FORM 10-QSB - Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Amendment #1)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the period ended: March 31, 2003
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
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ARETE INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1508638
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
7102 La Vista Place, Suite 100, Niwot, CO 80503
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(Address of principal executive offices) (Zip Code)
(303) 652-3113
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former
fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicated by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 15, 2003, Registrant had 47,599,581 shares of common stock, No par
value, outstanding.
ARETE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
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Page No.
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Consolidated Financial Statements:
Index to Consolidated Financial Statements 1
Consolidated Balance Sheet at March 31, 2003 and December 31, 2002
(unaudited) 2
Consolidated Statements of Operations for the Three Months Ended March 31
2003 and 2002 (unaudited) 3
Consolidated Statement of Stockholders' Deficit for the Three Months Ended
March 31, 2003 (unaudited) 4
Consolidated Statements of Cash Flows for the Three Months Ended March 31,
2003 and 2002 (unaudited) 5-6
Notes to Unaudited Consolidated Financial Statements at March 31, 2003 7-9
Item 2
Management's Discussion and Analysis of Financial Condition and Results
of Operations 10-14
Part II - Other Information 14
Signatures 15
1
ARETE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2002 and March 31, 2003
(Unaudited)
ASSETS
------
2002 2003
------------ ------------
Current assets:
Cash and cash equivalents $ 381 $ 32
Accrued interest receivable 24,632 27,914
Inventory 20,302 20,302
Prepaid expenses 2,285 345
------------ ------------
Total current assets 47,600 48,593
Furniture and equipment, at cost net of accumulated
depreciation of $74,309 (2002) and $81,823 (2003) 97,056 89,542
Intellectual property 32,215 31,640
------------ ------------
$ 176,871 $ 169,775
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable (Note 2) $ 422,697 428,052
Accrued expenses 576,333 573,163
Accrued payroll taxes (Note 2) 289,761 289,761
Settlement due 18,650 18,650
Notes payable - related parties 27,532 27,827
------------ ------------
Total current liabilities 1,334,973 1,337,453
Commitments and contingencies (Notes 1 and 2)
Stockholders' deficit (Notes 4 and 5):
Convertible Class A preferred stock; $10 face value,
1,000,000 shares authorized:
Series 1, 30,000 shares authorized, 16,001
shares issued and outstanding 160,014 160,014
Series 2, 25,000 shares authorized, 18,542 (2002)
and 18,897 (2003) shares issued and outstanding 185,425 188,970
Common stock, no par value; 499,000,000 shares
authorized, 34,399,581 (2002) and 42,099,581 (2003)
shares issued and outstanding 9,592,587 9,729,082
Accumulated deficit (10,877,308) (11,026,924)
Notes receivable from sale of stock (218,820) (218,820)
------------ ------------
Total stockholders' deficit (1,158,102) (1,167,678)
------------ ------------
$ 176,871 $ 169,775
============ ============
See accompanying notes
2
ARETE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended March 31, 2002 and 2003
(Unaudited)
2002 2003
------------ ------------
Revenues:
Sales $ 379 $ --
------------ ------------
Total revenues 379 --
Operating expenses:
Depreciation 8,102 7,515
Rent 9,804 2,084
Other operating expenses 34,247 138,309
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Total operating expenses 52,153 147,908
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Total operating loss (51,774) (147,908)
Other income (expense):
Minority interest in Aggression Sports loss 2,522 --
Interest expense (4,296) (4,990)
Interest and miscellaneous income 3,228 3,282
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Total other income (expense) 1,454 (1,708)
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Net loss (Note 3) $ (50,320) $ (149,616)
============ ============
Basic and diluted loss per share $ * $ *
============ ============
Weighted average common shares outstanding 24,416,300 38,852,900
============ ============
*-Less than $.01 per share
See accompanying notes.
3
ARETE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For the three months ended March 31, 2003
(Unaudited)
Series 1 Series 2
preferred stock preferred stock Common stock
---------------- ----------------- ---------------------- Accumulated
Shares Amount Shares Amount Shares Amount deficit
------ ------- ------- -------- ---------- ---------- ------------
Balance, December 31, 2002 16,001 $160,014 18,542 $185,425 34,399,581 $9,592,587 $(10,877,308)
Issuance of Series 2 preferred stock
to reimburse advances made to the
Company (Note 4) -- -- 355 3,545 -- -- --
Issuance of common stock to employees
and consultants for services (Note 4) -- -- -- -- 7,700,000 119,758 --
Value of stock options granted to consultants
(Note 4) -- -- -- -- -- 16,737 --
Net loss for the year ended
March 31, 2003 -- -- -- -- -- -- (149,616)
------ ---------- ------ -------- ---------- ---------- ------------
Balance, March 31, 2003 16,001 $160,014 18,897 $188,970 42,099,581 $9,729,082 $(11,026,924)
====== ========== ====== ======== ========== ========== ============
See accompanying notes.
4
ARETE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended March 31, 2002 and 2003
(Unaudited)
2002 2003
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Cash flows from operating activities:
Net loss $ (50,320) $(149,616)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 8,102 8,089
Stock issued and options granted for services -- 136,495
Changes in assets and liabilities:
Interest receivable (3,227) (3,282)
Prepaid expenses 1,342 1,940
Accounts payable (2,507) 5,355
Accrued expenses 31,495 (3,170)
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Total adjustments 35,205 145,427
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Net cash used in operating activities (15,115) (4,189)
Cash flows from investing activities:
Investments in and advances to Aggression Sports (1,521) --
--------- ---------
Net cash used in investing activities (1,521) --
Cash flows from financing activities:
Proceeds from issuance of preferred stock -- 3,545
Proceeds from note payable - related parties 16,989 295
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Net cash provided by financing activities 16,989 3,840
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Net increase (decrease) in cash and cash equivalents 353 (349)
Cash and cash equivalents at beginning of period 110 381
--------- ---------
Cash and cash equivalents at end of period $ 463 $ 32
========= =========
See accompanying notes
5
ARETE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended March 31, 2002 and 2003
(Unaudited)
(Continued from preceding page)
2002 2003
--------- ---------
Supplemental disclosure of cash flow information:
Interest paid during the period $ -- $ --
========= =========
Income taxes paid during the period $ -- $ --
========= =========
Supplemental disclosure of non-cash investing and financing activities:
During the quarter ended March 31, 2003, an account payable to a related party
with an outstanding balance of $3,545 was converted into preferred stock.
See accompanying notes.
6
ARETE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
1. Summary of significant accounting policies
Basis of presentation:
The accompanying financial statements have been prepared by the Company,
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, 2002 and March 31, 2003, and the results of
operations and cash flows for the periods ended March 31, 2002 and 2003.
The financial statements have been prepared on a going concern basis which
contemplates the realization of assets and liquidation of liabilities in
the ordinary course of business. As shown in the accompanying financial
statements, the Company has incurred significant losses and at March 31,
2003, the Company has a working capital deficit of $1,288,860 and a
stockholders' deficit of $1,167,678. In addition, the Company is delinquent
on payment of payroll taxes and creditor liabilities pursuant to the plan
of reorganization. As a result, substantial doubt exists about the
Company's ability to continue to fund future operations using its existing
resources.
On December 19, 2001, by board resolution pursuant to a subscription
agreement, the board of directors designated 25,000 of Class A Preferred
Stock as Series 2 Convertible Preferred Stock, in a proposed placement of
up to $200,000 of such preferred stock at $10 per share face value. As of
March 31, 2003, the Company received proceeds of $188,970 for the purchase
of 18,897 shares of Series 2 Convertible Preferred Stock. As a development
stage company, the Company continues to rely on infusions of debt and
equity capital to fund operations. The Company relies principally on cash
infusions from its three directors, 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.
The Company's business plan is to provide promising emerging and high
growth-stage companies with financial and board level managerial support.
The Company plans to develop its own in-house projects as well as seek to
make acquisitions of going businesses through merger, acquisition, share
exchange, or through financial service agreements to earn-in an equity
participation as well as managerial fees from client companies. The Company
believes that it can provide its client companies access to private and
public debt and/or equity capital by offering these companies the
opportunity to go public through a registered rights offering or dividend
distribution to the Company's shareholders.
2. Delinquent amounts payable
As of March 31, 2003, the Company is delinquent on payments of various
amounts to creditors including payroll taxes and $62,316 to creditors
required to be paid under the terms of its plan of reorganization. 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.
7
3. Income taxes
The book to tax temporary differences resulting in deferred tax assets and
liabilities are primarily net operating loss carryforwards of $4,328,000
which expire in years through 2023.
A 100% valuation allowance has been established against the deferred tax
assets, as utilization of the loss carryforwards and realization of other
deferred tax assets cannot be reasonably assured.
The Company's net operating losses are restricted as to the amount which
may be utilized in any one year.
4. Stock transactions
On December 19, 2001, by board resolution pursuant to a subscription
agreement, the board of directors designated 25,000 of Class A Preferred
Stock as Series 2 Convertible Preferred Stock, in a proposed placement of
up to $200,000 of such preferred stock at $10 per share face value. As of
March 31, 2003, the Company received proceeds of $188,970 for the purchase
of 18,897 shares of Series 2 Convertible Preferred Stock. These preferred
shares are convertible into 18,896,976 shares of common stock.
Effective July 15, 2002, the shareholders of the Company approved a 20 for
1 reverse stock split. All common share references in these financial
statements have been revised to reflect the reverse split.
On January 29, 2003, the Company issued 5,000,000 shares of common stock
valued at $75,000, and granted stock options to purchase 3,000,000 shares
at $0.0165 per share to its officers and directors for compensation for the
first quarter. The options are exercisable beginning 79 days from the date
of issuance and for a period of two years thereafter. Additionally
1,000,000 shares of common stock were issued to one consultant for services
performed valued at $15,000.
By agreement dated March 6, 2003, the Company engaged a consultant to
provide corporate communications support for a period of six months from
such date for compensation of 3,000,000 common shares and stock options to
purchase up to 4,000,000 common shares for $0.015 per share for a period
expiring 6 months from such date (valued at $16,737). As of March 31, 2003
1,500,000 of these shares have been issued valued at $22,500.
On March 7, 2003, the Company issued 200,000 shares of common stock valued
at $7,258 in final settlement of a wage claim.
8
4. Stock transactions (continued)
Following the end of the first quarter, the Company inadvertently issued
shares and/or granted stock options which exceeded the number of common
shares allocated to its 2002 Incentive Stock Option Plan by 683,333 shares.
Certain of these include shares reserved for issuance on exercise of
outstanding stock options. The Company will not allow exercise of the most
recently granted stock options unless other outstanding options expire,
other shares pending issuance are cancelled or shares that were issued
under the plan can be reassigned outside of the 2002 Plan or included in
the anticipated 2003 Omnibus Stock Compensation and Incentive Plan in
sufficient number to allow their exercise.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation costs for the Company's stock option
plans been determined based on the fair value at the grant date for awards
during the period ended March 31, 2003 in accordance with the provisions of
SFAS No. 123, the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below:
2003
----
Net loss - as reported $(149,616)
Net loss - pro forma (175,794)
Loss per share - as reported *
Loss per share - pro forma *
* - Less than .01 per share
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2003, dividend yield of 0%; expected
volatility of 100%, risk-free interest rate of 1.45% to 1.75%; and expected
life of .5 to 2 years.
5. Subsequent Events
On April 1, 2003 the company issued 1,000,000 shares to its CEO and stock
options to purchase an aggregate of 3,000,000 shares of common stock at
$0.0155 per share as compensation to the three directors for the second
quarter of 2003. The options are exercisable beginning 90 days from the
date of issuance, expiring 24 months from the original grant date.
Additionally, 2,000,000 common stock options were exercised by the CEO and
a consultant for consideration of $25,000 in cash and in payment of $15,000
of note payable to the CEO.
On April 30, 2003, 2,500,000 shares of common stock were issued to two
consultants for services performed.
9
Item 2 - Management's Discussion and Analysis
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
measurement date is generally the date the options are fully vested.
Revenue recognition:
The Company has provided management services to companies in the process of
developing new products with no operations. These management fees have not been
recorded as revenue when such services were performed since collectibility was
not reasonably assured.
Overview:
Effective July 15, 2002, the Company enacted a recapitalization of its
outstanding common shares by effecting a 20 to 1 reverse stock split, done
without changing the total amount of authorized common shares. All references
herein to common stock have been restated to reflect the effect of this reverse
split. The conversion privilege of the designated Series 1 and Series 2
Convertible Preferred Stock has been adjusted to reflect the effect of the
referenced reverse stock split.
10
By the beginning of fiscal 2001, the Company had initiated downsizing operations
of its incubation services and facilities. By the end of the second quarter of
fiscal 2001, the Company had reduced corporate overhead by eliminating all but
two executive officers who were accruing salaries and had terminated all
operations of its incubator client companies, its Arete Outdoors subsidiary and
the ABS and 7GT projects. By the end of fiscal 2001, the Company had moved into
the smaller of its two office suites and terminated its lease on the remaining
space. During the first half of fiscal 2002, the Company continued resolving
outstanding debts including salaries and accounts and notes payable to
non-affiliates and affiliates; and focused on completing a recapitalization and
restructuring of its capital structure, which required incurring the expense of
holding a shareholders meeting that was held on July 2, 2002. During the third
quarter of fiscal 2002, we dismantled operations, preserved our assets and
resources, and maintained our current reporting status as a public company in
order to preserve our continuity and our ability to launch our new corporate
vision. In December 2002, the Company moved its corporate offices into an
executive suite, reducing its overhead to an absolute minimum. Concurrently,
having obtained shareholder approval to restructure the Company's capital
structure, the CEO with the two other board members engaged aggressively in the
development of new sources of capital and new acquisition prospects conforming
to our business development objectives. Presently, we continue our efforts to
compromise or resolve outstanding obligations including accrued employee
compensation, withholding and other taxes, operating and trade payables of the
Company and its former subsidiary operations. To date these efforts have been
funded by cash advances, infusions from related parties, and by the issuance of
common stock for services. The Company will be required to rely upon ongoing
financial support from these parties for the foreseeable future.
Financial Condition
As of March 31, 2003, the Company had $169,775 in total assets and $1,337,453 in
total liabilities, as compared to $176,871 and $1,334,973 at the end of fiscal
year ended December 31, 2002, respectively. Accounts payable and accrued
expenses at March 31, 2003 were $1,290,976 as compared to $1,288,791 at December
31, 2002. During the period ended March 31, 2003, the Company paid $75,000 in
wages, resolved a wage claim for $7,258 and paid $ 54,237 in consulting fees
with issuance of common stock and stock options. During April of 2003, the Chief
Executive Officer exercised 1,000,000 in stock options with $5,000 in cash and
payment of $15,000 of note payable; and a consultant exercised 1,000,000 in
stock options with $20,000 in cash.
The Company's subsidiary, Global Direct Marketing Services, Inc., which is now
inactive, has left an obligation of trade payables of $87,625 and unpaid 1999
payroll taxes of $58,230 remaining from its printing and direct mail advertising
business. The Company owes approximately $97,352 in unpaid Federal payroll taxes
for calendar years 1995 through 1997 including penalties and interest. The
Company owes approximately $110,842 in 2000 and $22,138 in 2001, respectively,
in accrued payroll taxes, including penalties and interest. (See: Note 2 to
Financial Statements.)
11
During the period ended March 31, 2003, the Company continued to rely upon
infusions of cash from loans and cash advances by officers, directors and
affiliates of the Company. As stated above, $3,545 was also received in partial
payment of a subscription agreement for purchase of Series 2 Preferred Stock.
The proceeds were used for overhead, payment of corporate obligations, legal
fees and accounting expenses for corporate reporting. As of March 31, 2003,
executive salaries and bonuses of $518,873 were accrued and unpaid, and the
Company had $218,820 in notes receivable for stock sales from former management
members.
Results of operations
The Company's operations during the first quarter of 2003 have been confined to
business development activities of its officers, directors and consultants, and
administrative bookkeeping tasks related to creditor and investor relations and
securities act compliance. The Company is not providing new venture management
or advisory activities and therefore not generating revenue from executive and
management services.
The Company's revenues from operations for the quarter ended March 31, 2003 were
$0. Operating expenses for the quarter ended March 31, 2003 were $147,908
resulting in an operating loss of $147,908. This included officer and director
salaries of $75,000, and other operating expenses of $72,908, including
accounting fees, consulting, bookkeeping, transfer agent fees, and storage fees.
The Company moved to an executive suite on a month to month basis reducing its
rent to $1,000 per month. The Company continues to rent storage space for file
storage, furniture and excess equipment as well as its Arete Outdoors inventory
for approximately $550 per month.
We envision operating the Company as a holding company in the future for other
going concerns and revenue generating businesses, which will require minimal
staff for accounting and administrative matters. 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 entities.
Liquidity and Capital Resources
The Company had a working capital deficit as of March 31, 2003 of $1,288,860.
This compares to a working capital deficit of $1,287,373 as of December 31,
2002. During the quarter ended March 31, 2003 an aggregate of 7,700,000 shares
of common stock were issued for aggregate consideration of $119,758 (avg. $0.016
per share) and the Company issued 355 shares of Series 2 Convertible Preferred
Stock valued at face value of $3,545. Subsequent to March 31, 2003, 2,000,000
stock options were exercised at $0.02 per share for $25,000 in cash and payment
of debt to an affiliate of the CEO in the amount of $15,000.
The Company had a stockholder's deficit at March 31, 2003 of $1,167,678. This is
compared to stockholder's deficit at December 31, 2002 of $1,158,102. The
stockholder's deficit increased due to the Company operating at a loss, offset
by the issuance of preferred stock for cash and the conversion of certain notes
payable.
12
At March 31, 2003, the Company had no material commitments for capital
expenditures.
Due to its recent liquidity issues, the Company has defaulted on several short
term obligations including for its operating overhead, trade payables, and state
and federal employment taxes, resulting in tax liens being imposed on the
Company's assets, which will have to be resolved with an infusion of new
capital, of which no assurances can be made.
Management believes that the Company will experience significant difficulty
raising significant additional equity capital or attracting viable acquisition
candidates until these matters have been resolved and the Company has eliminated
a substantial amount of its outstanding debt.
The Company has recently reduced the number of outstanding common shares to
allow it to raise equity capital and to effect conversion and exercise of
outstanding common stock options and conversion rights of preferred stock which
has been reserved for issuance to insiders in exchange for their accrued cash
advances, and for issuance in a private placement of up to $200,000 in Series 2
Convertible Preferred stock, which the Company is currently conducting to an
affiliated entity. As of March 31, 2003, the Company had raised $188,970 in
gross proceeds of this private placement and had 18,897 outstanding shares of
Series 2 Convertible Preferred.
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 will
most likely impair the ability of the company to meet its obligations in the
near-term.
Subsidiaries/Employees:
Arete Industries, Inc. has one full time employee, and two part-time corporate
officers, and two part-time consultants presently engaged in developing and
executing a marketing plan for its business development and capital funding
businesses, as well as the automation and upgrading of the Company's shareholder
and investor communication systems. The Company's subsidiary, Aggression Sports,
Inc. presently has no employees other than its acting president, the Company's
current CEO. The CEO operates and manages both entities and remains on a
deferred salary basis for the first two quarters of 2003. He has accepted a
1,000,000 share stock grant valued at $15,000 and an Incentive stock option to
purchase 1,000,000 shares of common stock at $0.0165 per share as compensation
for services rendered during the first quarter of 2003, and the two outside
directors each received a 2,000,000 stock grant valued at $30,000 each and an
Incentive Stock Option to purchase 1,000,000 shares of common stock each at
$0.0165 per share for compensation for the same period. Following the end of the
first quarter of 2003, the company issued 1,000,000 shares of common stock to
its CEO valued at $14,000 as compensation for services during the second quarter
of 2003, and issued 1,000,000 common stock Incentive Options exercisable at
$0.015 per share to each of its directors, as compensation for the same period.
13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
During the Period ended March 31, 2003, there were no material legal proceedings
initiated by or against the Company or any of its officers, directors or
subsidiaries.
During the third quarter of 2001, the Company concluded its defense of an SEC
enforcement action brought in the Federal District Court for the District of
Colorado, for violations under Section 15d of the '33 Act and Section 10b
including Rule 10b-5 of the '34 Act against the Company, one of its current
officers and two former officers and directors through settlement of the action
by consenting to the entry of an administrative Cease and Desist Order without
admitting or denying the findings and conclusions made by the SEC. No financial
sanctions or professional bars were imposed on the Company or the current
officer in the settlement. The SEC previously settled this matter with the
former officers and directors through the imposition of financial sanctions and
an injunction from future violations of the anti-fraud provisions of the federal
securities laws.
Item 2. Changes in Securities
(a) Changes in Instruments Defining Rights of Security Holders.
Previously Reported.
(b) Not Applicable
(c) Item 701 Reg. SB. - The following were the unregistered shares of
common stock sold by the registrant during the period covered by this
report.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 99.1 Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
There were no Reports on Form 8-K filed during the period covered by
this report.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ARETE INDUSTRIES, INC.
Date: May 20, 2003
By: /s/ Thomas P. Raabe, CEO/ Interim CFO
---------------------------------------------------
Thomas P. Raabe, CEO/ Interim CFO
Interim Principal Financial and Accounting Officer
15
CERTIFICATION PURSUANT TO
SECURITIES EXCHANGE ACT OF 1934: RULES 13a-14, 13a-15, 15d-14, and 15d-15
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I , Thomas P. Raabe, certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A of Arete 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. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this quarterly report whether there were significant
changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: May 20, 2003 By: /s/ Thomas P. Raabe
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Thomas P. Raabe, CEO/ Interim CFO
Interim Principal Financial and Accounting Officer
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