ARETE INDUSTRIES INC
Form: 10QSB Filing Date: 11/15/2000
TYPE: 10QSB OTHERDOC
SEQUENCE: 1
FILENAME: 0001.txt
DESCRIPTION: 10QSB FOR QUARTER ENDED SEPTEMBER 30, 2000
OTHERDOC AVAILABLE Series=0001.txt Ver="": Document is copied.
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
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the period ended: September 30, 2000
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or
[ ] Transition Report Pursuance 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.)
2955 Valmont Road, Suite 310, Boulder, CO 80301
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(Address of principal executive offices) (Zip Code)
(303) 247-1313
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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.
[ X ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 29, 2000, Registrant had 341,120,748 shares of common stock, No
par value, outstanding.
ARETE INDUSTRIES, INC. AND SUBSIDIARY
INDEX
Page No.
Consolidated Financial Statements:
Consolidated Balance Sheet at September 30, 2000 and December 31, 1999
(unaudited) 2
Consolidated Statements of Operations for the Three Months Ended
September 30, 2000 and 1999 (unaudited) 3
Consolidated Statements of Operations for the Nine Months Ended
September 30, 2000 and 1999 (unaudited) 4
Consolidated Statement of Stockholders' Deficit for the Nine Months
Ended September 30, 2000 (unaudited) 5
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 6-7
Notes to Unaudited Consolidated Financial Statements at September 30,
2000 8-11
ARETE INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 2000 and December 31, 1999
(Unaudited)
ASSETS
2000 1999
---- ----
Current assets:
Cash and cash equivalents $ 4,843 $ 15,844
Restricted cash 50,919 25,000
Accounts receivable, less allowance for
doubtful accounts of $0 70,194 519
Prepaid expenses 2,393 1,200
---------- ----------
Total current assets 128,349 42,563
Notes receivable Verbaltech Labs & Banking 82,200 -
Furniture and equipment, at cost net of accumulated
depreciation of $3,170 (2000) and $233 (1999) 21,830 2,096
Security deposit 5,664 -
Investment in and advances to Verbaltech Labs &
Banking 1,469 -
Investment in and advances to Aggression Sports
(Note 2) 39,286 40,560
---------- ----------
$ 278,798 $ 85,219
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable (Note 3) $ 209,644 $ 204,318
Accrued expenses 146,162 34,409
Accrued payroll taxes (Note 3) 184,976 146,130
Advances from Aggression Sports (Note 2) 113,294 -
Notes payable 51,000 24,500
Convertible note payable - officer 104,251 81,021
Stock subscription payment received - 7,333
---------- ----------
Total current liabilities 809,327 497,711
Commitments and contingencies (Notes 1, 3 and 6)
Stockholders' deficit (Note 4):
Redeemable preferred stock; 100,000,000 shares
authorized:
Convertible Class A; $10 face value, 100,000
shares authorized, 3,000 shares issued and
outstanding (liquidation preference $32,475) - 30,000
Common stock, no par value; 500,000,000 shares
authorized, 341,120,748 (2000) and 301,397,155
(1999) shares issued and outstanding 8,010,783 7,414,758
Accumulated deficit (8,541,312) (7,857,250)
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Total stockholders' deficit (530,529) (412,492)
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$ 278,798 $ 85,219
========== ==========
See accompanying notes.
2
ARETE INDUSTRIES, INC. AND SUBSIDIARY
STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
Management fees $ 108,000 $ -
Operating expenses:
Depreciation 1,972 -
Rent 19,947 -
Salaries 162,023 -
Stock issued for services (Note 4) 127,500 -
Other operating expenses 34,701 -
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Total costs and expenses 346,143 -
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Total operating income (loss) (238,143) -
Other income (expense):
Equity in loss of Aggression Sports (Note 2) (49,228) -
Gain on sale of equipment 10,000 -
Interest expense (1,034) (1,016)
Interest and miscellaneous income (8,240) 201
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Total other income (expense) (48,502) (815)
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Net loss from continuing operations (286,645) (815)
Net loss from discontinued operations (Note 1) - (256,481)
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Net loss (Note 5) $ (286,645) $ (257,296)
========== ==========
Basic and diluted loss per share $ * $ *
========== ==========
Weighted average common shares outstanding 332,752,000 285,663,342
=========== ===========
* - Less than $.01 per share
See accompanying notes.
3
ARETE INDUSTRIES, INC. AND SUBSIDIARY
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
Management fees $ 138,000 $ -
Operating expenses:
Depreciation 2,821 -
Rent 26,878 -
Salaries 274,254 -
Stock issued for services (Note 4) 175,000 -
Other operating expenses 148,904 -
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Total costs and expenses 627,857 -
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Total operating income (loss) (489,857) -
Other income (expense):
Equity in loss of Aggression Sports (Note 2) (126,233) -
Gain on sale of equipment 10,000 40,061
Interest expense (9,638) (2,797)
Interest income 2,186 621
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Total other income (expense) (123,685) 37,885
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Net loss from continuing operations (613,542) 37,885
Net loss from discontinued operations (Note 1) (70,520) (564,395)
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Net loss (Note 5) $ (684,062) $ (526,510)
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Basic and diluted loss per share $ * $ *
========== ==========
Weighted average common shares outstanding 323,610,000 272,707,956
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* - Less than $.01 per share
See accompanying notes.
4
ARETE INDUSTRIES, INC. AND SUBSIDIARY
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Nine Months Ended September 30, 2000
(Unaudited)
Class A preferred stock Common stock Accumulated
Shares Amount Shares Amount deficit
------ ------ ------ ------ -----------
Balance, December 31, 1999 3,000 $30,000 301,397,155 $7,414,758 $(7,857,250)
Conversion of Series A preferred
stock to common (Note 4) (3,000) (30,000) 2,600,000 30,000 -
Issuance of common stock for
services (Note 4) - - 20,134,933 225,863 -
Issuance of common stock for
transfer of certificate of deposit
and accrued interest (Note 4) - - 8,750,000 33,152 -
Sale of common stock - - 1,738,660 38,833 -
Common stock issued upon exercise
of options (Note 4) - - 6,000,000 66,000 -
Interest in sale of Arete common
stock be equity-method investee
(Note 2) - - - 199,677 -
Exercise of Class A Preferred
options and conversion to common
stock - - 500,000 2,500 -
Net loss for the nine months ended
September 30, 2000 - - - - (684,062)
------ ------- ----------- ---------- ---------
Balance, September 30, 2000 - $ - 341,120,748 $8,010,783 $(8,541,312)
====== ======= =========== ========== ===========
See accompanying notes.
5
ARETE INDUSTRIES, INC. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
Cash flows from operating activities:
Net loss $(684,062) $(526,510)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,937 -
Equity in loss of Aggression Sports 126,233 -
Stock issued for services 225,863 197,561
Changes in assets and liabilities:
Accounts receivable (69,675) (26,680)
Security deposit (5,664) -
Prepaid expenses (1,193) 10,979
Accounts payable 5,326 -
Accrued expenses 150,599 362,036
Customer deposits - (10,791)
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Total adjustments 434,426 533,105
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Net cash provided by (used in) operating
activities (249,636) 6,595
Cash flows from investing activities:
Purchase of property and equipment (3,932) (68,227)
Investments in and advances to Aggression Sports 106,334 -
Purchase of certificate of deposit (25,919) -
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Net cash provided by (used in) investing
activities 76,483 (68,227)
Cash flows from financing activities:
Proceeds from issuance of common stock 67,152 86,298
Proceeds from exercise of stock options 68,500 -
Proceeds from note payable - 85,250
Payments on long term debt 26,500 (48,800)
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Net cash provided by financing activities 162,152 122,748
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Net increase in cash and cash equivalents (11,001) 61,116
Cash and cash equivalents at beginning of period 15,844 20,047
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Cash and cash equivalents at end of period $ 4,843 $ 81,163
======== =========
(Continued on following page)
See accompanying notes.
6
ARETE INDUSTRIES, INC. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
(Continued from previous page)
Supplemental disclosure of cash flow information:
Interest paid during the period $ 9,638 $ 2,797
======= =======
Income taxes paid during the period $ - $ -
======= =======
Supplemental disclosure of non-cash investing and financing activities:
During the quarter ended March 31, 2000, the Company issued common stock
valued at $15,548 to employees of Aggression Sports and treated such issuance
as an advance.
See accompanying notes.
7
ARETE INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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, 1999 and September 30, 2000, and the results of
operations and cash flows for the periods ended September 30, 1999 and 2000.
Discontinued operations:
During March 2000, the Company abandoned the direct mail and coupon business
and shifted its focus toward Aggression Sports, Inc. (Aggression Sports) (see
Note 2). The direct mail coupon business continued until March 2000 and is
not expected to generate a loss during 2000. The Company has become engaged
in development of new business ventures including a development stage company
which creates, designs, develops, produces and markets highly innovative
outdoor adventure sports products and adventure travel services; and a
software development company engaged in development of a patented
neural-networking, intelligent agent software engine and its unique
applications for language learning, voice recognition, speech interpretation,
vision recognition, and intelligent robotics.
Basis of presentation:
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 September 30,
2000, the Company has a working capital deficit of $680,978 and a
stockholders' deficit of $530,529. In addition, the Company is delinquent on
payment of certain payroll taxes and has certain liabilities remaining from
its confirmed Chapter 11 Plan of Reorganization approved by the Court in
October of 1996. Also, the Company is a named defendant in a Federal civil
enforcement action brought by the SEC in the summer of 1998 for certain
alleged violations of the Federal Securities laws (See Note 6). As a result,
substantial doubt exists about the Company's ability to continue to fund
future operations using its existing resources.
Under its initiative to provide new venture management services, the Company
plans to assist, Aggression Sports, Inc., dba Arete Outdoors in developing
its management team and to develop, create, produce and sell its line of
specialty outdoor sporting goods, equipment and adventure travel services.
During 2000, Arete Outdoors entered into an employment agreement with its
President and principal designer to issue up to 38% of its outstanding common
stock in exchange for the assignment of his interest in approximately 30
proprietary designs including all license and patent rights in such products
and any new products designed during the term of his employment agreement.
During 2000 Arete Outdoors generated cash of $644,000 through the sale of
Arete's common stock in open market transactions.
8
ARETE INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
1. Summary of significant accounting policies (continued)
Also, the Company plans to provide new venture management services to assist
in the formation of a new company, funding, and product development process
concerning several unique applications of a patented neural-networking,
intelligent agent software engine in conjunction with Applied Behavior
Systems, LLC, an unaffiliated company. The Company has an agreement to
provide basic business services, plus management services in exchange for
fees and an equity interest in this proposed new application development
company. Through the current quarter, the Company has advanced $82,200 as a
bridge loan to finance operations and has accrued $58,000 in management
and service fees.
2. Investment in and advances to Aggression Sports
During 1998, the Company acquired a 44% ownership interest in Aggression
Sports in exchange for 30,000,000 shares of the Company's common stock valued
at $150,000. Due to the uncertainty related to the ultimate realization of
this carrying value, the $150,000 was written off during the nine months
ended December 31, 1998.
In January 2000, Aggression Sports entered into an agreement to issue 30% of
its outstanding common stock in exchange for the right, title and interest in
approximately 30 products in various stages of development and various stages
of the patenting process. As a result of this agreement, the Company's
interest in Aggression Sports was reduced to 31%.
During the nine months ended September 30, 2000, the Company paid salaries of
$15,548 for services performed by certain individuals on Aggression Sports
behalf. The investment in Aggression Sports has been reduced by the Company's
31% share of Aggression Sports' loss for the nine months ended September 30,
2000 exclusive of the gain on the sale of Arete common stock.
During the nine months ended September 30, 2000, Aggression Sports sold
17,456,500 shares of Arete for gross proceeds of $644,120. Arete's 31%
interest in the proceeds of $199,677 has been recorded as additional paid-in
capital.
3. Delinquent amounts payable
As of September 30, 2000, the Company is delinquent on payments of various
amounts to creditors including payroll taxes and $62,316 to creditors
remaining from its confirmed Chapter 11 Plan of Reorganization approved by
the Court in October of 1996. 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.
9
ARETE INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
4. Stockholders' equity
During the nine months ended September 30, 2000, (1) an officer and a former
officer of the Company converted their Class A preferred stock into 2,600,000
shares of the Company's common stock, (2) the Company issued 20,134,933
shares of common stock for services valued at $225,863 ($0.011 per share),
(3) the Company issued 8,750,000 shares of common stock in exchange for a
$25,000 certificate of deposit, accrued interest and for guarantying a note
payable of the Company and (4) the Company issued 6,000,000 shares of common
stock upon the exercise of stock options at $.011 per share.
In January 2000, the board of directors adopted, subject to shareholder
approval, the 2000 Omnibus Stock Option and Incentive Plan which designates
and reserves 50,000,000 shares of common stock to be issued under the Plan.
In January 2000, the board of directors authorized the issuance of options to
purchase 65,000 shares of Class A preferred stock for $10 per share to five
individuals. The options are first exercisable between May and July 2000 and
are exercisable for a period of one year from those dates. The Class A
preferred stock is convertible into the Company's common stock at $.025 per
share.
5. Income taxes
The book to tax temporary differences resulting in deferred tax assets and
liabilities are primarily net operating loss carryforwards of $2,170,000
which expire in years through 2020. |
