PROVIDENCE RESOURCES INC - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - PROVIDENCE RESOURCES INC	Financial_Report.xls
EX-31 - EXHIBIT - PROVIDENCE RESOURCES INC	exhibit31.htm
EX-32 - EXHIBIT - PROVIDENCE RESOURCES INC	exhibit32.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012.

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number: 000-30377

PROVIDENCE RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Texas

06-1538201

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

700 Lavaca Street, Suite 1400, Austin, Texas 78701

(Address of principal executive offices) (Zip Code)

(210) 807-4204

(Registrant’s telephone number, including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or

15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that

the registrant was required to file such reports), and (2) has been subject to such filing requirements for the

past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web

site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation

S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant

was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated

filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and

“smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest

practicable date. The number of shares outstanding of the issuer’s common stock, $0.0001 par value (the only

class of voting stock), at November 14, 2012, was 17,846,586.

TABLE OF CONTENTS

PART 1- FINANCIAL INFORMATION

Item1.

Financial Statements:

Consolidated Balance Sheets as of

September 30, 2012 (Unaudited) and December 31, 2011

Unaudited Consolidated Statements of Operations for the

three and nine month periods ended September 30, 2012 and 2011 and cumulative

amounts since inception of the current exploration stage

Unaudited Consolidated Statements of Cash Flows for the

nine month periods ended September 30, 2012 and 2011 and cumulative amounts

since inception of the current exploration stage

Notes to Unaudited Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of

Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

PART II-OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signatures

Index to Exhibits

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

As used herein, the terms “Company,” “we,” “our,” and “us” refer to Providence Resources, Inc., a Texas

corporation, unless otherwise indicated. In the opinion of management, the accompanying unaudited

consolidated financial statements included in this Form 10-Q reflect all adjustments (consisting only of

normal recurring accruals) necessary for a fair presentation of the results of operations for the periods

presented. The results of operations for the periods presented are not necessarily indicative of the results

to be expected for the full year.

PROVIDENCE RESOURCES, INC.

(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS

September 30,

December 31,

2012

2011

ASSETS

(Unaudited)

Current assets:

Cash

6,471

10,857

Total current assets

6,471

10,857

Restricted cash

1,000,000

Deposit

25,000

Total assets

1,031,471

1,035,857

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:

Accounts payable

58,672

58,003

Related party payables

20,903

8,960

Note payable

70,000

Total current liabilities

149,575

66,963

Accrued expenses

2,466,329

1,557,635

Related party payables

3,298,236

3,072,203

Long-term debt

11,269,905

Total liabilities

17,184,045

15,966,706

Commitments and contingencies

Stockholders' deficit:

Providence Resources, Inc. stockholders' deficit:

Preferred stock, $.0001 par value, 25,000,000 shares

authorized, no shares issued and outstanding

Common stock, $.0001 par value, 250,000,000 shares

authorized, 17,846,586 and 15,346,586 shares issued and

outstanding, respectively

1,785

1,535

Additional paid-in capital

52,184,905

52,135,155

Accumulated deficit before current exploration stage

(11,834,164)

Deficit accumulated during the exploration stage

(56,656,073)

(55,384,348)

Total Providence Resources, Inc. stockholders' deficit

(16,303,547)

(15,081,822)

Non-controlling interest

150,973

Total stockholders' deficit

(16,152,574)

(14,930,849)

Total liabilities and stockholders' deficit

1,031,471

1,035,857

The accompanying notes are an integral part of these financial statements

PROVIDENCE RESOURCES, INC.

(An Exploration Stage Company)

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months and Nine Months Ended September 30, 2012 and 2011 and Cumulative Amounts

Three months ended

Nine months ended

September 30,

Cumulative

2012

2011

2012

2011

Amounts

Revenues

- $

General and administrative expenses

26,258

264,252

136,998

1,150,805

10,594,285

Loss from operations

(26,258)

(264,252)

(136,998)

(1,150,805)

(10,594,285)

Other income (expense):

Interest income

144,450

Interest expense

(401,705)

(357,927)

(1,134,727)

(1,034,260)

(15,322,986)

Impairment of capital assets

(32,251,552)

Debt extinguishment and conversion income

195,337

Gain on sale of assets

1,119,109

(401,705)

(357,927)

(1,134,727)

(1,034,260)

(46,115,642)

Loss before income taxes

(427,963)

(622,179)

(1,271,725)

(2,185,065)

(56,709,927)

Provision for income taxes

Net loss

(427,963)

(622,179)

(1,271,725)

(2,185,065)

(56,709,927)

Net loss attributable to the non-controlling interest

53,854

Net loss attributable to Providence Resources, Inc. $

(427,963) $

(622,179) $

(1,271,725) $

(2,185,065) $

(56,656,073)

Loss per common share -

basic and diluted

(0.03) $

(0.04) $

(0.08) $

(0.16)

Weighted average common shares outstanding -

basic and diluted

16,460,716

14,274,726

15,720,674

14,064,535

The accompanying notes are an integral part of these financial statements

PROVIDENCE RESOURCES, INC.

(An Exploration Stage Company)

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2012 and 2011 and Cumulative Amounts

Cumulative

2012

2011

Amounts

Cash flows from operating activities:

Net loss

(1,271,725)

(2,185,065)

(56,656,073)

Adjustments to reconcile net loss to net cash

used in operating activities:

Shares and options issued for services

1,035,272

3,621,419

Shares issued for debt and accrued interest

4,792,207

Amortization of conversion rights on debt

4,671,394

Depreciation, amortization, and impairment

32,351,685

Non-controlling interest

(53,854)

Gain from debt extinguishments

(406,452)

Gain on sale of assets

(1,119,109)

Allowance for losses on receivables, net

33,123

Increase (decrease) in:

Receivables and prepaid expenses

441,692

Inventory

374,515

Deposit

(25,000)

Increase (decrease) in:

Accounts payable

669

(18,846)

1,371,463

Accrued expenses

908,694

828,776

5,391,089

Related party payables

237,976

116,770

469,227

Net cash used in operating activities

(124,386)

(223,093)

(4,742,674)

Cash flows from investing activities:

Restricted cash

(1,000,000)

Acquisition of property and equipment and intangibles

(12,131,455)

Proceeds from sale of assets

7,212,800

Payments received on notes receivable

316,877

Issuance of notes receivable

3,124

Net cash used in investing activities

(5,598,654)

Cash flows from financing activities:

Proceeds from long-term debt

5,700,000

Proceeds from note payable

70,000

Issuance of common stock

50,000

125,000

569,500

Collection of stock subscription

142,200

Purchase of common stock

(100,000)

Commissions paid to raise convertible debentures

75,000

Minority investment in subsidiary

136,915

Payments on long-term debt

(62,841)

Net cash provided by financing activities

120,000

267,200

6,530,774

Net increase (decrease) in cash

(4,386)

44,107

(3,810,554)

Cash, beginning of period

10,857

25,742

3,817,025

Cash, end of period

6,471

69,849

6,471

The accompanying notes are an integral part of these financial statements

PROVIDENCE RESOURCES INC.

(An Exploration Stage Company)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

Note 1 – Organization and Summary of Significant Accounting Policies

Organization

The consolidated financial statements consist of Providence Resources, Inc. (Providence Resources) and

its wholly owned subsidiary PRE Exploration, LLC (PRE). PRE has three subsidiaries: PDX Drilling I,

LLC (PDX) and PRT Holdings, LLC (PRT) are wholly owned and Comanche County Pipeline, LLC

(CCP) is ninety percent owned. Collectively, these entities are referred to as the Company.

The Company was organized on February 17, 1993 under the laws of the State of Texas and began its

current exploration stage on October 1, 2006. Cumulative amounts recorded in the financial statements

are from October 1, 2006 to the current period end. PRE was formed to acquire leases in Texas for oil and

gas exploration and development. PDX was formed to acquire drilling and service rigs for the purpose of

drilling oil and gas wells in Texas. CCP was formed for constructing an oil and gas pipeline. PDX and

CCP had no activity during 2011. PRT has been without operations since inception.

PRE is involved in exploration activities for the recovery of oil or natural gas products from the

Ellenberger carbonate, Strawn carbonate, and Pennsylvanian-Wolfcamp sandstone reservoirs underlying

approximately 13,341 gross acres of oil and gas leases in Val Verde County, Texas.

The Company is an exploration stage company as defined by applicable accounting standards.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by management in

accordance with the instructions in Form 10-Q and, therefore, do not include all information and

footnotes required by generally accepted accounting principles and should, therefore, be read in

conjunction with the Company’s Form 10-K for the year ended December 31, 2011, filed with the

Securities and Exchange Commission. These statements do include all normal recurring adjustments

which the Company believes necessary for a fair presentation of the statements. The interim operations

are not necessarily indicative of the results to be expected for the full year ended December 31, 2012.

Additional Footnotes Included By Reference

Except as indicated in the following Notes, there have been no other material changes in the information

disclosed in the notes to the financial statements included in the Company’s Form 10-K for the year

ended December 31, 2011, filed with the Securities and Exchange Commission. Therefore, those

footnotes are included herein by reference.

PROVIDENCE RESOURCES INC.

(An Exploration Stage Company)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

Note 2 – Going Concern

As of September 30, 2012, the Company’s anticipated revenue generating activities have not begun and

the Company has negative cash flows from operations, has incurred significant losses since inception, has

negative working capital, and has an accumulated deficit in the current exploration stage of over

$56,000,000. These factors raise substantial doubt about the Company’s ability to continue as a going

concern. The accompanying financial statements do not include any adjustments relating to the

recoverability and classification of assets that might be necessary if the Company is unable to continue as

a going concern.

The Company will require additional funding over the next twelve months in the form of debt or equity

financing. However, the Company has no financing in place and has no assurance that it will be able to

generate funding sufficient to fund business operations. Unless the Company is able to generate funding

in the near term, its ability to continue as a going concern will be in doubt.

Note 3 – Restricted Cash

During 2010, PRE extended its Carson acreage leases until February 28, 2013. The extension obligates

PRE to drill two additional wells on the Carson acreage. PRE can secure the leases past February 28,

2013 with continuous development of the acreage. Per the leases’ terms, PRE has deposited $1,000,000

with a bank, and these funds must be held in escrow until the Company drills the two additional wells. If

the Company fails to drill the two additional wells and the leases expire, the Company must pay $100 per

acre to Carson. Correspondingly, the bank has issued a $1,000,000 letter of credit to Carson.

As of September 30, 2012 no funds had been drawn against this letter of credit.

Note 4 – Related Party Transactions

The Company has an agreement with Nora Coccaro, a director of the Company, for consulting services.

The agreement has an automatic renewal provision unless terminated by either party. During the nine

months ended September 30, 2012 and 2011, the Company recognized consulting expense of $45,000 and

$78,240 respectively.

Note 5 – Capital Stock

During the period ended September 30, 2012, the Company issued 2,500,000 shares of common stock for

$50,000.

PROVIDENCE RESOURCES INC.

(An Exploration Stage Company)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

Note 6 – Related Party Payables

Related party payables consist of:

September 30,

December 31,

2012

2011

Convertible Promissory Notes Payable - secured,

maturing between May 2015 and August 2015,

including interest at 10%, and convertible at

approximately $0.14 per common share, and with

anti-dilution features

2,662,000 $

2,662,000

Accrued interest on related party convertible

promissory notes payable

636,236

410,203

Note payable – unsecured, due on demand, non-interest

bearing, and due to a shareholder and director of the

Company

20,000

Amounts due to directors of the Company for

consulting fees

903

8,960

3,319,139

3,081,163

Less current portion

(20,903)

(8,960)

3,298,236 $

3,072,203

Notes previously identified as being secured are collateralized by one or more of the following:

 All seismic data obtained in connection with the 3D Seismic Project Proposal and Agreement

between the Company and TRNCO Petroleum Corporation which seismic data may not be shared

with any third party without the express written consent of the holder of the note.

 Any and all proceeds arising from or attributable to the assets.

 Oil and gas lease interests held by the Company.

 Properties, rights, and assets of the Company.

PROVIDENCE RESOURCES INC.

(An Exploration Stage Company)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

Note 7 – Note Payable

During April 2012, the Company entered into an unsecured, due on demand, non-interest bearing note

payable for $70,000 which note is yet to be memorialized.

Note 8 – Supplemental Cash Flow Information

Actual amounts paid for interest and income taxes are as follows:

2012

2011

Interest

Income tax

Note 9 – Commitments and Contingencies

The Company has a royalty commitment of 25% of net revenue on certain oil and gas leases.

Note 10 – Subsequent Events

The Company has evaluated subsequent events from the balance sheet date through the date the financial

statements were issued and is unaware of any subsequent events which would require recognition or

disclosure in the financial statements.

Note 11 – Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards

Update (ASU) No. 2011-11, “Disclosures about Offsetting Assets and Liabilities”, which will require

disclosures for entities with financial instruments and derivatives that are either offset on the balance

sheet in accordance with ASC 210-20-45 or ASC 815-10-45, or are subject to a master netting

arrangement. ASU No. 2011-11 is effective for interim and annual periods beginning on or after January

1, 2013. The Company is currently evaluating the impact of the adoption of ASU 2011-04 on its financial

position, results of operations, and disclosures.

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future

effective dates are either not applicable or are not expected to be significant to the financial statements of

the Company.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other

parts of this current report contain forward-looking statements that involve risks and uncertainties.

Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,”

“plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future

performance and our actual results may differ significantly from the results discussed in the forward-

looking statements. Factors that might cause such differences include but are not limited to those

discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future

Results and Financial Condition below. The following discussion should be read in conjunction with our

financial statements and notes thereto included in this current report. Our fiscal year end is December 31.

All information presented herein is based on the three and nine month periods ended September 30, 2012.

During the nine month period ended September 30, 2012 the Company was involved in (i) seeking out

prospective financing to fund the completion of the Val Verde County wells; (ii) procuring assistance to

remediate the Carson 12-1 site; and (iii) satisfying continuous public disclosure requirements.

The Company’s intention is to reenter and complete its Carson 10-1 and Carson 12-1 wells in Val Verde

County, Texas, over the next twelve months. However, unless the minimum performance criteria

pertaining to the number of wells drilled prior to the expiration of the leases are met, the Company will

lose its leases. Since the Val Verde County leases expire in February of 2013 the remaining lease term is

insufficient time to satisfy the minimum performance criteria. The Company is in negotiations to extend

the term of the leases. Management believes that an extension to the lease term will be agreed prior to

expiration. Once an agreement to extend the leases is reached the development may be further delayed by

the availability of funding. Unfortunately, the recent trending up in natural gas prices has not reached a

point at which the normal risks associated with exploration and development activities are sufficiently

mitigated to encourage investment. Nonetheless, management believes that an extended lease term

combined with the expectation that natural gas prices will increase over future periods will attract the

requisite funding and enable the Company to move forward with its development of the Val Verde

County leases.

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.

Results of Operations

Net Losses

For the period from re-entering the current exploration stage on October 1, 2006 or inception until

September 30, 2012, the Company incurred net losses of $56,656,073. Net losses for the three months

ended September 30, 2012 were $427,963 as compared to $622,179 for the three months ended

September 30, 2011. Net losses for the nine months ended September 30, 2012 were $1,271,725 as

compared to $2,185,065 for the nine months ended September 30, 2011. The decrease in net losses over

the comparable three and nine month periods can be attributed primarily to the decrease in general and

administrative expenses over the comparable periods offset by an increase in interest expense. We expect

to continue to operate at a loss through 2012 due to the nature of our exploration and development

activities and cannot determine whether we will ever generate revenue from operations.

General and Administrative Expenses

General and administrative expenses for the three months ended September 30, 2012 were $26,258 as

compared to $264,252 for the three months ended September 30, 2011. General and administrative

expenses for the nine months ended September 30, 2012 were $136,998 as compared to $1,150,805 for

the nine months ended September 30, 2011. The decrease in general and administrative expenses over the

comparable three and nine month periods can be primarily attributed to decreases in consulting expenses,

professional fees and stock compensation expense. General and administrative expenses include

accounting costs, consulting fees, leases, employment costs, professional fees and costs associated with

the preparation of disclosure documentation. We expect that general and administrative expenses will

remain relatively consistent in future periods as management continues to look to operating efficiencies to

decrease expenses.

Other Expense

Interest expense for the three months ended September 30, 2012 increased to $401,705 from $357,927 for

the three months ended September 30, 2011. Interest expense for the nine months ended September 30,

2011 increased to $1,134,727 from $1,034,260 for the nine months ended September 30, 2011. We expect

that interest expense will continue to increase in future periods as debt instruments mature.

Income Tax Expense (Benefit)

The Company has a prospective income tax benefit resulting from a net operating loss carry-forward and

start-up costs that will offset any future operating profit.

Impact of Inflation

We believe that inflation has had a negligible effect on operations over the past three years and that any

inflationary pressure on our activities can be offset by improved operating efficiencies.

Capital Expenditures

The Company has spent significant amounts of capital for the period from inception of the current

exploration stage to December 31, 2011, on unproved oil and gas properties, pipeline construction, and

related exploration costs though all such capital was impaired and expensed as of December 31, 2011.

Liquidity and Capital Resources

The Company has been in the exploratory stage since re-entering the current exploration stage and has

experienced significant changes in liquidity, capital resources, and stockholders’ equity.

The Company had a working capital deficit of $143,104 at September 30, 2012. Current assets were

$6,471 in cash. Total assets were $1,031,471 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 $149,575, consisting of accounts

payable of $58,672, related party payables of $20,903 and a note payable of $70,000. Total liabilities

were $17,184,045 including current liabilities, accrued expenses of $2,466,329, related party payables of

$3,298,236, and long term debt of $11,269,905. Total stockholders’ deficit was $16,152,574 as of

September 30, 2012.

For the period from inception of its current exploration stage until September 30, 2012, Company cash

flow used in operating activities was $4,742,674. Cash flow used in operating activities for the nine

month period ended September 30, 2012, was $124,386 as compared to $223,093 for the nine month

period ended September 30, 2011. The change in cash flow used in operating activities can be attributed

to accounts payable, accrued expenses and related party payables over the respective periods. The

Company expects to continue to use cash flow in operating activities until such time as it can generate

revenue from operations.

For the period from inception of its current exploration stage until September 30, 2012, the Company’s

cash flow used in investing activities was $5,598,654. Cash flow used by investing activities for the

respective nine month periods ended September 30, 2012 and September 30, 2011 was $0. The Company

expects to use cash flow in investing activities in future periods in connection with the further

development of its leases.

For the period from inception of its current exploration stage until September 30, 2012, the Company’s

cash flow provided by financing activities was $6,530,774. Cash flow provided by financing activities for

the nine month period ended September 30, 2012 was $120,000 compared to $267,200 for the nine month

period ended September 30, 2011. Cash flow provided by financing activities in the nine month period

ended September 30, 2012 is attributed to proceeds from a note payable and the issuance of common

stock. The Company expects to continue to rely on cash flow provided by financing activities until such

time as it can generate revenue from operations.

Our current assets are insufficient to conduct exploration and development activities over the next twelve

(12) months or to maintain operations. We need a minimum of $4,000,000 in debt or equity financing to

fund the reentry and completion of the Carson 10-1 and Carson 12-1 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 cause us to relinquish the leases

to the landowners. Any such action 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.

Future Financings

The Company will have to continue to rely on debt financing or equity sales of our shares of common

stock to fund our business operations. Nevertheless, there is no assurance that the Company will be able

to arrange any additional sales of equity or arrange for debt or other financing to fund operations.

Off Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current

or future effect on our financial condition, changes in financial condition, revenues or expenses, results of

operations, liquidity, capital expenditures, or capital resources that are material to stockholders.

Going Concern

Our auditor expressed substantial doubt as to the Company’s ability to continue as a going concern as a

result of reoccurring losses, lack of revenue generating activities, and an accumulated deficit during the

current exploration stage of $55,384,348 as of December 31, 2011. These conditions raise substantial

doubt about our future.

Management’s plan to address the Company’s ability to continue as a going concern includes the

completion of private equity or debt offerings, the development of natural gas exploration activities to

commercial production, and the conversion of outstanding debt to equity. The successful outcome of

these activities cannot be determined at this time, and there is no assurance that, if achieved, we would

then have sufficient funds to execute our intended business plan or generate positive operating results.

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

The statements contained in the section titled “Results of Operations” and “Discussion and Analysis,”

with the exception of historical facts, are forward looking statements. A safe-harbor provision may not be

applicable to the forward looking statements made in this current report. Forward looking statements

reflect our current expectations and beliefs regarding our future results of operations, performance, and

achievements. These statements are subject to risks and uncertainties and are based upon assumptions and

beliefs that may or may not materialize. These statements include, but are not limited to, statements

concerning:

 our anticipated financial performance;

 uncertainties related to oil and gas exploration and development;

 our ability to generate revenues through oil and gas production to fund future operations;

 movement in energy prices;

 our ability to raise additional capital to fund cash requirements for future operations;

 the volatility of the stock market; and

 general economic conditions.

We wish to caution readers that our operating results are subject to various risks and uncertainties that

could cause our actual results to differ materially from those discussed or anticipated including the factors

set forth in the section entitled “Risk Factors” included elsewhere in this report. We also wish to advise

readers not to place any undue reliance on the forward looking statements contained in this report, which

reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update

or revise these forward looking statements to reflect new events or circumstances or any changes in our

beliefs or expectations, other that is required by law.

Critical Accounting Policies

In the notes to the audited consolidated financial statements for the Company for the years ended

December 31, 2011 and 2010, included on Form 10-K, the Company discussed those accounting policies

that are considered to be significant in determining the results of operations and financial position. The

Company’s management believes that their accounting principles conform to accounting principles

generally accepted in the United States of America.

The preparation of financial statements requires management to make significant estimates and judgments

that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these

judgments are subject to an inherent degree of uncertainty. On an on-going basis, we evaluate our

estimates, including those related to bad debts, inventories, intangible assets, warranty obligations,

product liability, revenue, and income taxes. We base our estimates on historical experience and other

facts and circumstances that are believed to be reasonable, and the results form the basis for making

judgments about the carrying value of assets and liabilities. The actual results may differ from these

estimates under different assumptions or conditions.

Revenue Recognition

Revenues will be 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 11 to our consolidated financial statements for recent accounting pronouncements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET

RISK

Not required.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this report on Form 10-Q, an evaluation was carried out by the

Company’s management, with the participation of the chief executive officer/chief financial officer, of

the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e)

under the Securities Exchange Act of 1934 (“Exchange Act”)). Disclosure controls and procedures are

designed to ensure that information required to be disclosed in reports filed or submitted under the

Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the

Commission’s rules and forms and that such information is accumulated and communicated to

management, including the chief executive officer/chief financial officer, to allow timely decisions

regarding required disclosures.

Based on that evaluation, the Company’s management concluded, as of the end of the period covered by

this report, that the Company’s disclosure controls and procedures were effective in recording,

processing, summarizing, and reporting information required to be disclosed, within the time periods

specified in the Commission’s rules and forms, and that such information was accumulated and

communicated to management, including the chief executive officer and chief financial officer, to allow

timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of

the Exchange Act) during the period ended September 30, 2012 that materially affected, or are reasonably

likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 1A.

RISK FACTORS

The Company’s operations and securities are subject to a number of risks. Below we have identified and

discussed the material risks that we are likely to face. Should any of the following risks occur, they will

adversely affect our operations, business, financial condition and/or operating results as well as the future

trading price and/or the value of our securities.

Risks Related to the Company’s Business

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

Since the Company’s current exploration stage inception in 2006, our operations have resulted in a

continuation of losses. We will continue to incur operating losses until such time as we begin producing

revenue, which may or may not eventuate. Should the Company fail to produce revenue it will continue to

operate at a loss.

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

The Company acquired PRE Exploration on September 29, 2006, which first began oil and gas

exploration during the fourth quarter of 2005 and has yet to successfully develop commercial production

of oil or gas. As such, our limited, and to date unsuccessful, operating history in the energy sector

provides an inadequate track record from which to base future projections of success.

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

The Company’s audits for the periods ended December 31, 2011 and 2010 expressed substantial doubt as

to its ability to continue as a going concern due to the lack of revenue generating activities and the

accumulation of significant losses in the current exploration stage of $55,384,348 as of December 31,

2011 which had increased to $56,656,073 as of September 30, 2012. Unless we are able to overcome our

dependence on successive financings and generate revenue from operations, our ability to continue as a

going concern is in jeopardy.

The Company may lose its leases in Val Verde County

The Company stands to lose its exploration and development leases in Val Verde County unless

minimum performance criteria pertaining to the number of wells drilled prior to the expiration of the

leases are satisfied within the lease term. Alternatively, the Company may attempt to renegotiate its leases

in order to extend the leases. Unless the terms of the leases are extended or otherwise modified to permit

additional time to develop natural gases resources the Company is likely to lose its leases in Val Verde

County and relinquish that amount held in escrow for the benefit of the owners of the leases. Should the

Company lose its leases in Val Verde it will be without any leasehold property or otherwise on which to

continue its exploration and development activities.

Risks Related to the Oil and Gas Industry

Oil and natural gas drilling and producing operations involve risks which could result in net losses.

Drilling activities are subject to many risks, including the risk that no commercially productive reservoirs

will be discovered. Wells which we drill may not be productive, and, thus, we may not be able to recover

all or any portion of our investment in such wells. Drilling for oil and natural gas may involve

unprofitable efforts, not only from dry wells, but also from wells that are productive but do not produce

sufficient net reserves to return a profit after deducting drilling, operating and other costs. The seismic

data and other technologies which we use do not allow us to know conclusively prior to drilling a well

that oil or natural gas is present or may be produced economically. The cost of drilling, completing and

operating a well is often uncertain, and cost factors can reduce the feasibility of a project to produce a

profit. Further, our drilling operations may be curtailed, delayed or canceled as a result of numerous

factors, including:

 unexpected drilling conditions;

 title problems;

 pressure or irregularities in formations;

 equipment failures or accidents;

 adverse weather conditions;

 compliance with environmental and other governmental requirements; and

 cost of, or shortages or delays in the availability of, drilling rigs, equipment and services.

Our operations are subject to all the risks normally incident to the operation and development of oil and

natural gas properties and the drilling of oil and natural gas wells, including:

 encountering well blowouts;

 cratering, explosions and fires;

 pipe failure;

 formations with abnormal pressures resulting in uncontrollable flows of oil and natural gas;

 brine or well fluids; and

 release of contaminants into the environment and other environmental hazards and risks.

The nature of these risks is such that some liabilities including environmental fines and penalties could

exceed our ability to pay for the damages. We could incur significant costs due to these risks that would

contribute to net losses.

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’s common stock is currently deemed to be “penny stock”, which makes it more difficult

for investors to sell their shares.

The Company’s common stock is and will be subject to the “penny stock” rules adopted under section

15(g) of the Exchange Act. The penny stock rules apply to companies whose common stock is not listed

on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per

share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been

operating for three or more years). These rules require, among other things, that brokers who trade penny

stock to persons other than “established customers” complete certain documentation, make suitability

inquiries of investors and provide investors with certain information concerning trading in the security,

including a risk disclosure document and quote information under certain circumstances. Many brokers

have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a

result, the number of broker-dealers willing to act as market makers in such securities is limited. If the

Company remains subject to the penny stock rules for any significant period, it could have an adverse

effect on the market, if any, for our securities. If the Company’s securities are subject to the penny stock

rules, investors will find it more difficult to dispose of our securities.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On August 20, 2012, the Company authorized the issuance of 2,500,000 restricted common shares to

Global Convertible Megatrend Ltd. in reliance upon the exemptions from registration provided by Section

4(2) and Regulation S of the Securities Act of 1933, as amended (“Securities Act”).

The Company complied with the exemption requirements of Section 4(2) of the Securities Act based on

the following factors: (1) the issuance was an isolated private transactions by the Company which did not

involve a public offering; (2) the offeree had access to the kind of information which registration would

disclose; and (3) the offeree is financially sophisticated.

The Company complied with the exemption requirements of Regulation S by having directed no offering

efforts in the United States, by offering common shares only to an offeree who was outside the United

States at the time of the offering, and ensuring that the offeree to whom the convertible debenture was

offered and authorized was a non-U.S. offeree with an address in a foreign country.

ITEM 3.

DEFAULTS ON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page

23 of this Form 10-Q, and are incorporated herein by this reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this

report to be signed on its behalf by the undersigned thereunto duly authorized.

Providence Resources, Inc.

Date

/s/ Christian Russenberger

November 14, 2012

By: Christian Russenberger

Chief Executive Officer, Chief Financial Officer, Principal

Accounting Officer and Director

INDEX TO EXHIBITS

Exhibit

Description

3.1.1*

Articles of Incorporation (incorporated by reference from the Form 10-SB filed with the

Commission on April 17, 2000).

3.1(2 & 3)*

Amendments to Articles of Incorporation (incorporated by reference from the Form 10-

SB filed with the Commission on April 17, 2000).

3.1.4*

Amended and Restated Articles of Incorporation (incorporated by reference from the

Form 10-SB filed with the Commission on April 17, 2000).

3.1.5*

Articles of Amendment to the Amended and Restated Articles of Incorporation

(incorporated by reference from the Form 10-QSB filed with the Commission on

November 17, 2003).

3.1.6*

Amendment to the Amended and Restated Articles of Incorporation (incorporated by

reference from the Form 8-K filed with the Commission on October 2, 2006).

3.1.7*

Amendment to the Amended and Restated Articles of Incorporation (incorporated by

reference from the Form 10-QSB filed with the Commission on August 14, 2007).

3.2.1*

Bylaws of the Company (incorporated by reference from the Form 10-SB filed with the

Commission on April 17, 2000).

3.2.2*

Amended and Restated Bylaws of the Company (incorporated by reference from the

Form 8-K filed with the Commission on October 26, 2006).

10.1*

Project Participation Agreement with Elm Ridge Exploration Company, LLC, dated July

31, 2008 (filed on Form 10-Q/A with the Commission on October 20, 2008).

10.2*

Extension and Amendment Re Oil and Gas Leases with I.W. Carson LLC, dated February

29, 2010 (filed on Form 8-K with the Commission on April 6, 2010).

10.3*

Assignment, Bill of Sale and Conveyance with Elm Ridge dated March 1, 2010 (filed on

Form 8-K with the Commission on April 6, 2010).

14*

Code of Ethics, adopted as of March 1, 2004 (incorporated by reference from the Form

10-QSB filed with the Commission on November 17, 2004).

21*

Subsidiaries of the Company (incorporated by reference from the Form 10-Q/A with the

Commission on August 31, 2011).

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.

PROVIDENCE RESOURCES INC - FORM 10-Q - November 19, 2012

Attached files

PROVIDENCE RESOURCES INC Reports