(1,696,586)
(11,952,178)
(57,134,788)
Provision for income taxes
-
-
-
Net loss
(1,696,586)
(11,952,178)
(57,134,788)
Net loss attributable to the non-controlling interest
-
-
53,854
Net loss attributable to Providence Resources, Inc. $
(1,696,586) $ (11,952,178) $ (57,080,934)
Loss per common share -
basic and diluted
$
(0.10) $
(0.83)
Weighted average common shares outstanding -
basic and diluted
16,330,193
14,387,682
The accompanying notes are an integral part of these consolidated financial statements.
F-4
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT AND COMPREHENSIVE LOSS
January 1, 2006 to December 31, 2012
Accumulated
Deficit
Accumulated
Deficit Before
Accumulated
Additional
Deferred
Other
Current
During the
Common Stock
Paid-in
Subscription
stock
Comprehensive
Exploration
Exploration
Shares
Amount
Capital
Receivable
compensation
Income
Stage
Stage
Total
Balance at January 1, 2006
2,746,807 $
275 $ 10,426,743 $
- $
- $
14,370 $
(9,153,100) $
- $
1,288,288
Comprehensive loss:
Net loss
-
-
-
-
-
-
(2,681,064)
(4,080,520)
6,761,584)
Other comprehensive income -
cumulative foreign translation
adjustment
-
-
-
-
-
190
-
-
190
Total comprehensive loss
(6,761,394)
Issuance of common stock for:
Acquisition of Providence
Exploration
3,333,333
333
15,999,667
-
-
-
-
-
16,000,000
Cash
2,228,320
223
8,021,729
-
-
-
-
-
8,021,952
Debt
334,130
33
2,071,181
-
-
-
-
-
2,071,214
Issuance of warrants with equity
financing
-
-
3,409,330
-
-
-
-
-
3,409,330
Issuance of warrants for finder’s
fees
-
-
122,743
-
-
-
-
-
122,743
Balance at December 31, 2006
642,590
864
40,051,393
-
-
14,560
(11,834,164)
(4,080,520)
24,152,133
Comprehensive loss:
Net loss
-
-
-
-
-
-
-
(22,284,795)
(22,284,795)
Other comprehensive income -
cumulative foreign translation
adjustment
-
-
-
-
-
12
-
-
12
Total comprehensive loss
(22,204,263)
Issuance of common stock for:
Cash
331,250
33
236,667
-
-
-
-
-
236,700
Services
241,667
24
284,976
-
-
-
-
-
285,000
Debt
644,680
65
580,448
-
-
-
-
-
580,513
Discount on convertible notes
-
-
4,091,667
-
-
-
-
-
4,091,667
Balance at December 31, 2007
9,860,187
986
45,245,151
-
-
14,572
(11,834,164)
(26,284,795)
7,141,750
F-5
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT AND COMPREHENSIVE LOSS
January 1, 2006 to December 31, 2012
Accumulated
Deficit
Accumulated
Deficit Before
Accumulated
Additional
Deferred
Other
Current
During the
Common Stock
Paid-in
Subscription
stock
Comprehensive
Exploration
Exploration
Shares
Amount
Capital
Receivable
compensation
Income
Stage
Stage
Total
Forward Balance at December
31, 2007
9,860,187
986
45,245,151
-
-
14,572
(11,834,164)
(26,284,795)
7,141,750
Comprehensive loss:
Net loss
-
-
-
-
-
-
-
(6,238,393)
(6,238,393)
Other comprehensive income -
cumulative foreign currency
-
-
-
-
-
(14,572)
-
-
(14,572)
translation adjustment
Total comprehensive loss
(6,252,965)
Issuance of common stock for:
Services
183,333
18
219,982
-
-
-
-
-
220,000
Interest on convertible
287,000
debentures
318,889
32
286,968
-
-
-
-
-
Stock compensation –stock
options
-
-
2,012,842
-
(522,349)
-
-
-
1,490,493
Discount on convertible notes
-
-
2,169,590
-
-
-
-
-
2,169,590
Balance at December 31, 2008
10,362,409
1,036
49,934,533
-
(522,349)
-
(11,834,164)
(32,523,188)
5,055,868
Stock compensation –stock
options
-
-
-
-
225,327
-
-
-
225,327
Issuance of common stock for
interest on convertible
debentures
49,621
5
23,813
-
-
-
-
-
23,818
Debt extinguishment on long
term convertible debentures
-
-
888,726
-
-
-
-
-
888,726
Net loss
-
-
-
-
-
-
-
(8,456,429)
(8,456,429)
Balance at December 31, 2009
10,412,030
1,041
50,847,072
-
(297,022)
-
(11,834,164)
(40,979,617)
(2,262,690)
F-6
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT AND COMPREHENSIVE LOSS
January 1, 2006 to December 31, 2012
Accumulated
Deficit
Accumulated
Deficit Before
Accumulated
Additional
Deferred
Other
Current
During the
Common Stock
Paid-in
Subscription
stock
Comprehensive
Exploration
Exploration
Shares
Amount
Capital
Receivable
compensation
Income
Stage
Stage
Total
Forward Balance at December
31, 2009
10,412,030
1,041
50,847,072
-
(297,022)
-
(11,834,164)
(40,979,617)
(2,262,690)
Stock compensation – stock
options
-
-
-
-
225,327
-
-
-
225,3273
Purchase and retirement of
common stock
(204,438)
(20)
(99,980)
-
-
-
-
-
(100,000)
Issuance of common stock for
cash and subscription
3,750,000
375
299,625
(142,200)
-
-
-
-
157,800
Rounding due to reverse stock
split
105
-
-
-
-
-
-
-
-
Net loss
-
-
-
-
-
-
-
(2,452,553)
(2,452,553)
Balance at December 31, 2010
13,957,697
1,396
51,046,717
(142,200)
(71,695)
-
(11,834,164)
(43,432,170)
(4,432,116)
Stock compensation – stock
options
-
-
741,355
-
71,695
-
-
-
813,050
Collection of stock
subscription receivable
-
-
-
142,200
-
-
-
-
142,200
Issuance of common stock for
cash and services
1,388,889
139
347,083
-
-
-
-
-
347,222
Net loss
-
-
-
-
-
-
-
(11,952,178)
(11,952,178)
Balance at December 31, 2011
15,346,586
1,535
52,135,155
-
-
-
(11,834,164)
(55,384,348)
(15,081,822)
Issuance of common stock for
cash
9,500,000
950
189,050
-
-
-
-
-
190,000
Net loss
-
-
-
-
-
-
-
(1,696,586)
(1,696,586)
Balance at December 31, 2012
24,846,586 $
2,485 $
52,324,205 $
- $
- $
- $
(11,834,164) $ (57,080,923) $ (16,588,408)
The accompanying notes are an integral part of these consolidated financial statements.
F-7
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2012 and 2011 and Cumulative Amounts
Cumulative
2012
2011
Amounts
Cash flows from operating activities:
Net loss
$
(1,696,586) $
(11,952,178) $
(57,080,934)
Adjustments to reconcile net loss to net cash
used in operating activities:
Shares and options issued for services
-
1,035,272
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
-
9,354,030
32,351,685
Non-controlling interest
-
-
(53,854)
Gain from debt extinguishments
-
-
(406,452)
Gain on sale of assets
-
-
(1,119,109)
Allowance for losses on receivables, net
-
-
33,123
(Increase) decrease in:
Receivables and prepaid expenses
(3,925)
-
437,767
Inventory
-
-
374,515
Deposit
-
(25,000)
(25,000)
Increase (decrease) in:
Accounts payable
(2,596)
(9,222)
1,368,198
Accrued expenses
1,229,085
1,120,962
5,711,480
Related party payables
298,261
194,051
529,512
Net cash used in operating activities
(175,761)
(282,085)
(4,794,049)
Cash flows from investing activities:
Restricted cash
-
25,000
(1,000,000)
Acquisition of property and 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 provided by investing activities
-
25,000
(5,598,654)
Cash flows from financing activities:
Proceeds from long-term debt
-
-
5,700,000
Issuance of common stock
190,000
125,000
709,500
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
190,000
267,200
6,600,774
Net increase (decrease) in cash
14,239
10,115
(3,791,929)
Cash, beginning of period
10,857
742
3,817,025
Cash, end of period
$
25,096 $
10,857 $
25,096
The accompanying notes are an integral part of these consolidated financial statements.
F-8
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
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 year 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 Ellenburger
carbonate, Strawn carbonate, and Pennsylvanian-Wolfcamp sandstone reservoirs underlying approximately
13,341 gross acres of oil and gas leases in Val Verde County, Texas. Subsequent to period end, the leases
expired. The Company is in negotiations with the land owners to renew the leases.
The Company is an exploration stage company as defined by applicable accounting standards.
Principles of Consolidation
The consolidated financial statements include the accounts of Providence Resources and its subsidiaries.
All significant intercompany balances and transactions have been eliminated.
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.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly liquid investments with an
original or current maturity of three months or less to be cash equivalents.
F-9
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Note 1 – Organization and Summary of Significant Accounting Policies (continued)
Unproved Oil and Gas Properties, Not Subject to Amortization
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 an
estimate of abandonment costs, net of estimated equipment salvage costs, and subjected to a quarterly
impairment test, based on the estimated net realizable value of the property. Management records the
impairment of its unproved oil and gas properties at the time impairment appears to exist.
No costs related to production, general corporate overhead, or similar activities have been capitalized. As of
December 31, 2012 and 2011, the Company has no 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 proven reserves currently exist for the Company and therefore no depletion
has been taken as of December 31, 2012 and 2011.
Convertible Debts
In accordance with ASC 470-20, the Company calculates the value of any beneficial conversion features
embedded in its convertible debts. If the debt is contingently convertible, the intrinsic value of the
beneficial conversion feature is not recorded until the debt becomes convertible.
Convertible debts are split into two components: a debt component and a component representing the
embedded derivatives in the debt. The debt component represents the Company’s liability for future interest
coupon payments and the redemption amount. The embedded derivatives represent the value of the option
that debt holders have to convert into ordinary shares of the Company. If the number of shares that may be
required to be issued upon conversion of the convertible debt is indeterminate, the embedded conversion
option of the convertible debt is accounted for as a derivative instrument liability rather than equity in
accordance with ASC 815-40.
The debt component of the convertible debt is measured at amortized cost and therefore increases as the
present value of the interest coupon payments and redemption amount increases, with a corresponding
charge to finance cost – other than interest. The debt component decreases by the cash interest coupon
payments made. The embedded derivatives are measured at fair value at each balance sheet date, and the
change in the fair value is recognized in the income statement.
F-10
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Note 1 – Organization and Summary of Significant Accounting Policies (continued)
Income Taxes
Deferred income taxes arise from temporary differences resulting from income and expense items reported
for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or
noncurrent, depending on the classification of the assets and liabilities to which they relate. Deferred taxes
arising from temporary differences that are not related to an asset or liability are classified as current or
noncurrent depending on the periods in which the temporary differences are expected to reverse.
If the Company has uncertain tax positions, they are evaluated by management and a loss contingency is
recognized when it is probable that a liability has been incurred and the amount of the loss can be
reasonably estimated. The amount recognized is subject to estimation and management judgment, and the
amount ultimately sustained for an uncertain tax position could differ from the amount recognized. As of
December 31, 2012, management did not identify any uncertain tax positions. The tax years previous to
2008 are closed to examination by the Internal Revenue Service.
Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured
limits. 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. All bank deposits of the company are fully insured by
its banks.
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 will be recognized at the time
and point of sale after the product has been extracted from the ground.
Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC 718 which requires companies to
measure compensation cost for stock-based employee compensation at fair value at the grant date and
recognize the expense over the employee’s requisite service period. Under ASC 718, the Company’s
volatility is based on the historical volatility of the Company’s stock or the expected volatility of similar
companies. The expected life assumption is primarily based on historical exercise patterns and employee
post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on
the U.S. Treasury yield curve in effect at the time of grant.
The Company uses the Black-Scholes option-pricing model which was developed for use in estimating the
fair value of options. Option-pricing models require the input of highly complex and subjective variables
including the expected life of options granted and the Company’s expected stock price volatility over a
period equal to or greater than the expected life of the options. Changes in the subjective assumptions can
materially affect the estimated value of the Company’s employee stock options.
The Company recognizes in the statement of operations the grant-date fair value of stock options and other
equity-based compensation issued to employees and non-employees.
F-11
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Note 1 – Organization and Summary of Significant Accounting Policies (continued)
Earnings Per Share
The computation of basic earnings per common share is based on the weighted average number of shares
outstanding during each year.
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 of
stock options outstanding using the treasury stock method and the average market price per share during the
period. Common stock equivalents are not included in the diluted earnings per share calculation when their
effect is anti-dilutive. In 2012 and 2011, the Company’s common stock equivalents were antidilutive.
Common stock equivalents that could potentially dilute earnings per share in the future are the common
stock options and warrants and convertible debts representing approximately 148,000,000 and 103,000,000
shares as of December 31, 2012 and 2011, respectively.
Reclassifications
Certain amounts for 2011 have been reclassified to conform to the 2012 presentation, with no resulting
effect to net loss, accumulated deficit, or earnings per share amounts.
Note 2 – Going Concern
As of December 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
$57,000,000. 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.
F-12
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Note 3 – Restricted Cash
During 2010, PRE extended its Carson acreage leases until February 28, 2013 (see Note 15). 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 December 31, 2012 no funds had been drawn against this letter of credit.
During 2010, the Company arranged a $25,000 letter of credit with the same bank by collateralizing the first
$25,000 in PRI’s checking account for the benefit of PRT to be qualified as an oil and gas wells operator
with the Texas Railroad Commission. During 2011, these funds were transferred to an escrow account
administered by the Texas Railroad Commission. As of December 31, 2012 the balance of this letter of
credit was $25,000 (see Note 4).
Note 4 – Deposit
The deposit consists of $25,000 held in escrow by the Texas Railroad Commission for the benefit of PRT as
the operator of PRE’s wells.
Note 5 – Impairment of Capital Assets
During 2011, the Company recorded an impairment charge of $9,354,030 which was the capitalized costs
of all unproved oil and gas properties. Management has determined that they may be unable to perform the
required exploration in accordance with the terms of existing leases (see Note 3). Management will
continue its efforts to develop the leases, but has no current plans for funding and drilling.
Note 6 – Long-Term Debt
Convertible Debentures
The Company issued six convertible debentures for the total principal sum of $3,848,393 due in full with
accrued interest on November 15, 2015. The debentures bear interest at 10% per annum, and have the
option to convert all or part of the principal and accrued interest into common shares of the Company at
approximately $0.12 per share at any time prior to maturity. The convertible debentures are secured by
substantially all of the Company’s assets.
Convertible debentures consist of:
2012
2011
Total convertible debentures
$
3,848,393
3,848,393
F-13
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Note 6 – Long-Term Debt (continued)
Long-Term Convertible Promissory Notes
Long-term convertible promissory notes consist of:
2012
2011
Convertible Promissory Notes Payable – most are
secured, and some are unsecured notes with carried
interests, maturing between February 2015 and August
2015, including interest ranging from 8% to 10%, and
convertible at approximately $0.12 per common share,
and with anti-dilution features.
$
7,421,512
7,421,512
Notes identified above 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.
Summary
A summary of long-term debt is as follows:
2012
2011
Convertible debentures
$
3,848,393
3,848,393
Long-term convertible promissory notes
7,421,512
7,421,512
$
11,269,905
11,269,905
Accrued interest related to long-term debts is included with Accrued Expenses on the balance sheets and
amounts to $2,786,720 and $1,557,635 as of December 31, 2012 and 2011, respectively.
Note 7 – Related Party Transactions
The Company has an agreement with Nora Coccaro, the Company’s chief executive officer, for consulting
services. The agreement has an automatic renewal provision unless terminated by either party. During the
years ended December 31, 2012 and 2011, the Company recognized consulting expense of $54,000 and
$96,240 respectively.
F-14
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Note 8 – Related Party Payables
Related party payables consist of:
2012
2011
Convertible Promissory Notes Payable - secured,
maturing between May 2015 and August 2015,
including interest at 10%, and convertible at
approximately $0.12 per common share, and with
anti-dilution features
$
2,662,000
2,662,000
Accrued interest on related party convertible
promissory notes payable
717,424
410,203
Amounts due to the CEO of the Company for
consulting fees
-
8,960
3,379,424
3,081,163
Less current portion
-
(8,960)
$
3,379,424
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.
Note 9 – Supplemental Cash Flow Information
Actual amounts paid for interest and income taxes are as follows:
2012
2011
Interest
$
-
-
Income tax
$
-
-
F-15
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Note 10 – Income Taxes
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,
Cumulative
2012
2011
Amounts
Federal tax benefit at statutory rate
$
(577,000)
(4,064,000)
(18,577,000)
Change in valuation allowance
577,000
4,064,000
18,577,000
$
-
-
-
Deferred tax assets are as follows:
2012
2011
Start-up costs
$
510,000
450,000
Net operating loss carryforwards
1,700,000
1,700,000
Accrual to cash basis adjustment
(479,000
(474,000)
Impairment of assets
11,000,000
11,000,000
Stock based compensation
1,231,000
1,231,000
Non-deductible interest expense
4,615,000
4,093,000
Valuation allowance
(18,577,000)
(18,000,000)
$
-
-
The Company has net operating loss carryforwards of approximately $5,000,000, which begin to expire in
the year 2014. The amount of net operating loss carryforwards that can be used in any one year will be
limited by significant changes in the ownership of the Company and by the applicable tax laws which are in
effect at the time such carryforwards can be utilized.
Note 11 – 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, 2012 and 2011.
F-16
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Note 12 – Common Stock Options
In applying the Black-Scholes methodology to the options granted during 2011 the Company used the
following assumptions:
Risk-free interest rate
2.23%
Expected life of options
3 years
Expected price volatility
290%
Dividend rate
-
Common stock options are as follows:
Exercise
Number of
Price Per
Options
Share
Outstanding at January 1, 2011
1,933,333
$1.20 - 1.80
Cancelled
(1,583,333)
1.20
Granted, vested, and excercisable
3,000,000
0.25
Outstanding at December 31, 2012 and 2011
3,350,000
$0.25 - 1.20
The following table summarizes information about common stock options outstanding at December 31,
2012:
Outstanding
Exercisable
Exercise Price
Number
Weighted
Weighted
Number
Weighted
Range
Outstanding
Average
Average
Exercisable
Average
Remaining
Exercise Price
Exercise
Contractual
Price
Life (Years)
$0.25
3,000,000
1.3
$0.25
3,000,000
$0.25
$1.20
350,000
6.0
$1.20
350,000
$1.20
$0.25 - 1.20
3,350,000
1.8
$0.35
3,350,000
$0.35
The weighted average estimated grant date fair value of the stock options granted during 2011 was
approximately $0.25 per share.
Note 13 – Commitments and Contingencies
The Company has a royalty commitment of 25% of net revenue on certain oil and gas leases.
F-17
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Note 14 — Fair Value of Financial Instruments
None of the Company’s financial instruments, which are current assets and liabilities that could be readily
traded, are held for trading purposes. The Company estimates that the fair value of all financial instruments
at December 31, 2012 does not differ materially from the aggregate carrying value of its financial
instruments recorded in the accompanying consolidated balance sheets.
Note 15 – Subsequent Events
The Company has evaluated subsequent events from the balance sheet date through the date the financial
statements were issued. The Company is not aware of any subsequent events which would require
recognition or disclosure in the financial statements except as discussed in the following paragraph.
The Company’s oil and gas leases expired on their terms on February 28, 2013. The Company is seeking to
renew the leases and avoid the forfeiture of $1,000,000 (see Note 3).
Note 16 – 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.
F-18
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this annual report, an evaluation was carried out by the Company’s
management, with the participation of the chief executive officer and the 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”)) as of the end of the period covered
by this report. 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 and the 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 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 such information was accumulated and communicated to management,
including the chief executive officer and the chief financial officer, to allow timely decisions regarding
required disclosures.
Management’s Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control
over financial reporting. The Company’s internal control over financial reporting is a process, under the
supervision of the chief executive officer and chief financial officer, designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the Company’s financial
statements for external purposes in accordance with United States generally accepted accounting principles
(GAAP). Internal control over financial reporting includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the Company’s assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
the financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures are being made only in accordance with authorizations of management
and the board of directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the Company’s assets that could have a material effect on the financial
statements.
Due to its 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.
26
The Company’s management conducted an assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2012, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, which
assessment identified material weaknesses in internal control over financial reporting. A material weakness
is a control deficiency, or a combination of deficiencies in internal control over financial reporting that
creates a reasonable possibility that a material misstatement in annual or interim financial statements will
not be prevented or detected on a timely basis. Since the assessment of the effectiveness of our internal
control over financial reporting did identify material weaknesses, management considers its internal control
over financial reporting to be ineffective.
The matters involving internal control over financial reporting that our management considered to be
material weaknesses were:
lack of an audit committee due to a lack of a majority of outside directors, resulting in ineffective
oversight in the monitoring of required internal controls over financial reporting;
inadequate segregation of duties consistent with control objectives since the responsibilities
associated with the offices of chief executive officer, chief financial officer and principal
accounting officer are assumed by one individual.
The aforementioned material weaknesses were identified by our chief executive officer in connection with
the review of our financial statements as of December 31, 2012.
Management believes that the material weaknesses set forth above did not have an effect on our financial
results. However, management believes that the lack of an audit committee, the inadequate segregation of
duties and the lack of a majority of outside directors results in ineffective oversight in the monitoring of
required internal controls over financial reporting, which weaknesses could result in a material
misstatement in our financial statements in future periods.
This annual report does not include an attestation report of our independent registered public accounting
firm regarding internal control over financial reporting. We were not required to have, nor have we,
engaged our independent registered public accounting firm to perform an audit of internal control over
financial reporting pursuant to the rules of the Commission that permit us to provide only management’s
report in this annual report.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and enhance our internal controls over financial
reporting, the Company plans to initiate, the following measures:
segregate the duties of chief executive officer and chief financial officer/principal accounting
officer consistent with our control objectives; and
appoint outside directors to our board in order to form an audit committee that will undertake
oversight in monitoring of required internal controls over financial reporting such as reviewing
estimates and assumptions made by management.
27
Changes in Internal Controls over Financial Reporting
During the period ended December 31, 2012, 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.
ITEM 9B.
OTHER INFORMATION
None.
28
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
Positions Held
Elected/Appointed
Markus Müller
54
2003
Chairman of the board of directors
Nora Coccaro
56
1999
CEO, CFO, PAO and director
Christian Russenberger
44
2008
Director
Markus Müller was appointed to the Company’s board of directors on May 28, 2003. He estimates that he
spends approximately 10 percent of his time, approximately 5 hours per week, on the Company’s business.
He also has significant responsibilities with other companies, as detailed in the following paragraph.
Business Experience:
Mr. Müller 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 the management of investment funds. Prior to Mr.
Müller’s current engagements he acted as a director of Jefferies AG Zurich (1995 to 2000) and as the
managing director of Jefferies Management AG Zug (1995 to 2000). The Jefferies companies are also
involved in asset management for private clients.
Officer and Director Responsibilities and Qualifications:
Mr. Müller is responsible for the overall management of the Company and serves as the chairman of the
board of directors.
Other Public Company Directorships in the Last Five Years:
None.
Nora Coccaro was appointed to the Company’s board of directors and as chief executive officer, chief
financial officer and principal accounting officer on November 16, 1999. She resigned from her executive
positions on July 2, 2007 to serve as vice-president of corporate affairs. Ms. Coccaro was reappointed as
chief executive officer, chief financial officer and principal accounting officer on December 12, 2013 on
the resignation of Mr. Russenberger. She estimates that she spends approximately 30 percent of her time,
approximately 15 hours per week, on the Company’s business.
29
Business Experience:
Ms. Coccaro has been involved in the management of Canadian and US public entities for over 20 years
having served in a variety of capacities to ensure orderly governance. Between September 1998 and
December 2005 Ms. Coccaro acted as the Consul of Uruguay to Western Canada.
Officer and Director Responsibilities and Qualifications:
Ms. Coccaro is responsible for the overall management of the Company and is responsible for its
day-to-day operations, finance and administration.
Ms. Coccaro attended medical school at the University of Uruguay.
Other Public Company Directorships in the Last Five Years:
None.
Christian Russenberger was appointed to the Company’s board of directors on March 31, 2008 and as
chief executive officer, chief financial officer and principal accounting officer on April 14, 2011 from
which positions he resigned on December 10, 2012. He estimates that he spends approximately 10 percent
of his time, approximately 5 hours per week, on the Company’s business. Mr. Russenberger also has
significant responsibilities with other companies, as detailed in the following paragraph.
Business Experience:
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), and Profumeria.ch AG. 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 to
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 to 1993) and Bank Leu AG (1990 to 1991).
Officer and Director Responsibilities and Qualifications:
Mr. Russenberger is responsible for overseeing management of the Company.
Mr. Russenberger graduated from Realgymnasium Raemibuehl Zurich with a college degree and then from
the SIB Juventus Zurich with a Bachelor of Science in Business Administration.
Other Public Company Directorships in the Last Five Years:
None.
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 were elected 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 hold office at the discretion of the board of directors.
30
Family Relationships
There are no family relationships between or among the directors or executive officers.
Involvement in Certain Legal Proceedings
During the past ten years there are no events that occurred related to an involvement in legal proceedings
that are material to an evaluation of the ability or integrity of any of the Company’s directors, persons
nominated to become directors or executive officers.
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 unaware persons who,
during the period ended December 31, 2012, failed to file, on a timely basis, reports required by Section
16(a) of the Securities Exchange Act of 1934 except as follows:
Mr. Russenberger, a director, failed to file either a Form 4 or Form 5 in connection with his
subscription for shares of the Company’s common stock both directly and indirectly through an
entity owned by Mr. Russenberger.
Bruno Sauter, a greater than 10% shareholder, failed to file a Form 3 or Form 5 in connection
with his subscription for shares of the Company’s common stock.
Code of Ethics
The Company has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K 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.
Director Compensation
Our directors are currently not reimbursed for out-of-pocket costs incurred in attending meetings and are
not compensated for services as a director. The Company has compensated directors in the past and may
adopt additional provisions for compensating directors for their services in the future.
31
ITEM 11.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Our chief executive officer has an employment agreement with the Company though she does have a
consulting agreement dated March 16, 2000, that is renewable on an annual basis, pursuant to which
compensation is paid in the form of a monthly fee. The compensation package is deemed appropriate for
our sole executive officer and was determined in accordance with compensatory packages similar to other
development stage companies. While have determined that our current approach to compensation is
appropriate at this time though we expect to expand our compensation program at some future time to
include a salary, benefits and participation in a stock option plan. The Company’s former chief executive
officer served without compensation throughout the relevant periods in view of fiscal constraints.
For the year ended December 31, 2012 $54,000 was paid through monthly installments to retain our
executive officer in her prior position of vice-president of corporate affairs as compared to $96,240 for the
year ended December 31, 2011. The decrease in compensation over the comparative periods is attributed to
declining activity in the field and fiscal constraints The Company does not expect to enter into an
employment agreement with its chief executive officer in the near term and believes that the level of
compensation evident in 2012 will remain consistent over the next twelve months or until such time as
sufficient funding is realized to return to oil and gas development efforts.
Tables
The following table provides summary information for the years 2012 and 2011 concerning cash and
non-cash compensation paid or accrued by the Company to or on behalf of (i) the chief executive officers,
and (ii) any other employee to receive compensation in excess of $100,000.
Executive’s Summary Compensation Table
Name and
Year
Salary
Bonus
Stock
Option
Non-Equity
Change in
All Other
Total
Principal
($)
($)
Awards
Awards
Incentive Plan
Pension Value
Compensation
($)
Position
($)
($)
Compensation and Nonqualified
($)
($)
Deferred
Compensation
($)
Christian
2012
-
-
-
-
-
-
-
-
Russenberger 2011
-
-
-
-
-
-
-
-
former CEO,
CFO, PAO
and director†
Gilbert
2012
-
-
-
-
-
-
-
-
Burciaga:
2011
-
-
-
741,355
-
-
-
741,355
former CEO,
CFO, PAO
and director*
Nora
2012
54,000
-
-
-
-
-
-
54,000
Coccaro:
2011
96,240
-
-
-
-
-
-
96,240
current
CEO, CFO,
PAO and
director
† Resigned as an officer on December 10, 2012.
* Resigned as an officer and director on April 14, 2011.
32
The following table provides summary information for the year ended December 31, 2012, concerning
unexercised options, stock that has not vested, and equity incentive plan awards by the Company to or on
behalf of (i) the chief executive officer and (ii) any other employee to receive compensation in excess of
$100,000:
Outstanding Equity Awards at Fiscal Year-End
Option awards
Stock awards
Equity
incentive
Equity
Equity
plan
incentive
incentive
Number Market
awards:
plan awards:
plan
of
value of number of
market or
awards:
shares
shares
unearned
payout value
Number of
Number of
number of
or units or units
shares,
of unearned
securities
securities
securities
of stock of stock
units or
shares, units
underlying
underlying
underlying
that
that
other
or other
unexercised unexercised
unexercised Option
have
have
rights that
rights that
options
options
unearned
exercise
Option
not
not
have not
have not
(#)
(#)
options
price
expiration
vested
vested
vested
vested
Name
exercisable unexercisable
(#)
($)
date
(#)
(#)
(#)
($)
Christian
Russenberger*
116,667
-
-
1.20
December
15, 2018
-
-
-
-
Nora Coccaro
91,667
-
-
1.20
December
15, 2018
-
-
-
-
*Mr. Russenberger resigned on December 10, 2012.
We have no agreement that provides for payments to our executive officer at, following, or in connection
with the resignation, retirement or other termination, or a change in control of the Company or a change in
our executive officer's responsibilities following a change in control.
We have no plans that provide for the payment of retirement benefits, or benefits that will be paid primarily
following retirement.
The following table provides summary information for the year ended December 31, 2012 concerning cash
and non-cash compensation paid or accrued by the Company to or on behalf of its directors.
Summary Compensation Table
Name
Fees earned or
Stock
Option
Non-equity
Nonqualified
All other
Total
paid in cash
awards
Awards
incentive plan
deferred
compensation
($)
($)
($)
($)
compensation
compensation
($)
($)
($)
-
-
-
-
-
-
-
Markus Müller
Christian
Russenberger
-
-
-
-
-
-
-
Nora Coccaro
-
-
-
-
-
-
-
33
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 24,846,586
shares of common stock issued and outstanding as of December 31, 2012 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
Title of
Beneficial Owners
Class
Number of Shares
Percent of
Class
Christian Russenberger,* director
5,030,834
Meierhofrain 36, CH-8820
Common
(116,667 options and
Wädenswil, Switzerland
22,183,333 convertible
20.2%
shares)
Markus Müller, director
Bleicherweg 66, CH-8022
Common
2,794,620
Zurich, Switzerland
(116,667 options)
11.2%
Nora Coccaro, CEO, CFO, PAO and director
Rio Negro 1245, Apartment 102
Common
75,587
Postal Code 1100, Montevideo, Uruguay
(91,667 options)
< 0.1%
Officer and directors (three) as a group
Common
7,901,041
31.4%
Bruno Sauter
LM Leeacher 3, CH-8123
Common
3,500,000
14.1%
Ebmantingen, Switzerland
* Christian Russenberger is the owner of 2,347,500 common shares and 116,667 options and is considered the beneficial owner
of (i) 2,683,334 common shares and $1,863,400 in debt convertible into 15,528,333 common shares held by Global Project
Finance AG and (ii) $798,600 in debt convertible into 6,665,000 common shares held by CR Innovations AG.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
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 the following consulting fees and
stock subscriptions:
Nora Coccaro, our chief executive officer and a director, pursuant to a consulting agreement
realized $54,000 in consulting fees for the year ended December 31, 2012.
Christian Russenberger, a director, pursuant to a subscription agreement, acquired 1,000,000
shares of our common stock.
Christian Russenberger, a director and beneficial owner of Global Project Finanze AG, pursuant to
a subscription agreement, acquired 2,500,000 shares of our common stock.
Bruno Sauter, a shareholder holding in excess of 5% of the voting rights in our stock, pursuant to a
subscription agreement, acquired 3,500,000 shares of our common stock.
34
Director Independence
The Company is quoted on the OTC Bulletin Board inter-dealer quotation system, which does not have
director independence requirements. 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. Although neither of Mr. Russenberger or Mr. Müller are executive officers or employees the
number of financing transactions between the Company and entities managed by either Mr. Russenberger
or Mr. Müller, preclude their acting as independent directors. Therefore, we do not believe that our board of
directors includes any independent directors.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
MartinelliMick PLLC (“Martinelli”) provided audit services to the Company in connection with its annual
reports for the fiscal years ended December 31, 2012 and December 31, 2011. The aggregate fees billed by
Martinelli for the audit of our annual financial statements and the review of our quarterly financial
statements in 2012 were $ xxxxx and in 2011 were $ xxxxxx.
Audit Related Fees
Martinelli billed to the Company no fees in 2012 or 2011 for professional services that are reasonably
related to the audit or review of our financial statements that are not disclosed in “Audit Fees” above.
Tax Fees
Martinelli billed to the Company no fees in 2012 or 2011 for professional services rendered in connection
with the preparation of our tax returns for the periods.
All Other Fees
Martinelli billed to the Company no fees in 2012 or 2011 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
Martinelli, as detailed above, were pre-approved by our board of directors. Our independent auditors,
Martinelli, performed all work using only their own full-time permanent employees.
35
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
The following documents are filed under “Item 8. Financial Statements and Supplementary Data,” pages
F-1 through F-18, and are included as part of this Form 10-K:
Financial Statements of the Company for the years ended December 31, 2012 and 2011:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statement of Stockholders’ Deficit and Comprehensive Loss
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) Exhibits
The exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on
page 38 of this Form 10-K, and are incorporated herein by this reference.
(c) Financial Statement Schedules
We are not filing any additional 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
accompanying notes.
36
Providence Resources, Inc.
Date
/s/ Nora Coccaro
April 1, 2013
By: Nora Coccaro
Chief Executive Officer, Chief Financial Officer, Principal
Accounting Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date
/s/ Markus Müller
April 1, 2013
Markus Müller
Director
/s/ Nora Coccaro
April 1, 2013
Nora Coccaro
Chief Executive Officer, Chief Financial Officer
Principal Accounting Officer and Director
/s/ Christian Russenberger
April 1, 2013
Christian Russenberger
Director
37
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 filed with the
Commission on November 22, 2010).
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).
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.
38
