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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006
COMMISSION FILE NUMBER 333-113726
RADIAL ENERGY INC.
_________________________________________________________________
(Exact name of small business issuer as specified in its charter)
NEVADA 72-1580091
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 SMITH STREET, SUITE 1600, HOUSTON, TEXAS 77002
___________________________________________________
(Address of principal executive offices)
Issuer's telephone number: (713) 353-4963
1200 SMITH STREET, SUITE 1600, HOUSTON, TEXAS 77002
____________________________________________________________
(Former address, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of November 6, 2006,
44,585,824 shares of common stock were issued and outstanding.
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
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RADIAL ENERGY INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Interim Balance Sheets as of September 30, 2006 and December 31,
2005 (Unaudited)............................................ 4
Interim Statements of Operations for the three and nine-month
periods ended September 30, 2006 and 2005 and for the period
from June 30, 2000 (Date of Inception) to September 30, 2006
(Unaudited)................................................. 5
Interim Statements of Cash Flows for the nine-month period
ended September 30, 2006 and 2005 and for the period from
June 30, 2000 (Date of Inception) to September 30, 2006
(Unaudited)................................................. 6
Interim Statement of Stockholders' Equity (Deficiency) for
the period June 30, 2000 (Date of Inception) to September
30, 2006 (Unaudited)........................................ 7
Notes to the Interim Financial Statements (Unaudited).......... 9
Item 2. Management's Plan of Operation.................................. 22
Item 3. Controls and Procedures......................................... 27
PART II. OTHER INFORMATION
Item 6. Exhibits....................................................... 29
SIGNATURES.................................................................. 30
EXHIBIT INDEX .............................................................. 31
2
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EXPLANATORY NOTE
This Quarterly Report on Form 10-QSB/A is being filed as Amendment No. 1 to the
Quarterly Report on Form 10-QSB of Radial Energy Inc. for the quarter ended
September 30, 2006, which was filed with the Securities and Exchange Commission
(the "SEC") on November 14, 2006 (the "Original Form 10-QSB"). This Amendment is
being filed in response to comments from the SEC resulting from their review of
the Company's Form SB-2 (filed on November 1, 2006). Except as expressly stated
in this Amendment No. 1, generally the amended quarterly report speaks only as
of the filing date of the Original Form 10-QSB and generally does not reflect
any events occurring after September 30, 2006. See the Company's Form 8-K's
filed with the SEC since September 30, 2006 for updated information about the
Company's financial affairs.
PART I.--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RADIAL ENERGY INC.
(formerly BV Pharmaceutical, Inc.)
(An Exploration Stage Company)
INTERIM FINANCIAL STATEMENTS
September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
3
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RADIAL ENERGY INC.
(formerly BV Pharmaceutical, Inc.)
(An Exploration Stage Company)
INTERIM BALANCE SHEETS
September 30, 2006 and December 31, 2005
(Stated in US Dollars)
(UNAUDITED)
September 30 December 31
2006 2005
____________ ___________
ASSETS
Current
Cash $ - $ 1,211
Prepaid expenses and deposit 7,857 -
Current assets of discontinued operations - Note 12 - 1,000
____________ ___________
7,857 2,211
Equipment - Note 4 1,980 -
Oil and gas properties, unproven - Note 5 2,418,426 -
____________ ___________
$ 2,428,263 $ 2,211
============ ===========
LIABILITIES
Current
Bank indebtedness $ 2,529 $ -
Accounts payable and accrued liabilities - Note 5 774,012 8,435
Due to related parties - Note 8 36,847 -
Notes payable - Note 6 385,000 -
Current liabilities of discontinued operations - Note 12 - 7,500
____________ ___________
1,198,388 15,935
____________ ___________
STOCKHOLDERS' EQUITY (DEFICIENCY)
Capital stock - Note 7
Authorized:
75,000,000 common stock, $0.001 par value
Issued:
44,585,824 common stock (December 31, 2005: 151,065,824) 44,586 151,066
Additional paid-in capital - shares 2,250,810 6,180
- warrants 904,950 -
Deficit accumulated during the development stage (194,472) (170,970)
Deficit accumulated during the exploration stage (1,775,999) -
____________ ___________
1,229,875 (13,724)
____________ ___________
$ 2,428,263 $ 2,211
============ ===========
SEE ACCOMPANYING NOTES
4
RADIAL ENERGY INC.
(formerly BV Pharmaceutical, Inc.)
(An Exploration Stage Company)
INTERIM STATEMENTS OF OPERATIONS
for the three and nine-month periods ended September 30, 2006 and 2005
and for the period April 1, 2006 (Date of Exploration Stage) to September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
April 1, 2006
(Date of
Three months ended Nine months ended Exploration Stage)
September 30 September 30 to September 30,
2006 2005 2006 2005 2006
___________ ____________ ___________ ____________ ___________
Administrative expenses
Administration fees $ 5,831 $ - $ 14,331 $ - $ 14,331
Amortization 104 - 104 - 104
Consulting fees - Note 8 39,063 425 68,580 425 54,626
Executive compensation and benefits - Note 8 82,800 - 1,342,000 - 1,342,000
Filing fees 3,613 - 7,584 6,613 5,603
Financing fees - Note 9 11,250 - 11,250 - 11,250
Interest and bank charges 29,179 24 30,567 2,588 30,094
Investor relations 34,505 - 76,162 - 66,162
Marketing management services 17,460 - 46,610 - 46,610
Office and miscellaneous 1,733 473 4,384 3,898 1,671
Professional fees 63,281 3,399 88,693 11,009 81,825
Rent 5,097 - 7,419 - 7,419
Telephone 14,419 - 15,987 - 15,987
Transfer agent fees (recovery) 1,745 - 4,802 1,581 (618)
Travel and related costs 67,493 - 84,944 - 84,944
Website maintenance 1,897 - 13,991 273 13,991
___________ ____________ ___________ ____________ ___________
Loss before other items (379,470) (4,321) (1,817,408) (26,387) (1,775,999)
Other items:
Other income - - - - -
Gain on note payable forgiven - Note 7 - - 9,407 - -
___________ ____________ ___________ ____________ ___________
Net loss from continuing operations (379,470) (4,321) (1,808,001) (26,387) (1,775,999)
Income from discontinued operations - Note 12 - - 8,500 480 -
___________ ____________ ___________ ____________ ___________
Net loss for the period $ (379,470) $ (4,321) $(1,799,501) $ (25,907) $(1,775,999)
=========== ============ =========== ============ ===========
Basic loss per share from continuing operations $ (0.01) $ (0.00) $ (0.03) $ (0.00)
=========== ============ =========== ============
Basic income per share from discontinued operations $ - $ - $ 0.00 $ 0.00
=========== ============ =========== ============
Weighted average number of shares outstanding 42,742,346 150,493,112 54,649,121 150,113,400
=========== ============ =========== ============
SEE ACCOMPANYING NOTES
5
RADIAL ENERGY INC.
(formerly BV Pharmaceutical, Inc.)
(An Exploration Stage Company)
INTERIM STATEMENTS OF CASH FLOWS
for the nine-month period ended September 30, 2006 and 2005
and for the period April 1, 2006 (Date of Exploration Stage)
to September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
A pril 1, 2006
(Date of
Nine months ended Exploration Stage)
September 30, to September 30,
2006 2005 2006
___________ ____________ ___________
Cash Flows from (used in) Operating Activities
Net loss for the period $(1,799,501) $ (26,387) $(1,775,999)
Less Income from discontinued operations (8,500) (480) -
Deduct items not affecting cash:
Amortization 104 - 104
Gain on note payable forgiven (9,407) - -
Stock issued for executive compensation 1,200,000 - 1,200,000
Stock issued for financing fee 19,600 - 19,600
Changes in non-cash working capital balances related to operations:
Prepaid expenses (7,857) - 2,154
Accounts payable and accrued liabilities 765,984 (6,566) 756,531
___________ ____________ ___________
Cash used in operating activities - continuing 160,423 (32,953) 202,390
Cash provided by operating activities - discontinued 2,000 7,980 -
___________ ____________ ___________
Net cash provided by (used in) Operating Activities 162,423 (24,973) 202,390
___________ ____________ ___________
Cash Flows used in Investing Activities
Acquisition of equipment (2,084) - (2,084)
Oil and gas properties (2,418,426) - (2,418,426)
___________ ____________ ___________
Net cash used in Investing Activities (2,420,510) - (2,420,510)
___________ ____________ ___________
Cash Flows from Financing Activities
Bank indebtedness 2,529 - 2,529
Increase in due to related parties 36,847 - 36,847
Capital stock issued 1,852,500 - 1,852,500
Share subscribed - - (250,000)
Increase in note payable 365,000 - 385,000
Convertible debentures - 2,479 -
___________ ____________ ___________
Net cash provided by Financing Activities 2,256,876 2,479 2,026,876
___________ ____________ ___________
Decrease in cash during the period (1,211) (22,494) (191,244)
Cash, beginning of the period 1,211 24,964 191,244
___________ ____________ ___________
Cash, end of the period $ - $ 2,470 $ -
=========== ============ ===========
Non-cash Transactions - Note 11
SEE ACCOMPANYING NOTES
6
RADIAL ENERGY INC.
(formerly BV Pharmaceutical, Inc.)
(An Exploration Stage Company)
INTERIM STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
for the period June 30, 2000 (Date of Inception) to September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Deficit Deficit
Accumulated Accumulated
Additional Paid-in During the During the
Common Stock Capital Development Exploration
*Shares **ParValue Shares Warrants Stage Stage Total
___________ __________ __________ ________ ___________ ___________ _________
Capital stock subscribed
pursuant to an offering
memorandum for cash
- at $0.0000002 122,172,000 $ 122,172 $(121,968) $ - $ - $ - $ 204
___________ __________ _________ ________ ___________ ___________ _________
Balance, December 31, 2000 122,172,000 122,172 (121,968) - - - 204
Capital stock issued pursuant
to a private placement
- at $0.0025 27,108,400 27,108 40,663 - - - 67,771
- at $0.05 160,000 160 7,840 - - - 8,000
Net loss for the year - - - - (69,885) - (69,885)
___________ __________ _________ ________ ___________ ___________ _________
Balance, December 31, 2001 149,440,400 149,440 (73,465) - (69,885) - 6,090
Capital stock issued pursuant
to a private placement
- at $0.05 480,000 480 23,520 - - - 24,000
Net loss for the year - - - - (30,090) - (30,090)
___________ __________ _________ ________ ___________ ___________ _________
Balance, December 31, 2002 149,920,400 149,920 (49,945) - (99,975) - -
Net income for the year - - - - 108 - 108
___________ __________ _________ ________ ___________ ___________ _________
Balance, December 31, 2003 149,920,400 149,920 (49,945) - (99,867) - 108
Net loss for the year - - - (36,453) - (36,453)
___________ __________ _________ ________ ___________ ___________ _________
Balance, December 31, 2004 149,920,400 149,920 (49,945) - (136,320) - (36,345)
.../cont'd
SEE ACCOMPANYING NOTES
7
RADIAL ENERGY INC.
(formerly BV Pharmaceutical, Inc.)
(An Exploration Stage Company)
INTERIM STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
for the period June 30, 2000 (Date of Inception) to September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Deficit Deficit
Accumulated Accumulated
Additional Paid-in During the During the
Common Stock Capital Development Exploration
*Shares **ParValue Shares Warrants Stage Stage Total
___________ __________ __________ ________ ___________ ___________ _________
Capital stock issued pursuant
to conversion of convertible
debentures - at $0.05 1,145,424 1,146 56,125 - - - 57,271
Net loss for the year - - - - (34,650) - (34,650)
___________ __________ _________ ________ ___________ ___________ _________
Balance, December 31, 2005 151,065,824 151,066 6,180 - (170,970) - (13,724)
Capital stock retired to the
treasury (116,000,000) (116,000) 87,000 - - - (29,000)
Capital stock issued for
executive compensation
- at $0.80 1,500,000 1,500 1,198,500 - - - 1,200,000
Capital stock issued for loan
fee - at $0.98 20,000 20 19,580 - - - 19,600
Capital stock issued pursuant
to a private placement
- at $0.25 8,000,000 8,000 1,087,050 904,950 - - 2,000,000
Finders' fees on private
placement - - (147,500) - - - (147,500)
Net loss for the period - - - - (23,502) (1,775,999) (1,799,501)
___________ __________ _________ ________ ___________ ___________ _________
Balance, September 30, 2006 44,585,824 $ 44,586 $2,250,810 $904,950 $ (194,472) $(1,775,999) $1,229,875
=========== ========= ========= ======== =========== =========== ==========
* The common stock issued has been retroactively restated to reflect a forward stock split of 1,500 new shares
for one old share, effective January 5, 2001 and a forward split of four new shares for one old share,
effective February 20, 2006 (Note 7).
** The par value of common stock has been retroactively restated to reflect a change from no par value to a par
value of $0.001 per share.
SEE ACCOMPANYING NOTES
8
RADIAL ENERGY INC.
(formerly BV Pharmaceutical, Inc.)
(An Exploration Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Note 1 INTERIM REPORTING
The accompanying unaudited interim financial statements have been
prepared by Radial Energy Inc. (the "Company") pursuant to the
rules and regulations of the United States Securities and Exchange
Commission. Certain information and disclosures normally included
in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments and
disclosures necessary for a fair presentation of these financial
statements have been included. Such adjustments consist of normal
recurring adjustments. These interim financial statements should
be read in conjunction with the audited financial statements of
the Company for the fiscal year ended December 31, 2005.
The results of operations for the nine months ended September 30,
2006 are not indicative of the results that may be expected for
the full year.
Note 2 CONTINUANCE OF OPERATIONS
These interim financial statements have been prepared in
accordance with generally accepted accounting principles
applicable to a going concern, which assumes that the Company will
be able to meet its obligations and continue its operations for
its next twelve months. Realization values may be substantially
different from carrying values as shown and these financial
statements do not give effect to adjustments that would be
necessary to the carrying values and classification of assets and
liabilities should the Company be unable to continue as a going
concern. At September 30, 2006, the Company had not yet achieved
profitable operations, has accumulated losses of $1,970,471 since
its inception, has a working capital deficiency of $1,190,531 and
expects to incur further losses in the development of its
business, all of which casts substantial doubt about the Company's
ability to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon its ability to
generate future profitable operations and/or to obtain the
necessary financing to meet its obligations and repay its
liabilities arising from normal business operations when they come
due.
The Company has arranged a financing of up to $5,000,000 pursuant
to a securities purchase agreement to issue and sell to the
purchaser secured convertible debentures which shall be
convertible into shares of the Company's common stock and will
issue to the purchaser warrants to purchase the Company's common
stocks (Note 10).
9
Radial Energy Inc.
(formerly BV Pharmaceutical, Inc.)
(An Exploration Stage Company)
Notes to the Financial Statements
September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Note 3 ADDITIONAL ACCOUNTING POLICIES
EXPLORATION STAGE COMPANY
The Company complies with Financial Accounting Standard Board
Statement No. 7 the Securities and Exchange Commission Act Guide 7
for its characterization of the Company as an Exploration Stage
Company. The Company is devoting substantially all of its present
efforts to establish a new business and none of its planned
principal operations have commenced. For the purpose of providing
cumulative amounts for the statements of operations and cash
flows, these amounts consider only those losses for the period
from the Company's new exploration stage activity effective April
1, 2006.
OIL AND GAS PROPERTIES
The Company follows the full cost method of accounting for oil and
gas operations whereby all costs of exploring for and developing
oil and gas reserves are initially capitalized on a
country-by-country (cost centre) basis. Such costs include land
acquisition costs, geological and geophysical expenses, carrying
charges on non-producing properties, costs of drilling and
overhead charges directly related to acquisition and exploration
activities.
Costs capitalized, together with the costs of production
equipment, are depleted and amortized on the unit-of-production
method based on the estimated gross proved reserves. Petroleum
products and reserves are converted to a common unit of measure,
using 6 MCF of natural gas to one barrel of oil.
Costs of acquiring and evaluating unproved properties are
initially excluded from depletion calculations. These unevaluated
properties are assessed periodically to ascertain whether
impairment has occurred. When proved reserves are assigned or the
property is considered to be impaired, the cost of the property or
the amount of the impairment is added to costs subject to
depletion calculations.
If capitalized costs, less related accumulated amortization and
deferred income taxes, exceed the "full cost ceiling" the excess
is expensed in the period such excess occurs. The "full cost
ceiling" is determined based on the present value of estimated
future net revenues attributed to proved reserves, using current
prices less estimated future expenditures plus the lower of cost
and fair value of unproven properties within the cost centre.
Proceeds from a sale of petroleum and natural gas properties are
applied against capitalized costs, with no gain or loss
recognized, unless such a sale would alter the relationship
between capitalized costs and proved reserves of oil and gas
attributable to a cost centre. Royalties paid net of any tax
credits received are netted with oil and gas sales.
10
Radial Energy Inc.
(formerly BV Pharmaceutical, Inc.)
(A Exploration Stage Company)
Notes to the Financial Statements
September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Note 3 ADDITIONAL ACCOUNTING POLICIES - (cont'd)
EQUIPMENT AND DEPRECIATION
Equipment is recorded at cost and depreciated over their estimated
useful lives using the declining balance method. Additions are
depreciated at half the annual rate in the year of acquisition.
Note 4 EQUIPMENT
December 31,
September 30, 2006 2005
____________________________________________________ _________________
ACCUMULATED
COST DEPRECIATION NET NET
Computer equipment $ 2,084 $ 104 $ 1,980 $ -
============= ============= ============= ==============
Note 5 OIL AND GAS PROPERTIES
September 30, December 31,
2006 2005
____ ____
Anticline Project
Equipment and advance on exploration $ 1,650,000 $ -
Geological consulting 68,426 -
_______________ _______________
1,718,826 -
Cherokee County Project
Advance 700,000 -
_______________ _______________
$ 2,418,426 $ -
=============== ===============
i) Anticline Project
On May 11, 2006, the Company entered into a Joint Operating
Agreement ("JOA") with Peruvian and American companies whereby
the Company acquired a 20% working interest and 18% revenue
interest in an oil project located in Peru by funding the
acquisition of certain equipment, for the shipment of this
equipment to the project site in Peru and for the drilling,
testing and evaluation of the first exploratory well on the
property in the total amount of $1,650,000.
11
Radial Energy Inc.
(formerly BV Pharmaceutical, Inc.)
(A Exploration Stage Company)
Notes to the Financial Statements
September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Note 5 OIL AND GAS PROPERTIES - (cont'd)
i) Anticline Project
After the drilling of the first well is complete, the Company
will have the option whether to proceed with the project by
funding the drilling, testing and evaluation of another two
wells on the property for an additional $1,650,000. This
additional investment will also cover the costs to install
production facilities, including pipeline and loading dock,
tank batteries and pumping units as required to deliver the
produced oil to market. Thereafter, the Company will have the
option to pay for its 20% working interest share of the
development and operation of the project.
In the event the Company and the transacting parties decide
that the project is not feasible, the equipment acquired will
be sold and the Company will be entitled to 67% of the
proceeds.
At September 30, 2006, the Company had advanced $1,650,000
towards the acquisition of the equipment.
ii) Cherokee County Project
By an assignment agreement dated June 27, 2006 and amended
September 29, 2006, the Company has agreed to acquire a
working interest from a Canadian company in three separate
exploratory oil and gas prospects located in Cherokee County,
Texas, under three leasehold assignment agreements with a
company in Texas. In consideration for the assignment, the
Company has agreed to pay $700,000 on or before November 17,
2006, with the vendor retaining a 4% overriding royalty. The
payment covers the Company's share of the estimated capital
expenditures to drill and complete the first test wells on
each of the three prospects. The leasehold agreement for all
three prospects includes a 30% working interest before payout
of initial investment of the Canadian company and a 22.5%
working interest after payout, with payout determined on a per
project basis.
In the event that the Company fails to make the payment, the
Canadian company has the option to have the rights of the
agreement revert back or to receive from the Company a penalty
payment in the amount of 120% of the $700,000 consideration
and at its option, the amount shall be convertible into the
securities of the Company at a price equal to the lowest
offering price of the Company's securities to the general
public during the year ended December 31, 2006.
12
Radial Energy Inc.
(formerly BV Pharmaceutical, Inc.)
(A Exploration Stage Company)
Notes to the Financial Statements
September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Note 6 NOTES PAYABLE - Note 7
On July 12, 2006, the Company received $250,000 pursuant to a
promissory note. The note is unsecured, bears interest at 12% per
annum and is due July 12, 2007.
On July 31, 2006, the Company received $100,000 pursuant to a
promissory note. The note is unsecured, bears interest at 12% per
annum and is due July 31, 2007. The Company paid a loan fee by the
issuance of 20,000 shares of common stock valued at $19,600.
On September 19, 2006, the Company received $35,000, pursuant to a
promissory note. The note is unsecured, non-interest bearing and
is due September 19, 2006. The note was paid in full subsequent to
September 30, 2006.
Note 7 CAPITAL STOCK - Notes 6 and 9
Effective on January 5, 2001, the Company forward split its issued
common stock on the basis of 1,500 new for one old.
On May 25, 2004, the Company amended its authorized capital stock
to 75,000,000 common shares with a par value of $0.001 per share.
The number of authorized shares and the par value per share as
referred to in these financial statements has been restated
wherever applicable to give retroactive effect to this amendment.
On February 10, 2006, the Company repurchased a total of
29,000,000 common shares at $0.001 per share from the previous
President of the Company by the issuance of a promissory note for
$29,000 bearing interest at 8% per annum and due August 10, 2006.
The Company repaid $20,000 of the promissory note on March 27,
2006, which was accepted as payment in full. Consequently the
balance of the note and related interest was written off during
the three months ended March 31, 2006.
Effective on February 20, 2006, the Company forward split its
issued common stock on the basis of four new for one old. The
number of shares referred to in these financial statements has
been restated wherever applicable to give retroactive effect on
the forward stock splits. There was no effect on the Company's
authorized share capital.
The retroactive restatement of the issued common shares is
required by the Securities and Exchange Commission's Staff
Accounting Bulletin, Topic 4c. In actuality, the forward stock
split, of four for one is effective after the Company's repurchase
of 29,000,000 common shares. Consequently, the number of shares
actually issued immediately prior to the split was 8,766,456
common shares. The actual number of common shares, both
pre-forward split and post-forward split, are less than the number
of common shares authorized of 75,000,000.
13
Radial Energy Inc.
(formerly BV Pharmaceutical, Inc.)
(A Exploration Stage Company)
Notes to the Financial Statements
September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Note 7 CAPITAL STOCK - Notes 6 and 9 - (cont'd)
n March 29, 2006, the officers of the Company approved a plan of
merger between the Company and Radial Energy Inc. a wholly-owned
inactive subsidiary of the Company incorporated in the State of
Colorado on April 10, 2006 by the Company. Under the plan of
merger, the shares of Radial Energy Inc. were cancelled and the
shareholders of the Company received one share of the newly-merged
company for every share of BV Pharmaceutical, Inc. held. The
purpose of the merger was to facilitate a name change to Radial
Energy Inc.
On July 7, 2006, the Company issued 1,500,000 common shares at
$0.80 per share to an officer of the Company pursuant to an
employment agreement (Note 9).
On July 21, 2006, the Company issued 8,000,000 units at $0.25 per
unit for proceeds of $2,000,000 through the private placement
offering approved by the Company on February 10, 2006. Each unit
consists of one common share and one stock purchase warrant
exercisable until August 4, 2008, into one common share at $0.30
per share. The Company recorded finders' fees totalling $147,500,
$117,500 was paid at September 30, 2006 and the remaining $30,000
was paid subsequent to September 30, 2006.
On July 31, 2006, the Company issued 20,000 common shares for a
loan fee valued at $19,600 pursuant to a promissory note for
$100,000.
STOCK PURCHASE WARRANTS
As of September 30, 2006, the Company had 8,000,000 warrants
outstanding entitling the holder thereof the right to purchase one
common share for each warrant held.
The fair value of these warrants of $904,950 was determined using
the Black-Scholes stock price valuation model with the following
assumptions:
Expected share price volatility 96%
Risk free interest rate 4.91%
Expected dividend yield 0.0%
Expected term in years 2
14
Radial Energy Inc.
(formerly BV Pharmaceutical, Inc.)
(A Exploration Stage Company)
Notes to the Financial Statements
September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Note 8 RELATED PARTY TRANSACTIONS - Notes 7 and 9
The Company incurred the following amounts charged by a former
director of the Company and directors and officers of the Company
pursuant to employment agreements (Note 9):
April 1, 2006
(Date of
Three months ended Nine months ended Exploration
Stage) to
September 30, September 30, September 30,
2006 2005 2006 2005 2006
____ ____ ____ ____ ____
Consulting fees $ - $ - $ 9,000 $ - $ -
Executive compensation and
benefits 82,800 - 1,342,000 - 1,342,000
____________ __________ ____________ ___________ ______________
$ 82,800 $ - $ 1,351,000 $ - $ 1,342,000
============ ========== ============ =========== ==============
As at September 30, 2006, the due to related parties of $36,847
(December 31, 2005: $Nil) consists of expenses owing to the
directors and officers of the Company. These amounts are
unsecured, non-interest bearing and have no specific terms of
repayment.
Note 9 COMMITMENTS - Notes 7 and 10
i) By an employment agreement dated March 10, 2006 with the
President of the Company, and effective April 1, 2006, the
Company will pay $180,000 per year plus annual bonuses as
determined by the Board of Directors of the Company. In
addition, the President will receive a $400 per month auto
allowance, $800 per month insurance reimbursement and a
minimum $1,000 per month for rental and administrative
expenses to maintain an office. The Company may also issue
stock options to the President as deemed appropriate by the
Board of Directors. The term of the agreement is 3 years.
ii) By an employment agreement dated June 1, 2006, with the Chief
Operating Officer of the Company, and effective June 1, 2006,
the Company will pay $132,000 per year plus annual bonuses as
determined by the Board of Directors of the Company. In
addition, the Chief Operating Officer will receive a $400 per
month auto allowance, $800 per month reimbursement of the
costs of the medical insurance coverage and a minimum $1,000
per month for rental and administrative expenses to maintain
an office. The Company may also issue stock options to the
Chief Operating Officer as deemed appropriate by the Board of
Directors. The term of the agreement is 3 years. In addition,
during the nine months ended September 30, 2006, the Company
issued 1,500,000 common shares restricted under the Securities
and Exchange Commission Rule 144 for additional consideration
for this agreement valued at $1,200,000.
15
Radial Energy Inc.
(formerly BV Pharmaceutical, Inc.)
(A Exploration Stage Company)
Notes to the Financial Statements
September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Note 9 COMMITMENTS - Notes 7 and 10 - (cont'd)
iii) By a business consulting agreement dated April 1, 2006, the
Company will pay $10,000 per month for investor relations
services for a term of two years.
iv) On August 23, 2006, the Company entered into a Letter of
Intent with a Columbian company, to enter into a joint
operating agreement to acquire a twenty percent (20%) working
interest in the right to explore and develop oil reserves and
production located in Middle Magdalena Valley of Columbia. The
Company's working interest will be subject to a joint
operating agreement which is to be negotiated.
The Company will be required to contribute $2,200,000 in cash
upon execution of the joint operating agreement, $350,000 will
be due upon signing the joint operating agreement and another
$350,000 will be due sixty days following the signing of the
joint operating agreement. The remaining $1,500,000 will be
due fifteen days following any capital call made by the
Columbian company at any time following the execution of the
joint operating agreement.
The Company will receive a 33.33% participation in
distributions until payout of $1,500,000 of its investment,
then after payout, the interest will remain at 20%.
The Company has until November 22, 2006 to enter into the
joint operating agreement. If the company fails to enter into
the agreement by the deadline, then the Columbian company will
have no obligation to enter into the joint operating
agreement. Further, if the Company fails to properly execute
the joint operating agreement, it shall be liable for a
termination fee of up to $200,000 as follows:
(a) $50,000, if the Company terminates at any time on or
before the date the Colombian government issues the
appropriate authority to the Columbian Company to begin
operations at the site;
(b) total of $100,000, if the Company terminates following the
date the Colombian government issues such authority; and
(c) total of $200,000, if the Company terminates more than 30
days following the date the Columbian government issues
such authority.
v) The Company has an office lease for a term of one year from
September 1, 2006 to August 31, 2007 at a monthly lease of
$1,300. It will automatically renew for the same term. The
termination clause in the agreement requires a notice of three
months.
16
Radial Energy Inc.
(formerly BV Pharmaceutical, Inc.)
(A Exploration Stage Company)
Notes to the Financial Statements
September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Note 10 SUBSEQUENT EVENTS - Note 7
i) On October 2, 2006, the Company entered into a securities
purchase agreement to issue up to $5,000,000 of secured
convertible debentures which shall be convertible into common
stock and stock purchase warrants to purchase common stock.
Pursuant to the securities purchase agreement, the Company
entered into an Investor Registration Rights Agreement,
Security Agreement, and a Pledge and Escrow Agreement with the
Purchaser. The Company will pay the purchaser a commitment fee
of 10% of $5,000,000, which shall be paid proportionately upon
each disbursement. In addition, the Company will pay the
purchaser a non-refundable fee of $22,500 for structuring and
due diligence in connection with this transaction ($11,250
paid during the nine months ended September 30, 2006).
The Company received $3,500,000 and the remaining $1,500,000
shall be funded within three business days after a
registration statement for this debenture is declared
effective by the Securities and Exchange Commission.
Pursuant to the securities purchase agreement, the Company
issued to the purchaser 3,333,333 stock purchase warrants at
an exercise price of $0.75 per share, 2,500,000 stock purchase
warrants at an exercise price of $1.00 per share, 2,333,333
stock purchase warrants at an exercise price of $1.50 per
share, and is obligated to issue to the purchaser an
additional 1,000,000 stock purchase warrants at an exercise
price of $1.50 per share when the final funding is received.
The warrants will be exercisable for a term of five years. The
Company has the option to force the purchaser to exercise the
warrants within five days following the forced exercise notice
assuming that there is sufficient number of shares of common
stock to cover the underlying amount of warrants to be
exercised and the daily Volume Weighted Average Price of the
common stock for each of the five consecutive trading days
prior to the forced exercised notice date is above the
exercise price. The forced exercise notice shall be limited to
1/5 of the trading volume during the five day period. Any
allowable forced exercise notice shall be reduced by any
warrant amounts exercised by the purchaser during the five day
period.
The debentures bear interest at 7.0% per annum, are due on
October 2, 2009, secured by the assets of the Company and a
pledge of common stock which shall include common stock held
by the Company's officers and directors and the remaining
shares shall be delivered in the form of a stock certificate
in the name of the Company, to be held in escrow and are
convertible into the Company's common stock, at the option of
the purchaser at any time prior to redemption by the Company.
The debentures will be convertible at a conversion price equal
to the lesser of $1.0536 or 90% of the lowest volume weighted
average daily closing price of the Company's common stock,
during the 15 trading days immediately prior to the conversion
date. The notes contain a provision whereby no holder is able
to convert any part of the note into shares of the Company's
common stock, if such conversion would result in beneficial
ownership of the holder and its affiliates of more than 4.99%
of the Company's then outstanding shares of common stock. The
Company has the right at its option to redeem a portion or all
amounts outstanding under the debentures by paying the holder
the principal amount being redeemed plus a redemption premium
of 20 to 30%.
17
Radial Energy Inc.
(formerly BV Pharmaceutical, Inc.)
(A Exploration Stage Company)
Notes to the Financial Statements
September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Note 10 SUBSEQUENT EVENTS - Note 7 - (cont'd)
i) - (cont'd)
The warrants are detachable from the convertible debentures
and will been accounted for separately in accordance with APB
14 "Accounting for Convertible Debt and Debt Issued with Stock
Purchase Warrants". The conversion features of the convertible
debentures will be classified as equity instruments in
accordance with EITF 00-19. The proceeds of the issuance will
be allocated on a relative fair value basis between the
convertible debentures and the detachable warrant in
accordance with APB 14. Subsequent to the allocation of the
proceeds of the convertible debenture financing and in
accordance with EITF 00-27, the Company will record the
beneficial conversion feature, if any, as additional paid-in
capital. The Company will amortize the discount using the
effective interest method from commitment date to the
redemption date.
ii) On October 6, 2006, the Company entered into a Letter of
Intent with two companies in Denver, Colorado to participate
in an Acreage Earning Agreement with a third party on acres of
federal Wasatch/Mesa Verde formation leasehold interests which
are located in Uintah County, Utah.
Pursuant to the agreement, the Company shall commit to the
drilling of a minimum of three wells in 2007 and three wells
in 2008 to test the property. The Company will carry the
parties for 37.5% interest in the first three wells and will
carry the parties for 12.5% working interest in the second
three wells. Upon completion of the respective drilling
obligations, the parties shall bear their 37.5% interest of
all further wells, with the Company bearing the remaining
62.5% working interest. In the event the parties enter into an
area of mutual interest with respect to any additional related
acreage, such acreage shall be owned 62.5% by the Company and
12.5% by the two Colorado companies with the remaining 25%
being offered to the third party. Should the Company fail to
fund its share of the required wells during the first 2
year-period, it shall earn interest only in the drillsite
spacing units and all undrilled acreage will revert back to
the two companies.
The Company was required to enter into a Definitive Agreement
setting out the final terms of the agreement by no later than
October 25, 2006 and was required to pay to the two Colorado
companies' finders' fees in the amount of $100,000. This
amount was paid on October 19, 2006. This agreement has been
extended to November 14, 2006.
18
Radial Energy Inc.
(formerly BV Pharmaceutical, Inc.)
(A Exploration Stage Company)
Notes to the Financial Statements
September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Note 11 NON-CASH TRANSACTIONS
Investing and financing activities that do not have a direct
impact on current cash flows are excluded from the statements of
cash flows.
During the nine month period ended September 30, 2006:
- the Company repurchased 116,000,000 common shares by the
issuance of a promissory note for $29,000.
- the Company issued 1,500,000 common shares at $0.80 totalling
$1,200,000 to a director of the Company pursuant to an
employment agreement.
- the Company issued 20,000 common shares for a financing fee
valued at $19,600 pursuant to a promissory note.
During the period ended September 30, 2005
- the Company issued 286,356 common shares at $0.20 per share
pursuant to the conversion of the $57,271 convertible
debentures.
These transactions have been excluded from the statements of cash
flows.
Note 12 DISCONTINUED OPERATIONS
During the nine months ended September 30, 2006, concurrent with
the name change of the Company (Note 7), the Company announced its
intention to shift its direction of business towards the
acquisition, exploration and development of oil and gas projects.
Previously, the Company's business was the collection, analysis
and banking of personal DNA data. Assets, liabilities and results
of operations from the Company's previous business have been
disclosed as discontinued operations for the nine months ended
September 30, 2006 and prior periods have been restated to conform
with the current presentation.
The balance sheets include the following amounts related to
discontinued operations:
September 30, December 31,
2006 2005
Current assets of discontinued operations: ____ ____
Accounts receivable $ - $ 1,000
=============== ===============
Current liabilities of discontinued operations:
Unearned revenue $ - $ 7,500
=============== ===============
19
Radial Energy Inc.
(formerly BV Pharmaceutical, Inc.)
(A Exploration Stage Company)
Notes to the Financial Statements
September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Note 12 DISCONTINUED OPERATIONS - (cont'd)
Net income from discontinued operations are as follows:
April 1, 2006
(Date of
Exploration
Three months ended Nine months ended Stage) to
September 30, September 30, September 30,
2006 2005 2006 2005 2006
____ ____ ____ ____ ____
Revenues
License fees $ - $ - $ - $ - $ -
Other income - - 8,500 480 -
____________ ____________ ___________ ____________ ______________
- - 8,500 480 -
____________ ____________ ___________ ____________ ______________
Administrative expenses
Bad debt - - - - -
Intellectual property
acquisition costs - - - - -
Marketing research
and development - - - - -
____________ ____________ ___________ ____________ ______________
- - - - -
____________ ____________ ___________ ____________ ______________
Income from
discontinued operations $ - $ - $ 8,500 $ 480 $ -
============ ============ =========== ============ ==============
Cash flows from discontinued operations are as follows:
April 1, 2006
(Date of
Exploration
Nine months ended Stage) to
September 30, September 30,
2006 2006 2006
Cash Flows used in Operating Activities ____ ____ ____
Net income from discontinued operations $ 8,500 $ 480 $ -
Changes in non-cash working capital balances related
to operations
Accounts receivable 1,000 - -
Unearned revenue (7,500) 7,500 -
______________ ___________ ______________
Increase in cash from discontinued operations $ 2,000 $ 7,980 $ -
============== =========== ==============
20
Radial Energy Inc.
(formerly BV Pharmaceutical, Inc.)
(A Exploration Stage Company)
Notes to the Financial Statements
September 30, 2006
(Stated in US Dollars)
(UNAUDITED)
Note 13 COMPARATIVE FIGURES
Certain of the comparative figures for the nine months ended
September 30, 2005, have been reclassified to conform with the
current periods presentation.
21
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
CAUTIONARY STATEMENT
You should read the following discussion and analysis in conjunction with
the financial statements and related notes thereto contained in Part I, Item 1
of this report. The information contained in this Quarterly Report on Form
10-QSB is not a complete description of our business or the risks associated
with an investment in our common stock. We urge you to carefully review and
consider the various disclosures made by us in this report and in our other
reports filed with the Securities and Exchange Commission, or SEC, including our
Registration Statement on Form SB-2 filed with the SEC on November 1, 2006, that
discuss our business in greater detail.
This report contains forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Reference is made in particular to the description of our plans and
objectives for future operations, assumptions underlying such plans and
objectives, and other forward-looking statements included in this report. Such
statements may be identified by the use of forward-looking terminology such as
"may," "will," "expect," "believe," "estimate," "anticipate," "intend,"
"continue," or similar terms, variations of such terms or the negative of such
terms. Such statements are based on management's current expectations and are
subject to a number of factors and uncertainties, which could cause actual
results to differ materially from those described in the forward-looking
statements. Such statements address future events and conditions concerning,
among others, capital expenditures, earnings, litigation, regulatory matters,
liquidity and capital resources and accounting matters. Actual results in each
case could differ materially from those anticipated in such statements by reason
of factors such as future economic conditions, changes in consumer demand,
legislative, regulatory and competitive developments in markets in which we
operate, results of litigation and other circumstances affecting anticipated
revenues and costs, and the risk factors set forth below under the heading "Risk
Factors." We expressly disclaim any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in our expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
As used in this Form 10-QSB, "we," "us" and "our" refer to Radial Energy
Inc., which is also sometimes referred to as the "Company."
CORPORATE HISTORY
Our company was incorporated in the State of Nevada on June 30, 2000, under
the name of "All Printer Supplies.com." On April 17, 2003, we changed our name
to "BV Pharmaceuticals, Inc." and became a provider of information and services
in the areas of personal DNA collection, analysis, profiling, banking and DNA
profile database maintenance. Effective as of April 3, 2006, through a statutory
merger with our wholly owned subsidiary in which we were the surviving
corporation, we changed our name to "Radial Energy Inc.", and we also changed
our business plan as discussed below.
GENERAL
In March 2006, we began a new business plan concentrating on the
acquisition, exploration, development, and production of domestic and
international oil and gas projects. Radial Energy's primary focus is on
identifying previously drilled but subsequently abandoned wells that encountered
and/or tested live oil or natural gas indicating the presence of marketable
hydrocarbons, reservoir, and trap. As of the date of filing of this report, we
have acquired working interests in projects in South America and in Texas and
are continuing to explore other opportunities in North America and Latin
America.
22
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We are an exploration stage company that has not generated revenues from
our current operations in the oil and gas industry. There is no historical
financial information about Radial Energy upon which to base an evaluation of
our performance. We cannot guarantee we will be successful in our new core
business or in any business operations. Our business is subject to risks
inherent in the establishment of a new business enterprise, including limited
capital resources and in the exploration of oil and gas reserves.
We have no assurance that future financing will be available on acceptable
terms. If financing is not available on satisfactory terms, we may be unable to
continue with our current business plan. If equity financing is available to us
on acceptable terms, it could result in additional dilution to our existing
stockholders.
BUSINESS
BLOCK 100, HUAYA ANTICLINE, PERU
Pursuant to a Letter of Intent dated April 19, 2006, and a related Joint
Operating Agreement effective as of May 11, 2006, we have acquired rights to a
20% working interest and 18% revenue interest in the Huaya Anticline Project,
Block 100 oil prospect located in the Ucayali Basin, Peru. The project
encompasses a structural closure of approximately 500 acres, with the potential
for up to 41 well locations. We acquired the interest in the Block 100 project
from Ziegler-Peru, Inc., an American company based in Texas, which sold the
interest to us and will retain a 10 percent interest. The majority interest is
owned by the concession-holder, Compania Consultora de Petroleo, S.A., a
well-known consulting company based in Lima, Peru. While Compania Consultora is
the operator of record for the concession, Ziegler-Peru will act as contract
driller and operator for the block.
As consideration for this interest, which is only for one well, we agreed
to pay a total of $1,650,000, which funds also cover the acquisition of certain
equipment to be used for drilling, testing, and evaluation of the first well. As
of the date of the filing of this report, we have paid in full our total
financial obligation for the first well.
After drilling of the first well is complete, we will have the option to
proceed with the project by funding the drilling, testing and evaluation of
another two wells on the property for an additional $1,650,000, which funds are
expected to cover the acquisition and installation of all production facilities
required to bring the hydrocarbons produced to market. Thereafter, we will have
the option to pay for our 20% working interest share of the development and
operation of the project. In the event Radial Energy and the other participating
parties decide that the project is not feasible, the equipment acquired will be
sold and we will be entitled to 67% of the proceeds.
A third-party geological assessment conducted by Gustavson Associates of
Boulder, Colorado, a consultant contracted by Radial Energy, estimates that the
Block 100 project, if successful, may have recoverable in place reserves between
15.3 and 29.5 million barrels of oil (MMBO). While management believes the
prospect is a low-risk opportunity to discover and develop a field with
production potential, there can be no assurance the prospect will achieve such
potential. The first well is expected to be drilled during the fourth quarter of
2006, with production anticipated by year end.
CHEROKEE COUNTY, TEXAS
Pursuant to an Assignment Agreement dated June 27, 2006, we acquired all of
the rights and obligations of Pin Petroleum Partners Ltd., a Canadian company,
under three leasehold assignment agreements to properties located in Cherokee
County, Texas (collectively, the "Cherokee Agreements") with Skyline Energy LLC,
a company based in Texas. The prospects involve three separate exploratory oil
and gas prospects, known as the Junction Prospect, the Northwest Jacksonville
23
================================================================================
Prospect, and the Highway 79 Prospect. As consideration for the assignment, we
agreed to pay Pin Petroleum Partners a total of $700,000 by October 25, 2006
along with a four percent overriding royalty interest from our share of net
revenue interest. On September 29, 2006, we entered into an amendment to the
Assignment Agreement with Pin Petroleum Partners extending the payment date to
November 17, 2006. We have not yet made any payments for the assignment as of
the date of this report. Prior to the assignment, Pin Petroleum Partners had
provided to the operator of the prospects, MLC Operating, LP, $443,790 to cover
the original estimates for the drilling and completion costs for the initial
well on each of the three prospects. This pre-payment by Pin Petroleum Partners
has been assigned to Radial Energy. The funds will cover our share of the
estimated capital expenditures to drill the first test wells on each of the
three prospects. If one or more of these initial wells results in a successful
discovery, the operator may request additional funds to cover completion costs
if the original funds do not cover the current costs of completion. For each of
the three prospects, we hold a 30% working interest before payout of initial
investment, and a 22.5% working interest after payout, with payout determined on
a project basis.
The Junction Prospect is located in northwestern Cherokee County,
approximately five miles southwest of Jacksonville, Texas. This oil and natural
gas prospect's leasehold covers approximately 500 acres. The Northwest
Jacksonville Prospect leasehold covers approximately 350 acres located in
northern Cherokee County. The Highway 79 Prospect is located in northwestern
Cherokee County, one mile west of Jacksonville, Texas, and the prospect leases
cover approximately 340 net acres. While calculations based on preliminary
geological analysis, reservoir studies and interpretation estimate that the
prospects have oil and natural gas production potential, there is no assurance
that any such potential will be achieved. We have begun drilling and testing in
the prospects. Our drilling and testing in the Highway 79 Prospect resulted in
an unsuccessful test, and we will not continue to explore in that prospect. We
will continue to explore in the Junction Prospect and the Jacksonville Prospect.
BLOCK, MIDDLE MAGDALENA VALLEY OF COLOMBIA
Pursuant to a binding letter of intent dated August 23, 2006, Maxim Well
Services Ltd. ("Maxim"), a company with its principal place of business in
Bogota, Colombia, we agreed to negotiate and enter into a joint operating
agreement, the purpose of which is for Radial Energy to acquire a 20% working
interest in the right to explore and develop oil reserves and production on the
9,000 hectare (22,239 acre) "Bosque Block" located in prolific Middle Magdalena
Valley of Colombia.
We will be required to contribute $2.2 million in cash in stages beginning
on execution of the joint operating agreement. Three Hundred Fifty Thousand
Dollars ($350,000) will be due upon signing the joint operating agreement and
another $350,000 will be due sixty (60) days following the signing of the joint
operating agreement. The remaining $1,500,000 will be due 15 days following any
capital call made by Maxim at any time following the execution of the joint
operating agreement.
Until such time that we recoup $1,500,000 of our investment, we will
receive a 33.33% participation in distributions. Following recoupment of $1.5
million of our investment, our interest will remain at 20 percent.
The parties intend to enter into the joint operating agreement by November
22, 2006. If the parties fail to enter into the joint operating agreement by
November 22, 2006, then Maxim will have no obligation to enter into the joint
operating agreement or accept the investment from us on the terms expressed in
the letter of intent. Further, if we fail to properly execute the joint
operating agreement, we will be liable to Maxim for a termination fee of up to
$200,000 as follows: (a) $50,000 if we terminate at any time on or before the
date the Colombian government issues the appropriate authority to Maxim to begin
operations at the site, (b) a total of $100,000 if we terminate following the
date the Colombian government issues such authority, and (c) a total of $200,000
if we terminate more than thirty (30) days following the date the Colombian
government issues such authority.
24
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ONGOING ACTIVITIES
Additionally, management is currently investigating and in some cases is in
negotiations with various parties in both the U.S. and Colombia to acquire both
producing and prospective assets, but as of the date of this report had not
reached formal agreement on any of these opportunities.
DESCRIPTION OF PROPERTY
The agreements relating to the Block 100 prospect entitle us to a 20%
working interest in oil and gas leases covering approximately 500 acres in the
Huaya Anticline Project, Block 100 oil prospect located in the Ucayali Basin,
Peru. The leases have a primary term of 30 years from and after March 2004.
Pursuant to the Assignment Agreement and our resulting rights under the
Cherokee Agreements for each of the Junction Prospect, the Northwest
Jacksonville Prospect, and the Highway 79 Prospect, we hold a 30% working
interest before payout of initial investment and a 22.5% working interest after
payout. The leases have primary terms of three years and are renewable so long
as drilling operations occur during the primary terms.
Our principal office is located at 1200 Smith Street, Suite 1600, Houston,
Texas 77002. We also rent a single office space located at 225 Marine Drive,
Blaine, Washington 98230. The monthly rent for the Houston office is
approximately $1,300 and the monthly rent and incidentals for the Washington
office is approximately $800.
PLAN OF OPERATION
Our business plan is to identify, acquire, and develop low-risk oil and gas
exploration and development opportunities throughout North and South America,
with a primary focus on identifying previously drilled but subsequently
abandoned exploratory wells that encountered and/or tested live oil or natural
gas. We are flexible in our approach and will pursue opportunities as they arise
both in North America and in countries throughout Latin America that are
friendly to foreign investments, where factors such as lower production taxes
and positive government incentives provide for significant opportunities with
low risk. We plan to become the operator of record in the majority of our future
projects. To date, execution of our business plan has largely focused on
acquiring prospective rights to oil and gas leases and properties. We intend to
establish a going forward exploration and development plan.
Since inception, we have funded our operations primarily from the private
placement of common stock and warrants. Although we expect that, during the next
12 months, our operating capital needs will be met from our current economic
resources and by additional private capital stock transactions, there can be no
assurance that funds required will be available on terms acceptable to us or at
all. Without additional financing, we expect that our current working capital
will be able to fund our operations through the first half of 2007. If we are
unable to raise sufficient funds on terms acceptable to us, we may be unable to
complete our business plan. If equity financing is available to us on acceptable
terms, it could result in additional dilution to our stockholders.
As of the date of the filing of this report, we have two full-time
employees, our Chief Executive Officer and our Chief Operating Officer. We do
not expect any material changes in the number of employees over the next 12
months. However, if we are successful in our initial and any subsequent drilling
programs, we may retain additional employees. We have relied on, and will
continue to rely on, outside consultants for services.
25
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COMPETITORS
The oil and gas industry is intensely competitive. We compete with numerous
individuals and companies, including many major oil and gas companies, which
have substantially greater technical, financial, and operational resources and
staffs. Accordingly, there is a high degree of competition for desirable oil and
gas leases, suitable properties for drilling operations, and necessary drilling
equipment, as well as for access to funds. There are other competitors that have
operations in South America and the Texas area and the presence of these
competitors could adversely affect our ability to acquire additional leases and
rights to properties.
GOVERNMENT REGULATIONS
Our oil and gas operations are subject to various United States federal,
state, and local governmental regulations. Matters subject to regulation include
discharge permits for drilling operations, drilling and abandonment bonds,
reports concerning operations, the spacing of wells, and pooling of properties
and taxation. From time to time, regulatory agencies have imposed price controls
and limitations on production by restricting the rate of flow of oil and gas
wells below actual production capacity in order to conserve supplies of oil and
gas. The production, handling, storage, transportation and disposal of oil and
gas, by-products thereof, and other substances and materials produced or used in
connection with oil and gas operations are also subject to regulation under
federal, state, provincial and local laws and regulations relating primarily to
the protection of human health and the environment. To date, expenditures
related to complying with these laws, and for remediation of existing
environmental contamination, have not been significant in relation to the
results of operations of our company. The requirements imposed by such laws and
regulations are frequently changed and subject to interpretation, and we are
unable to predict the ultimate cost of compliance with these requirements or
their effect on our operations.
RISK FACTORS
An investment in our common stock is speculative and involves a high degree
of risk and uncertainty. You should carefully consider the risks described
below, together with the other information contained in this report, including
financial statements and notes thereto of our company, before deciding to invest
in our common stock. In addition, you should carefully review the "Risk Factors"
set forth in our Registration Statement on Form SB-2 filed with the SEC on
November 1, 2006 and hereby incorporated by reference. The risks described
therein are not the only ones facing our company. Additional risks not presently
known to us or that we presently consider immaterial may also adversely affect
our company. If any of the following risks occur, our business, financial
condition and results of operations and the value of our common stock could be
materially and adversely affected.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
2005
From inception to September 30, 2006, we had a loss of $1,970,471. Of this
amount, $379,470 was generated in the three-month period ended September 30,
2006 and $1,799,501 was generated in the nine-month period ended September 30,
2006, as compared to $4,321 and $25,907, respectively, for the comparable
periods in 2005.
Administrative expenses increased from $4,321 for the three-month period
ended September 30, 2005 to $379,470 for the comparable period in 2006 and
increased from $26,387 for the nine-month period ended September 30, 2005 to
$1,817,408 for the same period in 2006. The costs expended for the three and
nine months ended in 2006 include $39,063 and $68,580, respectively, for
consulting fees; $34,505 and $76,162, respectively, for investor relations
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services; $67,493 and $84,944, respectively, for travel and related costs;
$82,800 and $1,342,000, respectively, for executive compensation and benefits;
$63,281 and $88,693, respectively, for professional fees; $17,460 and $46,610,
respectively, for marketing management services; $5,097 and $7,419,
respectively, for rent for office space; and $29,179 and $30,567, respectively,
for interest and bank charges. During the comparable periods in 2005, we
expended $425 and $425, respectively, for consulting fees; $24 and $2,588,
respectively, for interest and bank charges; and $3,399 and $11,009,
respectively, for professional fees. We are spending considerable time traveling
in Latin America for our ongoing operations, especially in Peru and Colombia. We
expect to continue to undertake trips to manage and represent our company during
any operational activities occurring on existing assets, and to perform and
manage all new business development activities, especially those relating to due
diligence efforts for new projects under letters of intents or in various stages
of negotiation. For this reason, operating expenses related to this effort are
expected to be higher than the past through the end of 2006. Currently, we plan
to have a representative present during the drilling of the first well on the
Block 100 project, now scheduled to start mid-November.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2006, our total assets were $2,428,263, which included
prepaid expenses of $7,857 and $1,980 in computer equipment. In addition, it
included $2,418,426 we invested in the Anticline project and the Cherokee County
project. Our total liabilities were $1,198,388, all of which were current,
resulting in a deficiency in working capital of $1,190,531. As of December 31,
2005, our total assets were $2,211, all of which were current, and our total
liabilities were $15,935. The increase in total assets is a result of an
increase in cash from the sale of our equity units as part of a private
placement which commenced in February 2006 from which we received total cash
proceeds of $1,850,000. For a discussion on our investments to date with respect
to our current exploratory projects, see also the discussion in the Business
section above.
Despite our net loss from continuing activities of $1,808,001 for the
nine-month period ended September 30, 2006 and our investment and costs
associated with our oil and gas exploration participations of $2,418,426, we
have been able to obtain additional operating capital through private equity
funding sources. Our Management's plan includes the continued development and
eventual implementation of our business plan as discussed in the Plan of
Operation section above. We have relied upon equity funding since inception.
As of the date of this report, we have yet to generate any revenues from
operations of our new core business. From inception to September 30, 2006, we
have accumulated losses of $1,970,471 and expect to incur further losses in the
development of our business, all of which casts doubt about Radial Energy's
ability to continue as a going concern. Our ability to continue as a going
concern is dependent upon our ability to generate future profitable operations
and/or to obtain the necessary financing to meet our obligations and repay our
liabilities arising from normal business operations when they become due.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements at September 30, 2006.
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ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, with the participation of our chief executive officer and
chief financial officer, evaluated the effectiveness of our disclosure controls
and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934
as amended (the "Exchange Act"). In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives. In addition, the design of
disclosure controls and procedures must reflect the fact that there are resource
constraints and that we are required to apply our judgment in evaluating the
benefits of possible controls and procedures relative to our costs.
Based on that evaluation, our chief executive officer and chief financial
officer concluded that, as of September 30, 2006, our disclosure controls and
procedures are effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act (i) is accumulated and communicated to our management, including
our chief executive officer and chief financial officer, as appropriate, to
allow timely decisions regarding required disclosure, and (ii) is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms.
CHANGES IN INTERNAL CONTROLS
There were no changes in our internal control over financial reporting that
occurred during the period covered by this Quarterly Report on Form 10-QSB that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
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PART II--OTHER INFORMATION
ITEM 6. EXHIBITS
10.1 Letter of Intent by and between Radial Energy Inc. and Maxim Well Services
Ltd. dated August 23, 2006. (Translated into English and filed pursuant to
Rule 306 of Regulation S-T).
10.2 Amendment to Assignment Agreement by and between Radial Energy Inc. and Pin
Petroleum Partners Ltd. dated September 29, 2006.
31.1 Certifications of the Chief Executive Officer provided pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certifications of the Chief Financial Officer provided pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certifications of the Chief Executive Officer and Chief Financial Officer
provided pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RADIAL ENERGY INC.
By: /s/ G. LEIGH LYONS
___________________________________________
G. Leigh Lyons
President, Chief Executive Officer, and
Chief Financial Officer
(Principal Executive and Financial Officer)
Date: February __, 2007
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
10.1 Letter of Intent by and between Radial Energy Inc. and Maxim Well Services
Ltd. dated August 23, 2006. (Translated into English and filed pursuant to
Rule 306 of Regulation S-T).
10.2 Amendment to Assignment Agreement by and between Radial Energy Inc. and Pin
Petroleum Partners Ltd. dated September 29, 2006.
31.1 Certifications of the Chief Executive Officer provided pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certifications of the Chief Financial Officer provided pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certifications of the Chief Executive Officer and Chief Financial Officer
provided pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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