Monday, March 14, 2011 7:58:21 AM
ARET Arête Industries, Inc. Announces Information Updating Purchase and Financing Activity
Updating Purchase and Financing Activity
Date : 03/13/2011 @ 10:51PM
Source : Business Wire
Stock : Arête Industries, Inc. (ARET)
Quote : 0.067 0.0 (0.00%) @ 7:07AM
Arête Industries, Inc. Announces Information Updating Purchase and Financing Activity
Arête Industries, Inc. (OTC-QB: ARET) announces the Status of its purchase of Oil & Gas properties and their financing.
The deal, a renewal of the deal announced March 29, 2009 was adjusted for any changes in existing well operations during that interim period. The Company still expects to purchase the properties. There are several open items related to the purchase and the financing. The purchase will be financed with bank debt and loans from private sources which have several contingencies including the completion of the reserve study being conducted by Ryder Scott Consultants LLC. We expect to receive the report on Wednesday, March 16, 2011 for our final review. The reserve study will then be made available to the financing sources. It is still our plan to complete the transaction in March 2011. A summary of the reserve study and the purchase and sales agreement will be included in a Form 8-K filing upon the close of the transaction. We have a development plan that we are in the process of completing and will announce the plan in April 2011.
Last week the Company completed the remaining filings due for Arête Industries, Inc. and became current with the SEC. We plan to file the fiscal 2010 Form 10-K on March 28, 2011. We are now trading on the OTC QB markets under the symbol ARET-QB. “We have a large amount of work to do in the next several weeks and months to move Arete into a position to achieve the goals that we have set for the Company and I believe we are building a team to meet the challenge,” stated Donald W. Prosser, Chairman of Arête Industries, Inc.
About the Company
Arête Industries, Inc. is a publicly traded company. The Company is the operator of a gas gathering system and is in the process of buying oil and gas properties in the Rocky Mountain Region of the United States.
Statement as to Forward Looking Statements.
Certain statements contained herein, which are not historical, are forward-looking statements that are subject to risks and uncertainties not known or disclosed herein that could cause actual results to differ materially from those expressed herein. These statements may include projections and other “forward-looking statements” within the meaning of the federal securities laws. Any such projections or statements reflect Arête’s current views about future events and financial performance. No assurances can be given that such events or performance will occur as projected and actual results may differ materially from those projected. Important factors that could cause the actual results to differ materially from those projected include, without limitation, Arête’s inability to meet the conditions to acquiring its current business including providing financing to provide for servicing current and new contracts; unexpected difficulties encountered in the investment market, competition, government regulation or other action, the ability of management to execute its plans to meet its goals and other risks inherent in their businesses that are detailed in their Securities and Exchange Commission (“SEC”) filings.
10Q filed March 4 2011
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
_____________________
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended: September 30, 2010
Or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from ___________________ to _______________________
Commission File Number 33-16820-D
ARÊTE INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Colorado
84-1508638
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
P.O. Box 141 Westminster, Colorado
80036
(Address of Principal Executive Offices)
(Zip Code)
303-427-8688
(Registrant's Telephone Number, Including Area Code)
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. [X] Yes [ ] No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
Large
Accelerated Filer []
Accelerated
Filer []
Non-Accelerated Filer []
(Do not check if a smaller reporting company)
Smaller Reporting
Company [X]
As of March 2, 2011, Registrant had 497,155,754 shares of common stock issued and outstanding.
Table of Contents
Part 1 - Financial Information
Item 1 - Financial Statements (Unaudited)
3
Item 2 - Management’s Discussion and Analysis and Results of Operations
10
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
13
Item 4 - Controls and Procedures
13
Part 2 - Other Information
Item 1 - Legal Proceedings
14
Item 2 - Sales of Unregistered Equity Securities and Use of Proceeds
14
Item 3 - Defaults upon Senior Securities
14
Item 4 - Submission of Matters to a Vote of Security Holders
13
Item 5 - Other Information
14
Item 6 - Exhibits
15
- 2 -
Part 1 - Financial Information
Item 1 - Financial Statements (Unaudited)
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
December 31,
September 30,
ASSETS
2009
2010
Current assets
Cash and cash equivalents
$ 16,764 $ 3,732
Prepaid expenses
- 643,403
Revenue receivable
21,693 10,777
Total current assets
38,457 657,912
Furniture and equipment, at cost net of accumulated
depreciation of $139,902(2009) and $173,076(2010)
321,965 288,791
$ 360,422 $ 946,702
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable
$ 493,719 $ 671,449
Accrued expenses
145,754 266,843
Accrued payroll taxes
233,559 233,559
Advances and stock loans
- 975,000
Notes payable & advances related parties
492,125 492,125
Total current liabilities
1,365,157 2,638,977
Stockholders' deficit
Convertible Class A preferred stock; $10 face value,
1,000,000 shares authorized
Series 1, 30,000 shares authorized, 0 (2009)
and 0 (2010) shares issued and outstanding
- -
Series 2, 25,000 shares authorized, 0 (2009)
and 0 (2010) shares issued and outstanding
- -
Common stock, no par value; 499,000,000 shares
authorized, 493,155,754 (2009) and 493,155,754 (2010)
13,587,403 13,611,903
shares issued and outstanding
Accumulated deficit
(14,592,138 ) (15,304,178 )
Notes receivable from sale of stock
-
Total stockholders' deficit
(1,004,735 ) (1,692,275 )
$ 360,422 $ 946,702
See accompanying notes
- 3 -
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended and nine months ,
(UNAUDITED)
Three Months
Three Months
Nine Months
Nine Months
Ending September 30,
Ending September 30,
Ending September 30,
Ending September 30,
2009
2010
2009
2010
Revenues
Oil & gas revenue
$ 44,441 $ 34,606 $ 127,573 $ 135,086
Other income
- - - -
Total revenues
44,441 34,606 127,573 135,086
Operating expenses
Oil & gas operating expenses
70,598 79,629 200,719 247,278
Depreciation
11,055 11,065 33,165 33,174
Rent
750 1,009 2,831 2,679
Other operating expenses
9,391 188,793 39,599 528,602
Total operating expenses
91,794 280,496 276,314 811,733
Net loss from operations
(47,353 ) (245,890 ) (148,741 ) (676,647 )
Other income (expense):
Interest expense
(11,798 ) (11,798 ) (35,393 ) (35,393 )
Interest income
- - - 1
Total other income (expense)
(11,798 ) (11,798 ) (35,393 ) (35,392 )
Net income (loss)
$ (59,151 ) $ (257,688 ) $ (184,134 ) $ (712,040 )
Basic and diluted loss per share
* * * *
Weighted average common shares outstanding
493,000,000 495,000,000 493,000,000 494,000,000
* Less than $.01 per share
See accompanying notes
- 4 -
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF ACCUMULATED DEFICIT
For the nine months ended September 30, 2010
(UNAUDITED)
Common Stock Shares
Amount
Accumulated
Deficit
Total
Balance at December 31, 2009
493,155,754 $ 13,587,403 $ (14,592,138 ) $ (1,004,735 )
Issuance of common stock to directors
and consultants for services
4,000,000 24,500 24,500
Net loss
(712,040 ) (712,040 )
Balance at September 30, 2010
497,155,754 $ 13,611,903 $ (15,304,178 ) $ (1,692,275 )
See accompanying notes
- 5 -
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For the nine months ended, September 30,
(UNAUDITED)
2009
2010
Cash flows from operating activities:
Net (loss) income
$ (184,134 ) $ (712,040 )
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization
33,164 33,174
Stock and options issued for services and
interest on notes
10,000 24,500
Changes in assets and liabilities:
Accounts receivable
(9,017 ) 10,916
Advances
30,000 -
Prepaid expenses
(8,545 ) (643,401 )
Accounts payable
60,850 177,730
Advances and stock loans
- 975,000
Accrued expenses
47,644 121,089
Total adjustments
164,096 699,008
Net cash provided in operating activities
(20,038 ) (13,032 )
Cash flows from investing activities:
Purchase of property and equipment
- -
Net cash used in investing activities
- -
Cash flows from financing activities:
Reciept of advances - related parties
- -
Payment of advances - related parties
- -
Net cash provided by financing activities
- -
Net increase (decrease) in cash and cash equivalents
(20,038 ) (13,032 )
Cash and cash equivalents at beginning of period
23,904 16,764
Cash and cash equivalents at end of period
$ 3,866 $ 3,732
Supplemental disclosure of cash flow information:
2009 2010
Interest paid during the period
$ - $ -
Income taxes paid during the period
$ - $ -
Supplemental disclosure of non-cash investing and financing activities:
During the nine months ended September 30, 2010 wages to officers and directors and fees to
consultants of $24,500 were paid by the issuance of common stock
During the nine months ended September 30, 2009 wages to officers and directors and fees to
consultants of $10,000 were paid by the issuance of common stock
See accompanying notes
- 6 -
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
1. Basis of Presentation
The accompanying financial statements have been prepared by the Company and its subsidiary, without audit. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the financial position as of December 31, 2009 and September 30, 2010, and the results of operations, stockholders’ deficit, and cash flows for the periods ended September 30, 2009 and September 30, 2010.
The Company purchased and is operating a gas pipeline in Wyoming. Aggression Sports, Inc. (inactive) has discontinued operations and is consolidated in the Company’s financial statements.
The Company has incurred significant losses and at September 30, 2010, the Company has a working capital deficit of $1, 981,065 and a stockholders' deficit of $1, 692,275. As a result, substantial doubt exists about the Company's ability to continue to fund future operations using its existing resources.
The Company continues to rely on infusions of debt and equity capital to fund operations. The Company relies principally on cash infusions from its directors and affiliates, deferred compensation and expenses from the executive officers, and paid a significant amount of personal services, salaries and incentives in the form of common stock and common stock options.
2. Delinquent amounts payable
As of September 30, 2010, the Company is delinquent on payments of various payroll taxes and penalties from the fiscal years prior to fiscal 2002. Failure to pay these liabilities could result in liens being filed on the Company's assets and may result in assets being attached by creditors resulting in the Company's inability to continue operations.
3. Income taxes
The book to tax temporary differences resulting in deferred tax assets and liabilities are primarily net operating loss carry forwards of $7,528,753 which expire in years through 2029.
100% valuation allowance has been established against the deferred tax assets, as utilization of the loss carry forwards and realization of other deferred tax assets cannot be reasonably assured.
4. Discontinued Operations
The Company's decision to pursue projects and investments in traditional oil and gas required that it take the decisive step to formally discontinue its former operations beginning August 1, 2003. This decision is reflected by a change in the presentation of the Company's financial statements to segregate discontinued operating results in previous periods from continuing operations going forward. There is no effect in the current three month period of this reclassification.
During 2003, the Company abandoned the development of Aggression Sports Inc., a subsidiary. At September 30, 2010, the remaining liabilities of this division were $79,351 in unpaid payroll taxes.
- 7 -
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
5. Stock transactions
During the nine months ended September 30, 2010, the Company issued a total of 4,000,000 common shares for compensation of consultants, valued at an aggregate of $24,500.
During the three months ended September 30, 2010, the Company issued a total of 4,000,000 common shares for compensation of officers, directors and consultants, valued at an aggregate of $24,500.
The Company had a director of the Company pay for consulting services related to the marketing of the Company, its financing and financial operations. The director paid the consultants 32,000,000 shares of his stock in exchange for the services valued at $ 230,000. One of the contracts is for a period of one year, the fiscal year 2010, amortized over that period. The second contract is for two years beginning January 1, 2010 and will be amortized over the two year period. The unused balance of the contact is carried as prepaid expenses. The stock will be repaid in equal shares when the Company has shares available to repay the stock and will be adjusted in the event of stock reverse on a prorate basis.
The Company owes a director for services related to the operations of the pipeline business and purchase of oil & gas property. The board of directors has agreed to pay the director on a three year contract beginning January 1, 2010 $245,000 to be paid in the form of 35,000,000 shares of common stock. The expense will be amortized over the life of the contract at $30,625 per quarter and the unused balance being carried as prepaid expenses. The contract will be paid in shares of common stock when the Company has shares available to pay the contract and will be adjusted in the event of stock reverse on a prorate basis.
The Company entered into a consulting contract for financing, structure, and investor services on March 2, 2010 for 80,000,000 shares of Common Stock valued at $500,000. The contract is for a period of three years and will be amortized over a thirty-six month period. The contract will be paid in shares of common stock when the Company has shares available to pay the contract and will be adjusted in the event of stock reverse on a prorate basis.
The Company owes its directors for services for part of 2008, 2009, and 2010. They are accruing $78,000 in the first three quarters of 2010 to be paid in the future with 5,693,181 shares of Common Stock valued at $0.0137 per share.
The Company has authorized shares of 500,000,000 shares of Common Stock and has issued 497,155,754 shares of Common Stock. They will have to increase their authorized common stock to meet the obligations described above by paying with Common Stock. The total of Common Stock obligated is 152,693,181 shares at September 30, 2010.
- 8 -
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
6. Notes payable and advances – related parties
The officers and directors of the Company have advanced funds to pay for the filing and other necessary costs of the Company. The following are the advances from the officers and directors:
As of December 31, 2009 and September 30, 2010, the Company owed the related parties are unsecured, due on demand, and working capital advances:
2009 2010
Advances – Donald Prosser
$ 200,000 $ 200,000
Advances – Donald Prosser
24,290 24,290
Advances – Charles Gamber
4,966 4,966
Advances – William Stewart
20,219 20,219
Advances – William Stewart
75,000 75,000
Advances – Charles Davis
125,000 125,000
Advances – Charles Davis
40,000 40,000
Advances – John Herzog
2,650 2,650
Balances
$ 492,125 $ 492,125
Approximately $460,000 of the advances bear interest at 9.6% per annum.
Approximately $32,125 of the advances bear interest at 8.0% per annum.
The Company has related party payables of accrued interest to the officers and directors above of $151,993 at September 30, 2010. In addition, the Company owes an entity owned by Charles Davis, DNR Oil & Gas, Inc. The balance owed to DNR Oil & Gas, Inc. as of September 30, 2010 for expenses of $103,498 included in accounts payable and production to the operator of $495,473 also included in accounts payable. In addition, Donald W. Prosser advanced $33,312 at no interest as of September 30, 2010.
- 9 -
Item 2 - Management's Discussion and Analysis and Results of Operations
Forward Looking Statement
Some of the statements contained in this quarterly report of Arête Industries, Inc., a Colorado corporation (hereinafter referred to as "we", "us", "our", "Company" and the "Registrant") discuss future expectations, contain projections of our plan of operation or financial condition or state other forward-looking information. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. From time to time, we also may provide forward-looking statements in other materials we release to the public.
Critical accounting policies
The Company has identified the accounting policies described below as critical to its business operations and the understanding of the Company's results of operations. The impact and any associated risks related to these policies on the Company's business operations is discussed throughout this section where such policies affect the Company's reported and expected financial results. The preparation of this Report requires the Company to make estimates and assumptions that affect the reported amount of assets and liabilities of the Company, revenues and expenses of the Company during the reporting period and contingent assets and liabilities as of the date of the Company's financial statements. There can be no assurance that the actual results will not differ from those estimates.
Stock issuances
The Company has relied upon the issuance of shares of its common and preferred stock, and options to purchase its common stock and preferred stock to fund much of the Company's operations. The following describes the methods used to record various stock related transactions.
Stock issued for services is valued at the market price of the Company's stock at the date of grant.
Compensation related to the issuance of stock options to employees and directors is recorded at the intrinsic value of the options, which is the market price of the Company's common stock less the exercise price of the option at the measurement date. The Company's common stock issued to consultants is recorded at the market price of the Company's common stock at the measurement date. The Company's common stock options issued to consultants are recorded at the fair value of the Company's options computed using the Black-Scholes Model.
Plan of Operation
Arête, as part of its new business plan developed in mid 2005, has begun the process of pursuing a merger candidate for the parent company Arête Industries, Inc. as soon as possible. To make a merger an alternative for the future of Arête and its shareholders we have begun the task of settling old liabilities including the payroll taxes, wages and other related payroll liabilities. The ownership of and the future of Aggression Sports, Inc. and its related liabilities have added to the process. We are pursuing a merger or active business for Aggression Sports, Inc. and have to be able to settle their debt as part of the process. We have had some discussions with a candidate but have no plan or letter of intent.
- 10 -
In the first quarter of 2006 we have begun identifying possible merger candidates and have begun discussions on a merger with more than one company. The main requirement for a merger to take place will be the resolution of all remaining debt that the company has outstanding that would allow for a merger candidate to accept a proposal of debt liquidation and allow us to move forward with a merger. While we are very optimistic about our progress in identifying merger candidates to benefit the shareholders of this company there are no assurances that we can resolve all of our debt obligations meet remaining expenses gain any significant revenue for operations in the immediate future.
In September 2006, the company acquired a gas gathering system (Pipeline and compressor station related assets) located in Campbell County, Wyoming. This system was constructed in late 2001 and began operations early in 2002. The system consists of 4.5 miles of 8-inch coated steel pipeline. This pipeline is currently transporting approximately 900,000 Mcf (thousand cubic feet) of coal bed methane per day and is cash flowing from its operations. This system has a current throughput capacity of approximately 4 million cubic feet (“MMcf”) of gas per day. Gathering fees are subject to contracts which are life of lease or 10-year contracts expiring in 2012. In 2008 we have negotiated a purchase of oil & gas properties operated and controlled by DNR Oil & Gas, Inc. The offer to purchase is subject to financing and we are continuing to pursue financing with several lenders and loan brokers.
Financial Condition
In prior periods, we wrote off Aggression Sports, Inc.'s fixed assets and inventory and molds held for disposal from discontinued operations. Additionally, we continue to reduce certain amounts payable from discontinued operations as extinguishment of debt, through the passage of statutes of limitation. We expect future write-downs and reclassifications from discontinued operations and extinguishment of debt to be nominal and incremental in nature.
As of the end of the nine months ended September 30, 2010, the Company had $946,702 in total assets. This compares to total assets of $360,422 as of the fiscal year ended December 31, 2009. Total liabilities were $2,638,977 as of September 30, 2010 compared to $1,365,157 as of the fiscal year ended December 31, 2009. Accounts payable and accrued expenses at September 30, 2010 were $938,292 as compared to $639,473 at December 31, 2009. Advances and notes payable to related parties at September 30, 2010 were $492,125 as compared to $492,125 at December 31, 2009. During the nine months ended September 30, 2009, total liabilities were increased by $1,273,820, with $298,820 due to operation of the pipeline and related costs and overhead costs, and $975,000 for payment of contracts for services. Net (loss) was $(712,040), increasing the accumulated deficit as of September 30, 2009 to $15,304,178, as compared to an accumulated deficit as of December 31, 2009 of $14,592,138.
During 2003, the Company abandoned the development of the Aggression Sports, Inc. subsidiary. At September 30, 2010, the remaining liabilities of this subsidiary were $102,554 in unpaid payroll taxes. As of September 30, 2010, the consolidated entity owes $233,559 in unpaid payroll taxes of which $44,408 applies specifically to the parent company for periods through the fourth quarter of 2000.
During the nine months ended September 30, 2009, the Company continued to rely upon infusions of cash from loans and loans of stock by officers and directors. During the nine months ended September 30, 2010, the Company paid $24,500 in compensation to consultants and professionals with 4,000,000 shares of common stock. During the nine months ended September 30, 2010 we entered into several contracts and agreements to be paid in the future or presently with common stock loaned for payment. The following are these transactions: 1) The Company had a director of the Company pay for consulting services related to the marketing of the Company, its financing and financial operations. The director paid the consultants 32,000,000 shares of his stock in exchange for the services valued at $ 230,000. One of the contracts is for a period of one year, the fiscal year 2010, amortized over that period. The second contract is for two years beginning January 1, 2010 and will be amortized over the two year period. 2) The Company owes a director for services related to the operations of the pipeline business and purchase of oil & gas property. The board of directors has agreed to pay the director on a three year contract beginning January 1, 2010 $245,000 to be paid in the form of 35,000,000 shares of common stock. 3) The Company entered into a consulting contract for financing, structure, and investor services on March 2, 2010 for 80,000,000 shares of Common Stock valued at $500,000. The contract is for a period of three years and will be amortized over a thirty-six month period.
- 11 -
Results of operations for the Nine Months ended September 30, 2010 Compared to Nine Months ended September 30, 2009.
The Company had $135,086 in revenues from operations during the nine months ended September 30, 2010, and had $127,573 in revenues during the comparable period ended September 30, 2009. The price of natural gas for the nine months ended September 30, 2010 was below $4.00 per mmcf . Net loss from operations for the nine months ended September 30, 2010 was $(676,647) as compared to a net loss from operations of $(148,741) for the nine months ended September 30, 2009. The net loss for the quarter ended September 30, 2010 was $(712,040) which includes $35,393 in interest expense. The net loss during the nine months ended September 30, 2009 was reduced by $34,421 of interest expense, resulting in net loss of $(184,134) for the period.
Results of operations for the Three Months ended September 30, 2010 Compared to Three Months ended September 30, 2010.
The Company had $34,606 in revenues from operations during the quarter ended September 30, 2010, and had $44,441 in revenues during the comparable period ended September 30, 2008. The price of natural gas for the three months ended September 30, 2010 was below $4.00 per mmcf. Net loss from operations for the quarter ended September 30, 2010 was $(245,890) as compared to a net loss from operations of $(47,353) for the quarter ended September 30, 2009. The net loss during the quarter ended September 30, 2010 was $(257,688) for the period. The net loss for the quarter ended September 30, 2009 was $(59,151).
The Company rents space for file storage and furniture for $430 for the nine months ended September 30, 2010. The Company uses space rented by Director for meetings and to keep current records and pays $750 per quarter or $2,250 for the nine months ended September 30, 2010.
As stated above, we will continue to operate the Company on an austere program of minimum overhead, while utilizing skills of its board members, independent contractors as administrative staff and individual independent contractors with expertise in business development, capital acquisition, corporate visibility, oil and gas development, geology and operations with the use of our common stock as incentives during the development of our business model. Further as opportunities for participation in profitable revenue producing projects come forward, we intend that consultants and advisors will be offered compensation from revenues or interests, direct participations, royalties or other incentives from the specific projects to which they contribute. While reducing the amount of variable costs, there is almost no way to reduce or offset our fixed expenses related to office expense, legal, accounting, transfer agent fees, Securities Act reporting, corporate governance, and shareholder communications. Our future expectation is that monthly operating expenses will remain as low as possible until new opportunities are initiated, of which there can be no assurance, in which event, the operating costs of the Company may increase relative to the need for administrative and executive staff and overhead to provide support for these new business activities.
Liquidity and Capital Resources
The Company had a working capital deficit as of September 30, 2010 of $1,981,065. This compares to a working capital deficit of $1,326,700 as of December 31, 2009. During the nine months ended September 30, 2010 an aggregate of 4,000,000 shares of common stock were issued for aggregate consideration of $24,500 (for an average of $0.006 per share).
The Company had a stockholder's deficit at September 30, 2010 of $1,692,275. This is compared to stockholder's deficit at December 31, 2009 of $1,004,735. The stockholder's deficit increased due the Company's operating loss and increased by the payment of services with the issuance of stock.
- 12 -
The Company has net cash (used) by operating activities for the nine months ended September 30, 2010 of $(13,032) as compared to net cash (used) by operating activities of $(20,038) for the nine months ended September 30, 2009.
The Company had no net cash used in investing activities for the nine months ended September 30, 2010 and for the nine months ended September 30, 2009.
The Company had no net cash provided by financing activities for the nine months ended September 30, 2010 and for the nine months ended September 30, 2009.
At September 30, 2010, the Company had no material commitments for capital expenditures.
Management believes that the Company will experience significant difficulty internally raising significant additional equity capital or debt until these matters have been resolved and the Company has eliminated a substantial amount of its outstanding debt and/or achieves operating revenue from its oil and gas operations. The Company looks to earn management fees through its newly formed subsidiary and revenue from proposed oil and gas development activities that it can earn-in on successful financing and commencement of operations, of which there is no assurance.
Unless and until it achieves success in its proposed activities, of which there is no assurance, the Company may continue to be required to issue further stock to pay executives, consultants and other employees, which may have a continuing dilutive effect on other shareholders of the Company. Failure of the Company to acquire additional capital in the form of either debt or equity capital or revenue from proposed operations will most likely impair the ability of the Company to meet its obligations in the near-term.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
The Company is defined by Rule 229.10 (f)(1) as a “Smaller Reporting Company” and is not required to provide or disclose the information required by this item.
Item 4 - Controls and Procedures
As of September 30, 2010 our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”) conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a-15(e) and 15d-15(e) of the Exchange Act, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosure. Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were effective to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the rules and regulations promulgated thereunder.
Further, there were no changes in our internal control over financial reporting during the first fiscal quarter that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
- 13 -
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
None
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3 - Defaults upon Senior Securities.
None
Item 4 - Submission of Matters to a Vote of Securities Holders.
None
Item 5 - Other Information.
None
Item 6. Exhibits
The following documents are filed as exhibits to this report on Form 10-Q or incorporated by reference herein.
31.1
Certification of CEO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of CFO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of CFRO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- 14 -
ARÊTE INDUSTRIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
By:
/s/ Charles L. Gamber, CEO
Charles L. Gamber, Principal Executive Officer
Dated: March 4 , 2011
By:
/s/ John Herzog, Interim CFO
John Herzog,
Interim Principal Financial and Accounting Officer
Dated: March 4, 2011
- 15 -
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Charles L. Gamber, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Arête Industries, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Dated: March 4, 2011
By:
/s/ Charles L. Gamber
Charles L.Gamber, Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Herzog, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Arête Industries, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
March 4, 2011
By:
/s/ John Herzog
John Herzog, Interim Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Arête Industries, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles L. Gamber, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
March 4, 2011
By:
/s/ Charles L. Gamber
Charles L.Gamber, Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to Arête Industries, Inc. and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Arête Industries, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Herzog, Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
March 4, 2011
By:
/s/ John Herzog
John Herzog, Interim Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Arête Industries, Inc. and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Updating Purchase and Financing Activity
Date : 03/13/2011 @ 10:51PM
Source : Business Wire
Stock : Arête Industries, Inc. (ARET)
Quote : 0.067 0.0 (0.00%) @ 7:07AM
Arête Industries, Inc. Announces Information Updating Purchase and Financing Activity
Arête Industries, Inc. (OTC-QB: ARET) announces the Status of its purchase of Oil & Gas properties and their financing.
The deal, a renewal of the deal announced March 29, 2009 was adjusted for any changes in existing well operations during that interim period. The Company still expects to purchase the properties. There are several open items related to the purchase and the financing. The purchase will be financed with bank debt and loans from private sources which have several contingencies including the completion of the reserve study being conducted by Ryder Scott Consultants LLC. We expect to receive the report on Wednesday, March 16, 2011 for our final review. The reserve study will then be made available to the financing sources. It is still our plan to complete the transaction in March 2011. A summary of the reserve study and the purchase and sales agreement will be included in a Form 8-K filing upon the close of the transaction. We have a development plan that we are in the process of completing and will announce the plan in April 2011.
Last week the Company completed the remaining filings due for Arête Industries, Inc. and became current with the SEC. We plan to file the fiscal 2010 Form 10-K on March 28, 2011. We are now trading on the OTC QB markets under the symbol ARET-QB. “We have a large amount of work to do in the next several weeks and months to move Arete into a position to achieve the goals that we have set for the Company and I believe we are building a team to meet the challenge,” stated Donald W. Prosser, Chairman of Arête Industries, Inc.
About the Company
Arête Industries, Inc. is a publicly traded company. The Company is the operator of a gas gathering system and is in the process of buying oil and gas properties in the Rocky Mountain Region of the United States.
Statement as to Forward Looking Statements.
Certain statements contained herein, which are not historical, are forward-looking statements that are subject to risks and uncertainties not known or disclosed herein that could cause actual results to differ materially from those expressed herein. These statements may include projections and other “forward-looking statements” within the meaning of the federal securities laws. Any such projections or statements reflect Arête’s current views about future events and financial performance. No assurances can be given that such events or performance will occur as projected and actual results may differ materially from those projected. Important factors that could cause the actual results to differ materially from those projected include, without limitation, Arête’s inability to meet the conditions to acquiring its current business including providing financing to provide for servicing current and new contracts; unexpected difficulties encountered in the investment market, competition, government regulation or other action, the ability of management to execute its plans to meet its goals and other risks inherent in their businesses that are detailed in their Securities and Exchange Commission (“SEC”) filings.
10Q filed March 4 2011
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
_____________________
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended: September 30, 2010
Or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from ___________________ to _______________________
Commission File Number 33-16820-D
ARÊTE INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Colorado
84-1508638
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
P.O. Box 141 Westminster, Colorado
80036
(Address of Principal Executive Offices)
(Zip Code)
303-427-8688
(Registrant's Telephone Number, Including Area Code)
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. [X] Yes [ ] No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
Large
Accelerated Filer []
Accelerated
Filer []
Non-Accelerated Filer []
(Do not check if a smaller reporting company)
Smaller Reporting
Company [X]
As of March 2, 2011, Registrant had 497,155,754 shares of common stock issued and outstanding.
Table of Contents
Part 1 - Financial Information
Item 1 - Financial Statements (Unaudited)
3
Item 2 - Management’s Discussion and Analysis and Results of Operations
10
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
13
Item 4 - Controls and Procedures
13
Part 2 - Other Information
Item 1 - Legal Proceedings
14
Item 2 - Sales of Unregistered Equity Securities and Use of Proceeds
14
Item 3 - Defaults upon Senior Securities
14
Item 4 - Submission of Matters to a Vote of Security Holders
13
Item 5 - Other Information
14
Item 6 - Exhibits
15
- 2 -
Part 1 - Financial Information
Item 1 - Financial Statements (Unaudited)
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
December 31,
September 30,
ASSETS
2009
2010
Current assets
Cash and cash equivalents
$ 16,764 $ 3,732
Prepaid expenses
- 643,403
Revenue receivable
21,693 10,777
Total current assets
38,457 657,912
Furniture and equipment, at cost net of accumulated
depreciation of $139,902(2009) and $173,076(2010)
321,965 288,791
$ 360,422 $ 946,702
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable
$ 493,719 $ 671,449
Accrued expenses
145,754 266,843
Accrued payroll taxes
233,559 233,559
Advances and stock loans
- 975,000
Notes payable & advances related parties
492,125 492,125
Total current liabilities
1,365,157 2,638,977
Stockholders' deficit
Convertible Class A preferred stock; $10 face value,
1,000,000 shares authorized
Series 1, 30,000 shares authorized, 0 (2009)
and 0 (2010) shares issued and outstanding
- -
Series 2, 25,000 shares authorized, 0 (2009)
and 0 (2010) shares issued and outstanding
- -
Common stock, no par value; 499,000,000 shares
authorized, 493,155,754 (2009) and 493,155,754 (2010)
13,587,403 13,611,903
shares issued and outstanding
Accumulated deficit
(14,592,138 ) (15,304,178 )
Notes receivable from sale of stock
-
Total stockholders' deficit
(1,004,735 ) (1,692,275 )
$ 360,422 $ 946,702
See accompanying notes
- 3 -
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended and nine months ,
(UNAUDITED)
Three Months
Three Months
Nine Months
Nine Months
Ending September 30,
Ending September 30,
Ending September 30,
Ending September 30,
2009
2010
2009
2010
Revenues
Oil & gas revenue
$ 44,441 $ 34,606 $ 127,573 $ 135,086
Other income
- - - -
Total revenues
44,441 34,606 127,573 135,086
Operating expenses
Oil & gas operating expenses
70,598 79,629 200,719 247,278
Depreciation
11,055 11,065 33,165 33,174
Rent
750 1,009 2,831 2,679
Other operating expenses
9,391 188,793 39,599 528,602
Total operating expenses
91,794 280,496 276,314 811,733
Net loss from operations
(47,353 ) (245,890 ) (148,741 ) (676,647 )
Other income (expense):
Interest expense
(11,798 ) (11,798 ) (35,393 ) (35,393 )
Interest income
- - - 1
Total other income (expense)
(11,798 ) (11,798 ) (35,393 ) (35,392 )
Net income (loss)
$ (59,151 ) $ (257,688 ) $ (184,134 ) $ (712,040 )
Basic and diluted loss per share
* * * *
Weighted average common shares outstanding
493,000,000 495,000,000 493,000,000 494,000,000
* Less than $.01 per share
See accompanying notes
- 4 -
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF ACCUMULATED DEFICIT
For the nine months ended September 30, 2010
(UNAUDITED)
Common Stock Shares
Amount
Accumulated
Deficit
Total
Balance at December 31, 2009
493,155,754 $ 13,587,403 $ (14,592,138 ) $ (1,004,735 )
Issuance of common stock to directors
and consultants for services
4,000,000 24,500 24,500
Net loss
(712,040 ) (712,040 )
Balance at September 30, 2010
497,155,754 $ 13,611,903 $ (15,304,178 ) $ (1,692,275 )
See accompanying notes
- 5 -
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For the nine months ended, September 30,
(UNAUDITED)
2009
2010
Cash flows from operating activities:
Net (loss) income
$ (184,134 ) $ (712,040 )
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization
33,164 33,174
Stock and options issued for services and
interest on notes
10,000 24,500
Changes in assets and liabilities:
Accounts receivable
(9,017 ) 10,916
Advances
30,000 -
Prepaid expenses
(8,545 ) (643,401 )
Accounts payable
60,850 177,730
Advances and stock loans
- 975,000
Accrued expenses
47,644 121,089
Total adjustments
164,096 699,008
Net cash provided in operating activities
(20,038 ) (13,032 )
Cash flows from investing activities:
Purchase of property and equipment
- -
Net cash used in investing activities
- -
Cash flows from financing activities:
Reciept of advances - related parties
- -
Payment of advances - related parties
- -
Net cash provided by financing activities
- -
Net increase (decrease) in cash and cash equivalents
(20,038 ) (13,032 )
Cash and cash equivalents at beginning of period
23,904 16,764
Cash and cash equivalents at end of period
$ 3,866 $ 3,732
Supplemental disclosure of cash flow information:
2009 2010
Interest paid during the period
$ - $ -
Income taxes paid during the period
$ - $ -
Supplemental disclosure of non-cash investing and financing activities:
During the nine months ended September 30, 2010 wages to officers and directors and fees to
consultants of $24,500 were paid by the issuance of common stock
During the nine months ended September 30, 2009 wages to officers and directors and fees to
consultants of $10,000 were paid by the issuance of common stock
See accompanying notes
- 6 -
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
1. Basis of Presentation
The accompanying financial statements have been prepared by the Company and its subsidiary, without audit. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the financial position as of December 31, 2009 and September 30, 2010, and the results of operations, stockholders’ deficit, and cash flows for the periods ended September 30, 2009 and September 30, 2010.
The Company purchased and is operating a gas pipeline in Wyoming. Aggression Sports, Inc. (inactive) has discontinued operations and is consolidated in the Company’s financial statements.
The Company has incurred significant losses and at September 30, 2010, the Company has a working capital deficit of $1, 981,065 and a stockholders' deficit of $1, 692,275. As a result, substantial doubt exists about the Company's ability to continue to fund future operations using its existing resources.
The Company continues to rely on infusions of debt and equity capital to fund operations. The Company relies principally on cash infusions from its directors and affiliates, deferred compensation and expenses from the executive officers, and paid a significant amount of personal services, salaries and incentives in the form of common stock and common stock options.
2. Delinquent amounts payable
As of September 30, 2010, the Company is delinquent on payments of various payroll taxes and penalties from the fiscal years prior to fiscal 2002. Failure to pay these liabilities could result in liens being filed on the Company's assets and may result in assets being attached by creditors resulting in the Company's inability to continue operations.
3. Income taxes
The book to tax temporary differences resulting in deferred tax assets and liabilities are primarily net operating loss carry forwards of $7,528,753 which expire in years through 2029.
100% valuation allowance has been established against the deferred tax assets, as utilization of the loss carry forwards and realization of other deferred tax assets cannot be reasonably assured.
4. Discontinued Operations
The Company's decision to pursue projects and investments in traditional oil and gas required that it take the decisive step to formally discontinue its former operations beginning August 1, 2003. This decision is reflected by a change in the presentation of the Company's financial statements to segregate discontinued operating results in previous periods from continuing operations going forward. There is no effect in the current three month period of this reclassification.
During 2003, the Company abandoned the development of Aggression Sports Inc., a subsidiary. At September 30, 2010, the remaining liabilities of this division were $79,351 in unpaid payroll taxes.
- 7 -
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
5. Stock transactions
During the nine months ended September 30, 2010, the Company issued a total of 4,000,000 common shares for compensation of consultants, valued at an aggregate of $24,500.
During the three months ended September 30, 2010, the Company issued a total of 4,000,000 common shares for compensation of officers, directors and consultants, valued at an aggregate of $24,500.
The Company had a director of the Company pay for consulting services related to the marketing of the Company, its financing and financial operations. The director paid the consultants 32,000,000 shares of his stock in exchange for the services valued at $ 230,000. One of the contracts is for a period of one year, the fiscal year 2010, amortized over that period. The second contract is for two years beginning January 1, 2010 and will be amortized over the two year period. The unused balance of the contact is carried as prepaid expenses. The stock will be repaid in equal shares when the Company has shares available to repay the stock and will be adjusted in the event of stock reverse on a prorate basis.
The Company owes a director for services related to the operations of the pipeline business and purchase of oil & gas property. The board of directors has agreed to pay the director on a three year contract beginning January 1, 2010 $245,000 to be paid in the form of 35,000,000 shares of common stock. The expense will be amortized over the life of the contract at $30,625 per quarter and the unused balance being carried as prepaid expenses. The contract will be paid in shares of common stock when the Company has shares available to pay the contract and will be adjusted in the event of stock reverse on a prorate basis.
The Company entered into a consulting contract for financing, structure, and investor services on March 2, 2010 for 80,000,000 shares of Common Stock valued at $500,000. The contract is for a period of three years and will be amortized over a thirty-six month period. The contract will be paid in shares of common stock when the Company has shares available to pay the contract and will be adjusted in the event of stock reverse on a prorate basis.
The Company owes its directors for services for part of 2008, 2009, and 2010. They are accruing $78,000 in the first three quarters of 2010 to be paid in the future with 5,693,181 shares of Common Stock valued at $0.0137 per share.
The Company has authorized shares of 500,000,000 shares of Common Stock and has issued 497,155,754 shares of Common Stock. They will have to increase their authorized common stock to meet the obligations described above by paying with Common Stock. The total of Common Stock obligated is 152,693,181 shares at September 30, 2010.
- 8 -
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
6. Notes payable and advances – related parties
The officers and directors of the Company have advanced funds to pay for the filing and other necessary costs of the Company. The following are the advances from the officers and directors:
As of December 31, 2009 and September 30, 2010, the Company owed the related parties are unsecured, due on demand, and working capital advances:
2009 2010
Advances – Donald Prosser
$ 200,000 $ 200,000
Advances – Donald Prosser
24,290 24,290
Advances – Charles Gamber
4,966 4,966
Advances – William Stewart
20,219 20,219
Advances – William Stewart
75,000 75,000
Advances – Charles Davis
125,000 125,000
Advances – Charles Davis
40,000 40,000
Advances – John Herzog
2,650 2,650
Balances
$ 492,125 $ 492,125
Approximately $460,000 of the advances bear interest at 9.6% per annum.
Approximately $32,125 of the advances bear interest at 8.0% per annum.
The Company has related party payables of accrued interest to the officers and directors above of $151,993 at September 30, 2010. In addition, the Company owes an entity owned by Charles Davis, DNR Oil & Gas, Inc. The balance owed to DNR Oil & Gas, Inc. as of September 30, 2010 for expenses of $103,498 included in accounts payable and production to the operator of $495,473 also included in accounts payable. In addition, Donald W. Prosser advanced $33,312 at no interest as of September 30, 2010.
- 9 -
Item 2 - Management's Discussion and Analysis and Results of Operations
Forward Looking Statement
Some of the statements contained in this quarterly report of Arête Industries, Inc., a Colorado corporation (hereinafter referred to as "we", "us", "our", "Company" and the "Registrant") discuss future expectations, contain projections of our plan of operation or financial condition or state other forward-looking information. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. From time to time, we also may provide forward-looking statements in other materials we release to the public.
Critical accounting policies
The Company has identified the accounting policies described below as critical to its business operations and the understanding of the Company's results of operations. The impact and any associated risks related to these policies on the Company's business operations is discussed throughout this section where such policies affect the Company's reported and expected financial results. The preparation of this Report requires the Company to make estimates and assumptions that affect the reported amount of assets and liabilities of the Company, revenues and expenses of the Company during the reporting period and contingent assets and liabilities as of the date of the Company's financial statements. There can be no assurance that the actual results will not differ from those estimates.
Stock issuances
The Company has relied upon the issuance of shares of its common and preferred stock, and options to purchase its common stock and preferred stock to fund much of the Company's operations. The following describes the methods used to record various stock related transactions.
Stock issued for services is valued at the market price of the Company's stock at the date of grant.
Compensation related to the issuance of stock options to employees and directors is recorded at the intrinsic value of the options, which is the market price of the Company's common stock less the exercise price of the option at the measurement date. The Company's common stock issued to consultants is recorded at the market price of the Company's common stock at the measurement date. The Company's common stock options issued to consultants are recorded at the fair value of the Company's options computed using the Black-Scholes Model.
Plan of Operation
Arête, as part of its new business plan developed in mid 2005, has begun the process of pursuing a merger candidate for the parent company Arête Industries, Inc. as soon as possible. To make a merger an alternative for the future of Arête and its shareholders we have begun the task of settling old liabilities including the payroll taxes, wages and other related payroll liabilities. The ownership of and the future of Aggression Sports, Inc. and its related liabilities have added to the process. We are pursuing a merger or active business for Aggression Sports, Inc. and have to be able to settle their debt as part of the process. We have had some discussions with a candidate but have no plan or letter of intent.
- 10 -
In the first quarter of 2006 we have begun identifying possible merger candidates and have begun discussions on a merger with more than one company. The main requirement for a merger to take place will be the resolution of all remaining debt that the company has outstanding that would allow for a merger candidate to accept a proposal of debt liquidation and allow us to move forward with a merger. While we are very optimistic about our progress in identifying merger candidates to benefit the shareholders of this company there are no assurances that we can resolve all of our debt obligations meet remaining expenses gain any significant revenue for operations in the immediate future.
In September 2006, the company acquired a gas gathering system (Pipeline and compressor station related assets) located in Campbell County, Wyoming. This system was constructed in late 2001 and began operations early in 2002. The system consists of 4.5 miles of 8-inch coated steel pipeline. This pipeline is currently transporting approximately 900,000 Mcf (thousand cubic feet) of coal bed methane per day and is cash flowing from its operations. This system has a current throughput capacity of approximately 4 million cubic feet (“MMcf”) of gas per day. Gathering fees are subject to contracts which are life of lease or 10-year contracts expiring in 2012. In 2008 we have negotiated a purchase of oil & gas properties operated and controlled by DNR Oil & Gas, Inc. The offer to purchase is subject to financing and we are continuing to pursue financing with several lenders and loan brokers.
Financial Condition
In prior periods, we wrote off Aggression Sports, Inc.'s fixed assets and inventory and molds held for disposal from discontinued operations. Additionally, we continue to reduce certain amounts payable from discontinued operations as extinguishment of debt, through the passage of statutes of limitation. We expect future write-downs and reclassifications from discontinued operations and extinguishment of debt to be nominal and incremental in nature.
As of the end of the nine months ended September 30, 2010, the Company had $946,702 in total assets. This compares to total assets of $360,422 as of the fiscal year ended December 31, 2009. Total liabilities were $2,638,977 as of September 30, 2010 compared to $1,365,157 as of the fiscal year ended December 31, 2009. Accounts payable and accrued expenses at September 30, 2010 were $938,292 as compared to $639,473 at December 31, 2009. Advances and notes payable to related parties at September 30, 2010 were $492,125 as compared to $492,125 at December 31, 2009. During the nine months ended September 30, 2009, total liabilities were increased by $1,273,820, with $298,820 due to operation of the pipeline and related costs and overhead costs, and $975,000 for payment of contracts for services. Net (loss) was $(712,040), increasing the accumulated deficit as of September 30, 2009 to $15,304,178, as compared to an accumulated deficit as of December 31, 2009 of $14,592,138.
During 2003, the Company abandoned the development of the Aggression Sports, Inc. subsidiary. At September 30, 2010, the remaining liabilities of this subsidiary were $102,554 in unpaid payroll taxes. As of September 30, 2010, the consolidated entity owes $233,559 in unpaid payroll taxes of which $44,408 applies specifically to the parent company for periods through the fourth quarter of 2000.
During the nine months ended September 30, 2009, the Company continued to rely upon infusions of cash from loans and loans of stock by officers and directors. During the nine months ended September 30, 2010, the Company paid $24,500 in compensation to consultants and professionals with 4,000,000 shares of common stock. During the nine months ended September 30, 2010 we entered into several contracts and agreements to be paid in the future or presently with common stock loaned for payment. The following are these transactions: 1) The Company had a director of the Company pay for consulting services related to the marketing of the Company, its financing and financial operations. The director paid the consultants 32,000,000 shares of his stock in exchange for the services valued at $ 230,000. One of the contracts is for a period of one year, the fiscal year 2010, amortized over that period. The second contract is for two years beginning January 1, 2010 and will be amortized over the two year period. 2) The Company owes a director for services related to the operations of the pipeline business and purchase of oil & gas property. The board of directors has agreed to pay the director on a three year contract beginning January 1, 2010 $245,000 to be paid in the form of 35,000,000 shares of common stock. 3) The Company entered into a consulting contract for financing, structure, and investor services on March 2, 2010 for 80,000,000 shares of Common Stock valued at $500,000. The contract is for a period of three years and will be amortized over a thirty-six month period.
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Results of operations for the Nine Months ended September 30, 2010 Compared to Nine Months ended September 30, 2009.
The Company had $135,086 in revenues from operations during the nine months ended September 30, 2010, and had $127,573 in revenues during the comparable period ended September 30, 2009. The price of natural gas for the nine months ended September 30, 2010 was below $4.00 per mmcf . Net loss from operations for the nine months ended September 30, 2010 was $(676,647) as compared to a net loss from operations of $(148,741) for the nine months ended September 30, 2009. The net loss for the quarter ended September 30, 2010 was $(712,040) which includes $35,393 in interest expense. The net loss during the nine months ended September 30, 2009 was reduced by $34,421 of interest expense, resulting in net loss of $(184,134) for the period.
Results of operations for the Three Months ended September 30, 2010 Compared to Three Months ended September 30, 2010.
The Company had $34,606 in revenues from operations during the quarter ended September 30, 2010, and had $44,441 in revenues during the comparable period ended September 30, 2008. The price of natural gas for the three months ended September 30, 2010 was below $4.00 per mmcf. Net loss from operations for the quarter ended September 30, 2010 was $(245,890) as compared to a net loss from operations of $(47,353) for the quarter ended September 30, 2009. The net loss during the quarter ended September 30, 2010 was $(257,688) for the period. The net loss for the quarter ended September 30, 2009 was $(59,151).
The Company rents space for file storage and furniture for $430 for the nine months ended September 30, 2010. The Company uses space rented by Director for meetings and to keep current records and pays $750 per quarter or $2,250 for the nine months ended September 30, 2010.
As stated above, we will continue to operate the Company on an austere program of minimum overhead, while utilizing skills of its board members, independent contractors as administrative staff and individual independent contractors with expertise in business development, capital acquisition, corporate visibility, oil and gas development, geology and operations with the use of our common stock as incentives during the development of our business model. Further as opportunities for participation in profitable revenue producing projects come forward, we intend that consultants and advisors will be offered compensation from revenues or interests, direct participations, royalties or other incentives from the specific projects to which they contribute. While reducing the amount of variable costs, there is almost no way to reduce or offset our fixed expenses related to office expense, legal, accounting, transfer agent fees, Securities Act reporting, corporate governance, and shareholder communications. Our future expectation is that monthly operating expenses will remain as low as possible until new opportunities are initiated, of which there can be no assurance, in which event, the operating costs of the Company may increase relative to the need for administrative and executive staff and overhead to provide support for these new business activities.
Liquidity and Capital Resources
The Company had a working capital deficit as of September 30, 2010 of $1,981,065. This compares to a working capital deficit of $1,326,700 as of December 31, 2009. During the nine months ended September 30, 2010 an aggregate of 4,000,000 shares of common stock were issued for aggregate consideration of $24,500 (for an average of $0.006 per share).
The Company had a stockholder's deficit at September 30, 2010 of $1,692,275. This is compared to stockholder's deficit at December 31, 2009 of $1,004,735. The stockholder's deficit increased due the Company's operating loss and increased by the payment of services with the issuance of stock.
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The Company has net cash (used) by operating activities for the nine months ended September 30, 2010 of $(13,032) as compared to net cash (used) by operating activities of $(20,038) for the nine months ended September 30, 2009.
The Company had no net cash used in investing activities for the nine months ended September 30, 2010 and for the nine months ended September 30, 2009.
The Company had no net cash provided by financing activities for the nine months ended September 30, 2010 and for the nine months ended September 30, 2009.
At September 30, 2010, the Company had no material commitments for capital expenditures.
Management believes that the Company will experience significant difficulty internally raising significant additional equity capital or debt until these matters have been resolved and the Company has eliminated a substantial amount of its outstanding debt and/or achieves operating revenue from its oil and gas operations. The Company looks to earn management fees through its newly formed subsidiary and revenue from proposed oil and gas development activities that it can earn-in on successful financing and commencement of operations, of which there is no assurance.
Unless and until it achieves success in its proposed activities, of which there is no assurance, the Company may continue to be required to issue further stock to pay executives, consultants and other employees, which may have a continuing dilutive effect on other shareholders of the Company. Failure of the Company to acquire additional capital in the form of either debt or equity capital or revenue from proposed operations will most likely impair the ability of the Company to meet its obligations in the near-term.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
The Company is defined by Rule 229.10 (f)(1) as a “Smaller Reporting Company” and is not required to provide or disclose the information required by this item.
Item 4 - Controls and Procedures
As of September 30, 2010 our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”) conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a-15(e) and 15d-15(e) of the Exchange Act, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosure. Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were effective to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the rules and regulations promulgated thereunder.
Further, there were no changes in our internal control over financial reporting during the first fiscal quarter that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
None
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3 - Defaults upon Senior Securities.
None
Item 4 - Submission of Matters to a Vote of Securities Holders.
None
Item 5 - Other Information.
None
Item 6. Exhibits
The following documents are filed as exhibits to this report on Form 10-Q or incorporated by reference herein.
31.1
Certification of CEO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of CFO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of CFRO 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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ARÊTE INDUSTRIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
By:
/s/ Charles L. Gamber, CEO
Charles L. Gamber, Principal Executive Officer
Dated: March 4 , 2011
By:
/s/ John Herzog, Interim CFO
John Herzog,
Interim Principal Financial and Accounting Officer
Dated: March 4, 2011
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Charles L. Gamber, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Arête Industries, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Dated: March 4, 2011
By:
/s/ Charles L. Gamber
Charles L.Gamber, Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Herzog, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Arête Industries, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
March 4, 2011
By:
/s/ John Herzog
John Herzog, Interim Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Arête Industries, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles L. Gamber, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
March 4, 2011
By:
/s/ Charles L. Gamber
Charles L.Gamber, Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to Arête Industries, Inc. and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Arête Industries, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Herzog, Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
March 4, 2011
By:
/s/ John Herzog
John Herzog, Interim Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Arête Industries, Inc. and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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