ITEM 1.
BUSINESS
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 has since abandoned exploration and development efforts in Comanche and Hamilton
Counties. Developmental resources are now solely devoted to the completion of wells drilled on its Val
Verde County leases.
The Company’s principal place of business is located at 700 Lavaca Street, Austin, Texas 78701, and our
telephone number is (512) 452-3327. 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 obligates PRE to drill two additional wells on the
leases. PRE can secure the leases past February 28, 2013 with continuous development of the acreage. We
may seek an extension of the lease term as necessary to meet our commitments.
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.
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 and consideration of the economics of the program
based on future projections for natural gas prices. Should PRE determine not to proceed with its
development program in 2012 due to one or both of the noted contingencies, it intends to enter into
negotiations with the lease owners for the purpose of extending the leases beyond the February 2013
expiration date.
The Company’s wholly owned subsidiary PRT Holdings, LLC, has posted a bond with the Texas Railroad
Commission and is now mandated as the operator of the current leases in anticipation of completion efforts
associated with the existing well bores.
The Company fully impaired the capitalized costs associated with the Val Verde County oil and gas
properties in the year ended December 31, 2011.
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 within our Val Verde leases,
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 and will have to consider the
economics of constructing a natural gas pipeline to transport energy produced from its leases in Val Verde
County in the event commercial quantities of natural gas are determined to exist.
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 do 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.
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.
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. PRE currently
obtains construction and operating permits for our compressor engines; we are not presently aware of any
potential adverse claims in this regard.
Waste Disposal Regulatory Programs - 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 products.
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 its oil and gas leases in Val Verde County. 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.
ITEM 1A.
ITEM 1A.
RISK FACTORS
The Company’s operations and securities are subject to a number of risks. Below we have identified and
discussed the material risks that we are likely to face. Should any of the following risks occur, they will
adversely affect our operations, business, financial condition and/or operating results as well as the future
trading price and/or the value of our securities.
Risks Related to the Company’s Business
The Company has a history of operating losses and such losses may continue in the future.
Since the Company’s current inception of exploration stage in 2006, our operations have resulted in a
continuation of losses. We will continue to incur operating losses until such time as we begin producing
revenue, which may or may not eventuate. Should the Company fail to produce revenue it will continue to
operate at a loss.
The Company has a limited operating history as an oil and gas exploration company.
The Company acquired PRE Exploration on September 29, 2006, which first began oil and gas exploration
during the fourth quarter of 2005 and has yet to successfully develop commercial production of oil or gas.
As such, our limited, and to date unsuccessful, operating history in the energy sector provides an inadequate
track record from which to base future projections of success.
The Company has a history of uncertainty about continuing as a going concern.
The Company’s audits for the periods ended December 31, 2011 and 2010 expressed substantial doubt as to
its ability to continue as a going concern due to the lack of revenue generating activities and the
accumulation of significant losses in the current exploration stage of $55,384,348 as of December 31, 2011.
Unless we are able to overcome our dependence on successive financings and generate revenue from
operations, our ability to continue as a going concern is in jeopardy.
The Company cannot represent that it will be successful in continuing operations.
The Company has not generated revenue from operations and may not generate revenue over the next
twelve months. Since the Company may be unable to realize revenue in the near term, it will be forced to
continue to raise capital to remain in operation. We have no commitments for the provision of additional
capital and can offer no assurance that such capital will be available as necessary to sustain operations.
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.
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.
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.
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.
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.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
ITEM 2.
PROPERTIES
Oil and Gas Properties
As of the date of this current report, the Company holds an aggregate of 13,341.3 acres of oil and gas leases
located in Val Verde County, Texas.
On March 30, 2006, PRE acquired 9,989.2 of its acres of oil and gas leases pursuant to an agreement with
Global Mineral Solutions, LP (“Global”). Effective December 12, 2008, the terms of the leases were
extended pursuant to an Agreement re Oil and Gas Lease with I.W. Carson LLC (“Carson”), the owner of
the acreage.
Abstract
Survey
Block
Original Grantee
Acres
W. pt. 10
S-10
Monroe Ashworth
1,098.80
W. pt. 14
S-14
M. A. Allen
955.40
NW pt. 12
C-15
R. A. Ashley
126.00
SW pt. 12
C-15
R. A. Ashley
398.30
C-15
E. J. Hullum
556.85
11 1/2
C-15
M. J. Main
556.85
G
C G & S F
643.60
G
G C & S F
643.60
S-10
E. C. Hamilton
1,334.80
G
GC & SF RR Co.
640.00
G
GC & SF RR Co.
640.00
G
GC & SF RR Co.
640.00
G
GC & SF RR Co.
640.00
C-15
B P. Simmons
1,115.00
Total
9,989.20
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
All; 9
S-10
S. Bailey
1,335.80
All; 4
S-10
M. M. Norman
1,335.80
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 obligates PRE to drill two
additional wells on the leases. PRE can secure the leases past February 28, 2013 with continuous
development of the acreage.
Drilling Activity
During 2009 PRE engaged R.K. Ford to drill two exploratory wells to the Ellenberger formation underlying
our Val Verde County leases, one of which was plugged and abandoned subject to reentry. The Company
analyzed the drill results and made a determination to complete both wells in 2012 as financing becomes
available. We are now the operator for the leases and intend to complete the wells with the aid of
sub-contractors. The Company’s analysis of the exploratory wells has identified prospective secondary
production targets in the Strawn and Pennsylvanian Wolfcamp/Canyon Sands.
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 maintains an interest is to be considered undeveloped acreage. Undeveloped
acreage is considered to be those lease acres on which wells have not been drilled or completed to a point
that would permit the production of commercial quantities of oil and gas regardless of whether or not such
acreage contains proved reserves. Undeveloped acreage should not be confused with undrilled acreage held
by production under the terms of a lease.
Oil and Gas Reserves
The existence of oil and gas reserves for our properties had not been determined as of December 31, 2011.
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 $60 a month on a recurring basis.
ITEM 3.
ITEM 3.
LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4.
(REMOVED AND RESERVED)
Removed and reserved.
PART II
ITEM 5.
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 have been retroactively adjusted to reflect a six to one (1)
consolidation of the stock effective October 8, 2010, and 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
December 31
$0.25
$0.04
September 30
$0.25
$0.16
June 30
$0.25
$0.23
March 31
$0.51
$0.12
December 31
$0.21
$0.10
September 30
$0.24
$0.12
June 30
$0.24
$0.06
March 31
$0.36
$0.18
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 May 2, 2012, there were 159 shareholders of record holding a total of 15,346,586 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 May 2, 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 May 2, 2012, the Company has no warrants issued and outstanding.
Stock Options
As of May 2, 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
$0.25 per share over a term of three years from the date of grant subject to the terms and conditions of the
stock option award agreement.
Convertible Debentures and Notes
As of May 2, 2012, the Company had convertible debentures, issued as of November 30, 2010, to replace
those issued on November 28, 2005, that bear interest at 10% per annum, permit the conversion of principal
and interest into shares of common stock at any time on or before November 30, 2015, as follows:
Holder
Amount
Conversion
($)
Rate (Common
Shares)
Desmodio Management, Inc.
443,410
0.16
Capriccio Investments, Inc.
443,410
0.16
FE Global Convertible Investment Ltd. (assigned by “FE
1,410,422
0.16
Global Leveraged Investment Ltd.”)
FE Global Undervalued Investment Ltd.
287,250
0.16
Sunshine, Inc. (formerly “First Equity Bancorp Ltd.”)
114,900
0.16
FAGEB AG
1,149,001
0.16
Total
3,848,393
As of May 2, 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
0.16
Bluemont Investments Ltd.
August 27, 2010
266,200
10%
August 27, 2015
0.16
Global Project Finance AG *
May 31, 2010
1,331,000
10%
May 31, 2015
0.16
Global Convertible Megatrend Ltd.
August 8, 2010
1,863,000
10%
August 8, 2015
0.16
Golden Beach Company Ltd.
August 8, 2010
133,100
10%
August 8, 2015
0.16
CR Innovations AG*
August 8, 2010
798,600
10%
August 8, 2015
0.16
Global Project Finance AG*
August 8, 2010
532,400
10%
August 8, 2015
0.16
Global Undervalued Investment Ltd.
August 15, 2010
332,750
10%
August 15, 2015
0.16
FE Global Leveraged Investment Ltd.
August 15, 2010
332,750
10%
August 15, 2015
0.16
Miller Energy LLC
April 29, 2010
1,331,000
10%
April 29, 2015
0.16
Global Convertible Megatrend Ltd.
February 23, 2010
665,334
8%
February 23, 2015
0.16
Global Convertible Megatrend Ltd.
February 26, 2010
510,000
8%
February 26, 2015
0.16
FAGEB AG
March 4, 2010
622,401
8%
March 4, 2015
0.16
Global Convertible Megatrend Ltd.
March 4, 2010
530,847
8%
March 4, 2015
0.16
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
None.
ITEM 6.
ITEM 6.
SELECTED FINANCIAL DATA
Not required.
ITEM 7.
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, 2011 the Company was involved in (i) assessing the drilling results
associated with the Carson 10-1 and Carson 12-1 wells in Val Verde County, (ii) seeking out prospective
financing or joint venture partners to fund the completion of the Val Verde County wells, and (iii) satisfying
continuous public disclosure requirements.
The Company intends to complete its Carson 10-1 and Carson 12-1 wells in Val Verde County, Texas, over
the next twelve months subject to the availability of financing and may test the Strawn formation. Efforts to
complete the wells to date and the testing of the Strawn formation have been delayed pending the receipt of
financing commitments. Development of the Val Verde County leases going forward will be dependent on
the Carson completion results. Reentry and completion of the existing well bores will require $4,000,000 in
funding. The Company does not have a commitment for this funding in place though management
continues to seek out prospective investors and partners.
Our business is prone to significant risks and uncertainties that can have an immediate impact on efforts to
generate a positive cash flow. Since we have no assurance that future expectations of natural gas production
will be realized, or that revenue realized from such anticipated production will be sufficient to support our
continued operation, we will continue to rely on debt or equity financing over the near term to remain in
business. We have no commitments for additional debt or equity financing at this time though management
is diligently investigating sources for such financing.
Results of Operations
Net Income/Losses
For the period from re-entering the exploration stage on October 1, 2006 or inception until December 31,
2011, the Company incurred net losses of $55,438,202. Net losses for the year ended December 31, 2011,
were $11,952,178 as compared to $2,452,553 for the year ended December 31, 2010. The increase in net
losses over the comparable periods can be attributed primarily to the impairment of assets amounting to
$9,354,030 in the current period associated with capital costs expended on the Val Verde County leases.
We expect to continue to operate at a loss through fiscal 2012 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, 2011, were $1,197,894 as compared
to $1,429,127 for the year ended December 31, 2010. The decrease in general and administrative expenses
over the comparable periods can be primarily attributed to lower consulting fees paid to management in the
current period. We expect that general and administrative expenses will continue to decrease as greater
operating efficiencies are brought to bear.
Other Income (Expense)
Interest income for the year ended December 31, 2011, decreased to $0 from $969 for the year ended
December 31, 2010. Interest expense for the year ended December 31, 2011, decreased to $1,400,254 from
$2,319,572 for the year ended December 31, 2010.
Impairment of capital assets for the year ended December 31, 2011, was $9,354,030 compared to $0 for the
year ended December 31, 2010. The impairment expenses in the current period were in connection with
amounts expended on the development of the leases in Val Verde County.
Debt extinguishment and conversion income for the year ended December 31, 2011, was $0 as compared to
debt extinguishment and conversion income of $1,295,178 for the year ended December 31, 2010.
Income Tax Expense (Benefit)
The Company has a prospective income tax benefit resulting from a net operating loss carry-forward and
start-up costs that will offset any future operating profit.
Impact of Inflation
We believe that inflation has had a negligible effect on operations for the years ended December 31, 2011
and 2010.
Capital Expenditures
The Company has spent significant amounts of capital for the period from inception to December 31, 2011,
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, 2011 were $0, as compared to $9,312,905 as of
December 31, 2010.
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
$56,106 at December 31, 2011. Current assets were $10,857 in cash. Total assets were $1,035,857
including current assets, $1,000,000 in restricted cash held for the benefit of the owners of the leasehold
interests held by the Company, and $25,000 held for the benefit of the Texas Railroad Commission. Current
liabilities were $66,963, consisting of accounts payable of $58,003 and related party payables of $8,960.
Total liabilities were $15,966,706 including current liabilities, accrued expenses of $1,557,635, related
party payables of $3,072,203, and long term debt of $11,269,905. Total stockholders’ deficit was
$14,930,849 as of December 31, 2011.
For the period from inception of its current exploration stage until December 31, 2011, the Company’s cash
flow used in operating activities was $4,618,288. Cash flow used in operating activities for the year ended
December 31, 2011, was $282,085 compared to $1,091,617 for the year ended December 31, 2010. The
change in cash flow used in operating activities during the current period is primarily due to the impairment
associated with the Val Verde County leases, accrued expenses and related party payables. 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, 2011, 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, 2011 was $25,000 compared to cash flow used in investing activities of $28,757 for
the year ended December 31, 2010. Cash flow provided by investing activities in the current 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 the further development of its
leases.
For the period from inception of its current exploration stage until December 31, 2011, the Company’s cash
flow provided by financing activities was $6,410,774. Cash flow provided by financing activities for the
year ended December 31, 2011 was $267,200 compared to $57,800 for the year ended December 31, 2010.
Cash flow provided by financing activities in the current period was from the issuance of common stock
and the realization of a stock subscription receivable. The Company expects to continue to rely on cash flow
provided by financing activities until such time as it can generate revenue from operations.
Our current assets are insufficient to conduct exploration and development activities over the next twelve
(12) months or to maintain operations. We need a minimum of $4,000,000 in debt or equity financing to
fund the reentry and completion of the Carson 10-1 and Carson 12-1 and to meet minimum operational
requirements. We may also require an additional $4,000,000 to fund the drilling of two additional wells on
the Carson leases in order to maintain the leases. However, we have no commitments or arrangements for
either the first or second tier of these requisite financings, though our shareholders are the most likely
source of loans or equity placements in order for us to maintain operations. Our inability to obtain financing
to complete our development plan for the Carson leases would have a material adverse effect on our
business operations.
We have no intention of paying cash dividends in the foreseeable future.
We have no lines of credit or other bank financing arrangements in place.
We have material commitments to the owners of the Val Verde County leases for future capital
expenditures related to exploration activities which require us to drill two additional wells and produce
commercial quantities of natural gas from the leases on or before February 28, 2013. The material
commitment is approximately $8,000,000.
We have no defined benefit plan except our 2008 Stock Option Plan and currently have no contractual
commitment with our sole executive officer.
We have no current plans for the purchase or sale of any plant or equipment.
We have no current plans to make any changes in the number of employees.
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 $55,384,348 as of December 31, 2011. 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, the development of natural gas exploration activities to
commercial production, and the conversion of outstanding debt to equity. The successful outcome of these
activities cannot be determined at this time, and there is no assurance that, if achieved, we would then have
sufficient funds to execute our intended business plan or generate positive operating results.
Forward Looking Statements and Factors That May Affect Future Results and Financial Condition
The statements contained in the section titled “Results of Operations” and “Discussion and Analysis,” with
the exception of historical facts, are forward looking statements. A safe-harbor provision may not be
applicable to the forward looking statements made in this current report. Forward looking statements reflect
our current expectations and beliefs regarding our future results of operations, performance, and
achievements. These statements are subject to risks and uncertainties and are based upon assumptions and
beliefs that may or may not materialize. These statements include, but are not limited to, statements
concerning:
• our anticipated financial performance;
• uncertainties related to oil and gas exploration and development;
• our ability to generate revenues through oil and gas production to fund future operations;
• movement in energy prices;
• our ability to raise additional capital to fund cash requirements for future operations;
• the volatility of the stock market; and
• general economic conditions.
We wish to caution readers that our operating results are subject to various risks and uncertainties that could
cause our actual results to differ materially from those discussed or anticipated, including the factors set
forth in the section entitled “Risk Factors” included elsewhere in this report. We also wish to advise readers
not to place any undue reliance on the forward looking statements contained in this report, which reflect our
beliefs and expectations only as of the date of this report. We assume no obligation to update or revise these
forward looking statements to reflect new events or circumstances or any changes in our beliefs or
expectations, other that is required by law.
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, 2011 and 2010 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 17 to our consolidated financial statements for recent accounting pronouncements.
ITEM 7A.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements for the years ended December 31, 2011 and 2010 are attached hereto
as through.
PROVIDENCE RESOURCES, INC.
(An Exploratory Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Page
Report of Independent Registered Public Accounting Firms
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
Supplementary Schedules on Oil and Gas Operations
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Providence Resources, Inc.
We have audited the accompanying consolidated balance sheet of Providence Resources, Inc. (an
exploration stage company) as of December 31, 2011, and the related consolidated statements of
operations, stockholders’ equity (deficit), and cash flows for the year ended December 31, 2011 and for the
period from October 1, 2006 (inception of exploration stage) to December 31, 2011. 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 audit. The financial statements for the period from February 17,
1993 (inception) to December 31, 2010, were audited by other auditors who have ceased operations. Those
auditors expressed an unqualified opinion on those financial statements in their report dated April 14, 2011.
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, 2011, and the results of its
operations and its cash flows for the year ended December 31, 2011 and for the period October 1, 2006
(inception of exploration stage) to December 31, 2011, 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 30, 2012
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM*
To the Board of Directors and Stockholders
Providence Resources, Inc.
We have audited the accompanying consolidated balance sheets of Providence Resources, Inc. as of
December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity
(deficit) and comprehensive loss and cash flows for each of the years in the two-year period ended
December 31, 2010 and for the period February 17, 1993 (inception) to December 31, 2010. 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 audits 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, 2010 and 2009, and the
consolidated results of its operations and its cash flows for each of the years in the two-year period ended
December 31, 2010 and for the period February 17, 1993 (inception) to December 31, 2010, 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/ BehlerMick PS
BehlerMick PS
Spokane, Washington
April 14, 2011
___________________________________________
* This is a copy of auditor’s report dated April 14, 2011 previously issued on the Company’s Form 10-K for the fiscal year ended
December 31, 2010. The predecessor auditor has not reissued its reports because the firm has ceased its operations. PCAOB
Section 9508 - Reports on Audited Financial Statements; Auditing Interpretations of Section 508 and the Division of Corp Fin -
Reporting Manual 4820 Accountant’s Inability to Reissue Reports [AU 9508, Interpretation 15, Regulation C, Rule 437]
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31, 2011 and 2010
ASSETS
Current assets:
Cash
$
10,857
Total current assets
10,857
Restricted cash
1,000,000
1,025,000
Deposit
25,000
-
Unproved oil and gas properties, not subject to amortization
-
9,312,905
Total assets
$
1,035,857
10,338,647
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable
$
58,003
26,100
Related party payables
8,960
94,200
Total current liabilities
66,963
120,300
Accrued expenses
1,557,635
436,673
Related party payables
3,072,203
2,792,912
Long-term debt
11,269,905
11,269,905
Total liabilities
15,966,706
14,619,790
Commitments and contingencies
Stockholders' deficit:
Providence Resources, Inc. stockholders' deficit:
Preferred stock, $.0001 par value, 25,000,000 shares
authorized, no shares issued and outstanding
-
-
Common stock, $.0001 par value, 250,000,000 shares
authorized, 15,346,586 and 13,957,697 shares issued
and outstanding, respectively
1,535
1,396
Additional paid-in capital
52,135,155
51,046,717
Subscription receivable
-
(142,200)
Deferred stock compensation
-
(71,695)
Accumulated deficit before current exploration stage
(11,834,164)
(11,834,164)
Deficit accumulated during the exploration stage
(55,384,348))
(43,432,170)
Total Providence Resources, Inc. stockholders' deficit
(15,081,822)
(4,432,116)
Non-controlling interest
150,973
150,973
Total stockholders' deficit
(14,930,849)
(4,281,143)
Total liabilities and stockholders' deficit
$
1,035,857
10,338,647
The accompanying notes are an integral part of these consolidated financial statements.
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2011 and 2010 and Cumulative Amounts
Cumulative
Amounts
Revenues
$
-
-
-
General and administrative expenses
1,197,894
1,429,127
10,457,287
Loss from operations
(1,197,894)
(1,429,127)
(10,457,287)
Other income (expense):
Interest income
-
144,450
Interest expense
(1,400,254)
(2,319,572)
(14,188,259)
Impairment of assets
(9,354,030)
-
(32,251,552)
Debt extinguishment and conversion income
-
1,295,178
195,337
Gain on sale of assets
-
-
1,119,109
Loss before income taxes
(11,952,178)
(2,452,553)
(55,438,202)
Provision for income taxes
-
-
-
Net loss
(11,952,178)
(2,452,553)
(55,438,202)
Net loss attributable to the non-controlling interest
-
-
53,854
Net loss attributable to Providence Resources, Inc. $
(11,952,178)
(2,452,553)
(55,384,348)
Loss per common share -
basic and diluted
$
(0.83)
(0.24)
Weighted average common shares outstanding -
basic and diluted
14,387,682
10,331,469
The accompanying notes are an integral part of these consolidated financial statements.
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT AND COMPREHENSIVE LOSS
January 1, 2006 to December 31, 2011
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,
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
currency translation
adjustment
-
-
-
-
-
-
-
Total
comprehensive loss
(6,761,394)
Issuance of common
stock for:
Acquisition of
Providence Exploration
3,333,333
15,999,667
-
-
-
-
-
16,000,000
Cash
2,228,320
8,021,729
-
-
-
-
-
8,021,952
Debt
334,130
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
8,642,590
40,051,393
-
-
14,560
(11,834,164)
(4,080,520)
24,152,133
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT AND COMPREHENSIVE LOSS
January 1, 2006 to December 31, 2011
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, 2006
8,642,590
40,051,393
-
-
14,560
(11,834,520)
(4,080,520)
24,152,133
Comprehensive loss:
Net loss
-
-
-
-
-
-
-
(22,204,275)
(22,204,275)
Other comprehensive income -
cumulative foreign currency
translation
adjustment
-
-
-
-
-
-
-
Total comprehensive loss
(22,204,263)
Issuance of common stock for:
Cash
331,250
236,667
-
-
-
-
-
236,700
Services
241,667
284,976
-
-
-
-
-
285,000
Debt
644,680
580,448
-
-
-
-
-
580,513
Discount on convertible notes
-
-
4,091,667
-
-
-
-
-
4,091,667
Balance at December 31, 2007
9,860,187
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
219,982
-
-
-
-
-
220,000
Interest on convertible
287,000
debentures
318,889
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
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT AND COMPREHENSIVE LOSS
January 1, 2006 to December 31, 2011
Accumulated
Deficit
Deficit
Accumulated
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, 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
23,813
-
-
-
-
-
23,818
Debt extinguishment on long
term convertible
-
-
888,726
-
-
-
-
-
888,726
debentures
Net loss
-
-
-
-
-
-
-
(8,456,429)
(8,456,429)
Balance at December 31,
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
299,625
(142,200)
-
-
-
-
157,800
Rounding due to reverse
stock split
-
-
-
-
-
-
-
-
Net loss
-
-
-
-
-
-
-
(2,452,553)
(2,452,553)
Balance at December 31,
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
347,083
-
-
-
-
-
347,222
Net loss
-
-
-
-
-
-
-
(11,952,178)
(11,952,178)
Balance at December 31,
15,346,586 $
1,535 $
52,135,155 $
- $
- $
- $
(11,834,164) $ (55,384,348) $ (15,081,822)
The accompanying notes are an integral part of these financial statements.
PROVIDENCE RESOURCES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2011 and 2010 and Cumulative Amounts
Cumulative
Amounts
Cash flows from operating activities:
Net loss
$
(11,952,178)
(2,452,553)
(55,384,348)
Adjustments to reconcile net loss to net cash
used in operating activities:
Shares and options issued for services
1,035,272
225,327
3,621,419
Shares issued for debt and accrued interest
-
-
4,792,207
Amortization of conversion rights on debt
-
1,160,068
4,671,394
Depreciation, amortization, and impairment
9,354,030
-
32,351,685
Non-controlling interest
-
-
(53,854)
Gain from debt extinguishments
-
(1,295,178)
(406,452)
Loss on sale of assets
-
-
(1,119,109)
Allowance for losses on receivables, net
-
-
33,123
Increase (decrease) in:
Receivables and prepaid expenses
-
-
441,692
Inventory
-
-
374,515
Deposit
(25,000)
-
(25,000)
Increase (decrease) in:
Accounts payable
(9,222)
17,015
1,370,794
Accrued expenses
1,120,962
1,159,504
4,482,395
Related party payables
194,051
94,200
231,251
Net cash used in operating activities
(282,085)
(1,091,617)
(4,618,288)
Cash flows from investing activities:
Restricted cash
25,000
-
(1,000,000)
Acquisition of property and equipment and intangibles
-
(28,757)
(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 (used in) investing activities
25,000
(28,757)
(5,598,654)
Cash flows from financing activities:
Proceeds from long-term debt
-
-
5,700,000
Issuance of common stock
125,000
157,800
519,500
Collection of stock subscription
142,200
-
142,200
Purchase of common stock
-
(100,000)
(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
267,200
57,800
6,410,774
Net increase (decrease) in cash
10,115
(1,062,574)
(3,806,168)
Cash, beginning of period
1,063,316
3,817,025
Cash, end of period
$
10,857
10,857
The accompanying notes are an integral part of these financial statements.
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.
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.
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, 2011 and 2010, the Company only has capitalized costs of unproved properties acquired and
related exploration costs. Leasehold costs are depleted based on the units-of-production method based on
estimated proved reserves. No proven reserves currently exist for the Company and therefore no depletion
has been taken as of December 31, 2011 and 2010.
Convertible Debts
In accordance with ASC 470-20, the Company calculated 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.
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, 2011, 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.
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 2011 and 2010, the Company’s common stock equivalents were anti-dilutive.
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 103,000,000 and 92,500,000
shares as of December 31, 2011 and 2010, respectively.
Reclassifications
Certain amounts for 2010 and cumulative amounts have been reclassified to conform to the 2011
presentation, with no resulting effect to net loss, accumulated deficit, or earnings per share amounts.
Note 2 - Going Concern
As of December 31, 2011, the Company’s anticipated revenue generating activities have not begun and the
Company has negative cash flows from operations, has incurred significant losses since inception, has
negative working capital, and has an accumulated deficit in the current exploration stage of over
$55,000,000. These factors raise substantial doubt about the Company’s ability to continue as a going
concern. The accompanying financial statements do not include any adjustments relating to the
recoverability and classification of assets that might be necessary if the Company is unable to continue as a
going concern.
The Company will require additional funding over the next twelve months in the form of debt or equity
financing. However, the Company has no financing in place and has no assurance that it will be able to
generate funding sufficient to fund business operations. Unless the Company is able to generate funding in
the near term, its ability to continue as a going concern will be in doubt.
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. 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.
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 (see Note 4).
As of December 31, 2011 no funds had been drawn against these letters of credit.
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, and as a provision for any material loss that is probable from environmental
remediation liabilities associated with the Company’s well sites. The Company believes that this amount is
a reasonable estimate of potential liabilities based on available information.
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.
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
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 $0.16 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:
Total convertible debentures
$
3,848,393
3,848,393
Long-Term Convertible Promissory Notes
Long-term convertible promissory notes consist of:
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 $0.16 per common share,
and with anti-dilution features.
$
7,421,512
7,421,512
During 2010, principal of $4,619,362 and related accrued interest on certain long-term notes payable and
long-term convertible promissory notes were refinanced in the form of new long-term convertible
promissory notes.
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 (continued)
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.
The fair values of conversion options are recorded as discounts on the face values of long-term debts. These
amounts are amortized using the straight-line method over the term of the notes. During the years ended
December 31, 2011 and 2010, the Company recorded $0 and $846,656 as interest expense due to
amortization of discounts, respectively.
Long-Term Notes Payable
On February 23, 2010 the long-term notes payable and related accrued interest were refinanced in the form
of long-term convertible promissory notes.
Summary
A summary of long-term debt is as follows:
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 $1,557,635 and $436,673 as of December 31, 2011 and 2010, respectively.
Note 7 - Related Party Transactions
The Company has an agreement with Nora Coccaro, a director of the Company, for consulting services.
The agreement has an automatic renewal provision unless terminated by either party. During the years
ended December 31, 2011 and 2010, the Company recognized consulting expense of $96,240 and $120,480
respectively.
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:
Convertible Promissory Notes Payable - secured,
maturing between May 2015 and August 2015,
including interest at 10%, and convertible at
approximately $0.16 per common share, and with
anti-dilution features
$
2,662,000
2,662,000
Accrued interest on related party convertible
promissory notes payable
410,203
130,912
Amounts due to directors of the Company for
consulting fees
(8,960)
94,200
3,081,163 2,887,112
Less current portion
(8,960)
(94,200)
$
3,072,203
2,792,912
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 - Reverse Stock Split
On August 31, 2010, the stockholders of the Company approved a 1 for 6 reverse stock split. All common
share amounts and per share information have been retroactively adjusted to reflect this reverse common
stock split in the accompanying financial statements.
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Note 10 - Supplemental Cash Flow Information
Actual amounts paid for interest and income taxes are as follows:
Interest
$
-
-
Income tax
$
-
-
During the year ended December 31, 2010, the Company:
• Extended the Carson oil and gas leases in exchange for long-term convertible promissory notes of
$1,344,130.
• Converted accrued interest expense of $2,648,413 into principal on long-term convertible
promissory notes, long-term notes payable, and long-term convertible debentures.
• Recognized debt extinguishment income of $1,295,178 related to the discharge of accounts
payable.
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Note 11 - 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
Amounts
Federal tax benefit at statutory rate
$
(4,064,000)
(834,000)
(18,000,000)
Change in valuation allowance
4,064,000
834,000
18,000,000
$
-
-
-
Deferred tax assets are as follows:
Start-up costs
$
450,000
340,000
Net operating loss carryforwards
1,700,000
1,700,000
Accrual to cash basis adjustment
417,000
402,000
Impairment of assets
11,000,000
7,800,000
Stock based compensation
340,000
77,000
Non-deductible interest expense
4,093,000
3,617,000
Valuation allowance
(18,000,000)
(13,936,000)
$
-
-
The Company has net operating loss carryforwards of approximately $5,000,000, which begin to expire in
the year 2026. 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.
The Company's effective tax rate is 34%. The change in the valuation allowance is $4,064,000.
Note 12 - Preferred Stock
The Company’s preferred stock may have such rights, preferences, and designations and may be issued in
such series as determined by the Board of Directors. No shares were issued and outstanding at December
31, 2011 and 2010.
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Note 13 - Common Stock Options and Warrants
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 and warrants are as follows:
Exercise
Number of
Price
Options
Warrants
Per Share
Outstanding at December 31, 2011
1,933,333
52,519
$1.20 - 1.80
Expired
-
(52,519)
1.80
Outstanding at December 31, 2010
1,933,333
-
1.20
Cancelled
(1,583,333)
-
1.20
Granted, vested, and excercisable
3,000,000
-
0.25
Outstanding at December 31, 2011
3,350,000
-
$0.25 - 1.20
The following table summarizes information about common stock options outstanding at December 31,
2011:
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
2.3
$0.25
3,000,000
$0.25
$1.20
350,000
7.0
$1.20
350,000
$1.20
$0.25 - 1.20
3,350,000
2.8
$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.
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Note 14 - Commitments and Contingencies
The Company has a royalty commitment of 25% of net revenue on certain oil and gas leases.
Note 15 - 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, 2011 does not differ materially from the aggregate carrying value of its financial
instruments recorded in the accompanying consolidated balance sheets.
Note 16 - 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.
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
Note 17 - 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.
In September 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-08, “Testing
Goodwill for Impairment”. This ASU permits an entity to make a qualitative assessment of whether it is
more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the
two-step goodwill impairment test. If an entity concludes it is not more likely than not that the fair value of
a reporting unit is less than its carrying amount, then there is no need to perform the two-step impairment
test. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011. Early adoption is permitted. The adoption of this ASU will not have a
material impact on the Company’s consolidated financial statements, as it is intended to simplify the
assessment for goodwill impairment.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income” (as amended
by ASU 2011-12). ASU 2011-05 requires entities to report components of comprehensive income in either
a continuous statement of comprehensive income or two separate but consecutive statements. Under the
continuous statement approach, the statement would include the components and total of net income, the
components and total of other comprehensive income and the total of comprehensive income. Under the
two statement approach, the first statement would include the components and total of net income and the
second statement would include the components and total of other comprehensive income and the total of
comprehensive income. ASU 2011-05/12 does not change the items that must be reported in other
comprehensive income. ASU 2011-05/12 is effective retrospectively for interim and annual periods
beginning after December 15, 2011, with early adoption permitted. The Company is currently evaluating
the impact of the adoption of ASU 2011-05/12 on its financial statements.
In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirement in U.S. GAAP and IFRSs”. ASU 2011-04 does not extend the
use of fair value but, rather, provides guidance about how fair value should be applied where it already is
required and permitted under IFRS or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications
of existing guidance or wording changes to align with IFRS 13. ASU 2011-04 is effective on a prospective
basis for interim and annual periods beginning after December 15, 2011, with early adoption not permitted.
In the period of adoption, a reporting entity will be required to disclose a change, if any, in valuation
technique and related inputs that result from applying ASU 2011-04 and to quantify the total effect, if
practicable. 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.
PROVIDENCE RESOURCES INC.
(An Exploration Stage Company)
SUPPLEMENTARY SCHEDULES ON OIL AND GAS OPERATIONS
December 31, 2011 and 2010
Supplemental Oil and Gas Information - ASC 932
The Company has no proved reserves and no oil and gas production and therefore has not presented the
information required under ASC 932 for proved reserves.
Capitalized Costs
December 31,
Proved oil and gas properties
$
-
-
Unproved oil and gas properties
-
9,312,905
Total capital costs
-
9,312,905
Accumulated depletion
-
-
Net capitalized costs
$
-
9,312,905
Costs Incurred
December 31,
Acquisitions:
Proved reserves
$
-
-
Unproved reserves
-
-
Total acquisitions
-
-
Exploration
costs
-
-
Development costs
-
1,372,887
Asset retirement obligations
-
-
Total costs incurred
$
-
1,372,887
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
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 not effective in recording,
processing, summarizing, and reporting information required to be disclosed, within the time periods
specified in the Commission’s rules and forms, and such information was not 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.
The Company’s management conducted an assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2011, 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, 2011.
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.
Changes in Internal Controls over Financial Reporting
During the period ended December 31, 2011, 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.
ITEM 9B.
OTHER INFORMATION
None.
PART III
ITEM 10.
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
Chairman of the board of directors
Nora Coccaro
Director
Christian Russenberger
CEO, CFO, PAO and 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 and has since served as vice-president of corporate affairs. She estimates that she
spends approximately 20 percent of her time, approximately 10 hours per week, on the Company’s
business. Ms. Coccaro also has significant responsibilities with other companies, as detailed in the
following paragraph.
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 administration of the Company and is involved in many of 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. He
estimates that he spends approximately 10 percent of her 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 the overall management of the Company and is involved in many of
its day-to-day operations, finance and administration.
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 are appointed for staggered terms of one (1) year, two (2) years and three (3) years to hold
office until the next annual meeting of our shareholders or until removed from office in accordance with our
bylaws. Our executive officers are appointed by our board of directors and hold office until removed by the
board.
Family Relationships
There are no family relationships between or among the directors or executive officers.
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, 2011, failed to file, on a timely basis, reports required by Section
16(a) of the Securities Exchange Act of 1934.
Code of Ethics
The Company has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-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
During the year ended December 31, 2011 the Company did not compensate it directors for their services as
directors.
During the year ended December 31, 2011, the Company compensated one of its directors pursuant to a
consulting agreement for her services as vice-president of corporate affairs.
The following table provides summary information for the year ended December 31, 2011 concerning cash
and non-cash compensation paid or accrued by the Company to or on behalf of its directors.
Director’s Summary Compensation Table
Name
Fees earned
Stock
Option
Non-equity
Nonqualified
All other
Total
or paid in
awards
Awards
incentive plan
deferred
compensation
($)
cash
($)
($)
compensation
compensation
($)
($)
($)
($)
Markus Müller,
chairman
-
-
-
-
-
-
-
Nora Coccaro
96,240*
-
-
-
-
-
96,240
Gilbert Burciaga
-
-
741,355**
-
-
-
741,355
Christian
Russenberger
-
-
-
-
-
-
-
* Pursuant to a consulting agreement; amount paid for Ms. Coccaro’s services as vice-president of corporate affairs.
** Pursuant to a resignation and separation agreement; stock options granted in lieu of amounts accrued to Mr. Burciaga for
services rendered as chief executive officer; Mr. Burciaga resigned as officer and director on April 14, 2011.
ITEM 11.
ITEM 11.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The Company remains in the development stage and has not entered into a compensation agreement with it
current sole executive officer due to financial constraints. Our former sole executive officer did participate
in a compensation program designed to incentivize officers for services rendered in the form of a salary,
stock options awards, and at the sole discretion of the Company, an annual bonus. We believe that these
compensatory elements are adequate to retain and motivate executive officers. The amounts we deemed
appropriate to compensate our former chief executive officer were determined in accordance with
compensatory packages similar to other development stage exploration companies though it was based on
no specific formula. While we have no compensation agreement with our current sole executive officer his
ownership of our common shares and debt obligations compels him to safeguard the Company’s best
interests and is adequate for accomplishing our current objectives. We do intend to return to a formal
compensation arrangement with our executive officer or officers in the future, which may expand those
benefits previously granted, at such time as the Company’s operations can sustain a compensation package
in the best interests of its shareholders.
Executive compensation paid or accrued to our current sole executive officer for the year ended December
31, 2011 was $0. Executive compensation paid or accrued to our former chief executive officer for the year
ended December 31, 2011 was $741,355 as compared to $375,327 for the year ended December 31, 2010.
The increase in executive compensation over the comparative periods is in connection with the resignation
of our former sole executive officer in 2011, which caused accrued compensation to be extinguished in
exchange for stock option compensation. The decision not to enter into a compensation agreement with our
current sole executive officer can be attributed to fiscal constraints due to the non-productive nature of
drilling activities to date. We expect to that future executive compensation for our current chief executive
officer will fluctuate from that paid this year ended based on the prospect of additional stock options and the
results of operations moving forward.
Compensation paid to our vice-president of corporate affairs for the year ended December 31, 2010 was
$96,240 as compared to $120,480 for the year ended December 31, 2010. The decrease in compensation
over the comparative periods is attributed to a decrease in salary due to fiscal constraints. We expect future
compensation for our vice-president of corporate affairs to remain relatively consistent with that amount
paid this year.
Tables
The following table provides summary information for the years 2011 and 2010 concerning cash and
non-cash compensation paid or accrued by the Company to or on behalf of (i) the chief executive officer
and (ii) any other employee to receive compensation in excess of $100,000.
Executive’s Summary Compensation Table
Name and
Year
Salary
Bonus
Stock
Option
Non-Equity
Change in
All Other
Total
Principal
($)
($)
Awards
Awards
Incentive Plan
Pension Value
Compensation
($)
Position
($)
($)
Compensation and Nonqualified
($)
($)
Deferred
Compensation
($)
Christian
-
-
-
-
-
-
-
-
Russenberger 2010
-
-
-
-
-
-
-
-
CEO, CFO,
PAO and
director
Gilbert
-
-
-
741,355
-
-
-
741,355
Burciaga:
2010 150,000 150,000
-
-
-
-
-
525,327
former CEO,
CFO, PAO
and director*
Nora
96,240
-
-
-
-
-
-
96,240
Coccaro:
2010 120,480
-
-
-
-
-
-
120,480
Vice-
President of
Corporate
Affairs and
Director.
* Resigned as officer and director on April 14, 2011.
The following table provides summary information for the year ended December 31, 2011, 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
(#)
(#)
(#)
($)
Gilbert
Burciaga
3,000,000
-
-
0.25
April 14,
-
-
-
-
Christian
Russenberger
116,667
-
-
1.20
December
15, 2018
-
-
-
-
The Company had a consulting agreement with its executive officer, effective May 1, 2007, through April
30, 2011, for (i) an annual salary of $150,000, (ii) at the Company’s discretion, an annual bonus and (iii)
performance, tenure, and incentive stock options. The agreement was terminated on April 14, 2011.
The Company has no plans that provides for the payment of retirement benefits, or benefits that will be paid
primarily following retirement.
The Company has no agreement that provides for payment to our current executive officer at, following, or
in connection with the resignation, retirement or other termination, or a change in control of Company or a
change in our executive officer's responsibilities following a change in control.
ITEM 12.
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 15,346,586
shares of common stock issued and outstanding as of May 2, 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*
909,167
CEO, CFO, PAO and director
Meierhofrain 36, CH-8820
Common
(116,667 options and
16,637,500 convertible
6.0%
Wädenswil, Switzerland
shares)
Markus Müller, director
Bleicherweg 66, CH-8022
Common
2,794,620
Zurich, Switzerland
(116,667 options)
18.2%
Nora Coccaro, director
Rio Negro 1245, Apartment 102
Common
75,587
Postal Code 1100, Montevideo, Uruguay
(91,667 options)
0.5%
Officer and directors (three) as a group
Common
3,779,374
24.7%
* Christian Russenberger is the owner of 722,500 common shares and 116,667 options and is considered the beneficial owner of
(i) 186,667 common shares and $1,863,400 in debt convertible into 11,646,250 common shares held by Global Project Finance
AG and (ii) $798,600 in debt convertible into 4,991,250 common shares held by CR Innovations AG.
ITEM 13.
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
option grants:
• Gilbert Burciaga, our former sole executive officer and a former director. Mr. Burciaga entered into
a resignation and separation agreement pursuant to which he relinquished any accrued
compensation pursuant to his employment agreement and cancelled his outstanding options in
exchange for the option to purchase 3,000,000 common shares for a period of three years from the
date of grant at an exercise price of $0.25 per share.
• Nora Coccaro, vice-president of corporate affairs and a director, pursuant to a consulting agreement
dated March 16, 2000, realized $96,240 in consulting fees for the year ended December 31, 2011.
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. Under this standard Mr. Russenberger and Mr. Müller could each be considered independent
directors. Nonetheless, due to the number of financing transactions between the Company and entities
managed by either Mr. Russenberger or Mr. Müller, we do not believe that our board of directors includes
any independent directors.
ITEM 14.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
MartinelliMick PLLC (“Martinelli”) provided audit services to the Company in connection with its annual
report for the fiscal year ended December 31, 2011. BehlerMick PS (“Behler”) provided audit services to
the Company in connection with its annual report for the fiscal year ended December 31, 2010. The
aggregate fees billed by Martinelli for our annual financial statements and review of our quarterly financial
statements in 2011 were $4,331 and the aggregate fees billed by Behler for our annual financial statements
and review of our quarterly financial statements in 2011 and 2010 were $31,247.
Audit Related Fees
Martinelli and Behler billed to the Company no fees in 2011 or 2010 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 and Behler billed to the Company no fees in 2011 or 2010 for professional services rendered in
connection with the preparation of our tax returns for the periods.
All Other Fees
Martinelli and Behler billed to the Company no fees in 2011 or 2010 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 and Behler, as detailed above, were pre-approved by our board of directors. Our independent
auditors, Martinelli and Behler, performed all work using only their own full-time permanent employees.
PART IV
ITEM 15.
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
The following documents are filed under “Item 8. Financial Statements and Supplementary Data,” pages
through, and are included as part of this Form 10-K:
Financial Statements of the Company for the years ended December 31, 2011 and 2010:
Reports of Independent Registered Public Accounting Firms
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
Supplementary Schedules on Oil and Gas Operations
(b) Exhibits
The exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on
page 37 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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Providence Resources, Inc.
Date
/s/ Christian Russenberger
May 3, 2012
By: Christian Russenberger
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/ Christian Russenberger
Christian Russenberger
Chief Executive Officer, Chief Financial Officer, Principal
May 3, 2012
Accounting Officer and Director
/s/ Markus Müller
May 3, 2012
Markus Müller
Director
/s/ Nora Coccaro
May 3, 2012
Nora Coccaro
Director
INDEX TO EXHIBITS
Exhibit
Description
3(i)(a)*
Articles of Incorporation (incorporated by reference from the Form 10-SB filed with the
Commission on April 17, 2000).
3(i)(b & c)*
Amendments to Articles of Incorporation (incorporated by reference from the Form 10-SB filed
with the Commission on April 17, 2000).
3(i)(d)*
Amended and Restated Articles of Incorporation (incorporated by reference from the Form 10-SB
filed with the Commission on April 17, 2000).
3(i)(e)*
Articles of Amendment to the Amended and Restated Articles of Incorporation (incorporated by
reference from the Form 10-QSB filed with the Commission on November 17, 2003).
3(i)(f)*
Amendment to the Amended and Restated Articles of Incorporation (incorporated by reference
from the Form 8-K filed with the Commission on October 2, 2006).
3(i)(g)*
Amendment to the Amended and Restated Articles of Incorporation (incorporated by reference
from the Form 10-QSB filed with the Commission on August 14, 2007).
3(ii)(a)*
Bylaws of the Company (incorporated by reference from the Form 10-SB filed with the
Commission on April 17, 2000).
3(ii)(b)*
Amended and Restated Bylaws of the Company (incorporated by reference from the Form 8-K filed
with the Commission on October 26, 2006).
10(i)*
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 (ii)*
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 (iii)*
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.