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:  June 30, 2007
 
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 December 21, 2010, Registrant had 493,155,754 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
 9  
       
 
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
  12  
       
 
Item 4 - Controls and Procedures
  13  
       
 
Part 2 - Other Information
   
       
 
Item 1 - Legal Proceedings
 13  
       
 
Item 2 - Sales of Unregistered Equity Securities and Use of Proceeds
  13  
       
 
Item 3 - Defaults upon Senior Securities
  13  
       
 
Item 4 - Submission of Matters to a Vote of Security Holders
  13  
       
 
Item 5 - Other Information
  13  
       
 
Item 6 - Exhibits
  14  
 


 
- 2 -

 


Part 1 - Financial Information

Item 1 - Financial Statements (Unaudited)

 
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2006 and June 30, 2007
(UNAUDITED)

             
   
December 31,
   
March 31,
 
ASSETS
 
2006
   
2007
 
Current assets
           
    Cash and cash equivalents
  $ 9,626     $ 55,773  
    Prepaid expenses
    -       43,184  
    Revenue receivable
    -       43,154  
Total current assets
    9,626       142,111  
                 
Furniture and equipment, at cost net of accumulated
               
    depreciation of $19,437(2006) and $29,353(2007)
    330,235       429,184  
                 
                 
                 
    $ 339,861     $ 571,295  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current liabilities
               
    Accounts payable
  $ 51,675     $ 182,808  
    Accrued expenses
    -       22,624  
    Accrued payroll taxes
    273,976       306,311  
    Notes payable & advances related parties
    419,375       522,126  
                 
Total current liabilities
    745,026       1,033,869  
                 
Stockholders' deficit
               
    Convertible Class A preferred stock; $10 face value,
               
       1,000,000 shares authorized
               
       Series 1, 30,000 shares authorized, 0 (2006)
               
       and 0 (2007) shares issued and outstanding
    -       -  
   Series 2, 25,000 shares authorized, 0 (2006)
               
       and 0 (2007) shares issued and outstanding
    -       -  
    Common stock, no par value; 499,000,000 shares
               
       authorized, 307,155,754 (2006) and 362,155,754 (2007)
    12,810,628       12,992,003  
       shares issued and outstanding
               
    Accumulated deficit
    (13,201,268 )     (13,440,052 )
    Notes receivable from sale of stock
    (14,525 )     (14,525 )
                 
Total stockholders' deficit
    (405,165 )     (462,574 )
                 
                 
    $ 339,861     $ 571,295  

 
See accompanying notes


 
- 3 -

 

 

ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended and six months, June 30, 2006 and 2007
(UNAUDITED)
 
 
                         
   
Three Months
   
Three Months
   
Six Months
   
Six Months
 
   
Ending June 30,
   
Ending June 30,
   
Ending June 30,
   
Ending June 30,
 
   
2006
   
2007
   
2006
   
2007
 
Revenues
                       
   Oil & gas revenue
  $ -     $ 108,864     $ -     $ 112,797  
   Other income
    25,540       -       28,540       -  
                                 
Total revenues
    25,540       108,864       28,540       112,797  
                                 
Operating expenses
                               
   Oil & gas operating expenses
    -       133,568       -       138,268  
   Depreciation
    544       9,680       1,088       9,915  
   Rent
    725       518       725       1,143  
   Other operating expenses
    51,171       127,876       120,874       187,161  
                                 
Total operating expenses
    52,440       271,642       122,687       336,487  
                                 
Net loss from operations
    (26,900 )     (162,778 )     (94,147 )     (223,690 )
                                 
Other income (expense):
                               
    Minority interest
    5,624       -       7,608       -  
    Loss on sale of investments
    -       -       -       -  
    Extinguishment of debt
    242,312       -       340,171       7,530  
    Interest expense
    -       (11,798 )     -       (22,623 )
    Interest income
    -       -       -       -  
                                 
Total other income (expense)
    247,936       (11,798 )     347,779       (15,093 )
                                 
                                 
Net income (loss)
  $ 221,036     $ (174,576 )   $ 253,632     $ (238,783 )
                                 
Basic and diluted loss per share
    *       *       *       *  
                                 
                                 
Weighted average common shares outstanding
    280,100,000       359,000,000       278,290,000       350,000,000  
 
 
* Less than $.01 per share

See accompanying notes
 

 
- 4 -

 
 
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF ACCUMULATED DEFICIT
For the six months ended June 30, 2007
(UNAUDITED)

                               
                               
                               
   
Common Stock Shares
   
Amount
   
Accumulated Deficit
   
Notes Receivable from sale of stock
   
Total
 
                                         
Balance at December 31, 2006
    307,155,754     $ 12,810,628     $ (13,201,268 )   $ (14,525 )   $ (405,165 )
    Issuance of common stock to directors
                                       
        and consultants for services
    55,000,000       181,375       -       -       181,375  
     Net loss
    -       -       (238,784 )     -       (238,784 )
Balance at June 30, 2007
    362,155,754     $ 12,992,003     $ (13,440,052 )   $ (14,525 )   $ (462,574 )

 
See accompanying notes
 

 
- 5 -

 


ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For the six months ended, June 30, 2006 and 2007
(UNAUDITED)

             
   
2006
   
2007
 
             
Cash flows from operating activities:
           
    Net (loss) income
  $ 253,632     $ (238,784 )
    Adjustments to reconcile net loss to net
               
      cash used in operating activities:
               
          Depreciation and amortization
    1,199       9,915  
          Loss related to subsidiary spun-off
    -       -  
          Stock  and options issued for services and
               
            interest on notes
    -       181,375  
         Changes in assets and liabilities:
               
            Accounts receivable
    -       (43,154 )
            Prepaid expenses
    (900 )     (43,184 )
            Accounts payable
    (151,099 )     163,468  
            Accrued expenses
    (125,902 )     22,624  
Total adjustments
    (276,702 )     291,044  
                 
                 
Net cash provided (used) in operating activities
    (23,070 )     52,260  
                 
Cash flows from investing activities:
               
     Purchase of property and equipment
    -       (108,864 )
                 
Net cash used in investing activities
    -       (108,864 )
                 
Cash flows from financing activities:
               
     Reciept of advances - related parties
    25,090       102,751  
     Payment of advances - related parties
    -       -  
                 
Net cash provided by financing activities
    25,090       102,751  
                 
Net increase (decrease) in cash and cash equivalents
    2,020       46,147  
Cash and cash equivalents at beginning of period
    224       9,626  
                 
Cash and cash equivalents at end of period
  $ 2,244     $ 55,773  
                 
                 
Supplemental disclosure of cash flow information:
               
      2006       2007  
    Interest paid during the period
  $ -     $ -  
    Income taxes paid during the period
  $ -     $ -  
                 
Supplemental disclosure of non-cash investing and financing activities:
               
     During the six months ended June 30, 2006 wages to officers and directors and fees to
               
        consultants of $140,850 were paid by the issuance of common stock
               
     During the six months ended June 30, 2007 wages to officers and directors and fees to
               
        consultants of $181,375 were paid by the issuance of common stock
               

 
See accompanying notes

 
- 6 -

 
 
 
ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007

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, 2006 and June 30, 2007, and the results of operations, stockholders’ deficit, and cash flows for the periods ended June 30, 2006 and June 30, 2007.

The Company's financial statements have been prepared on the basis of the Company being a development stage entity until it purchased and is operating a gas pipeline in Wyoming. Aggression Sports, Inc. (inactive) and Global Direct Marketing, Inc. (inactive) , have discontinued operations and are consolidated in the Company’s financial statements. During the fiscal quarters ended June 30, 2006 the results of operations and balance sheet of its subsidiary Avatar Technology Group will be consolidated in these financial statements.

The Company has incurred significant losses and at June 30, 2007, the Company has a working capital deficit of $ 891,758 and a stockholders' deficit of $ 462,574. 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 June 30, 2007, the Company is delinquent on payments of various amounts to creditors including payroll taxes. 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 $6,137,879 which expire in years through 2026.

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.

 
 
- 7 -

 

ARÊTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007


During March 2000, the Company abandoned the direct mail and coupon business. At June 30, 2007, the remaining liabilities of this division were $58,230 in unpaid payroll taxes. As of the six months ended June 30, 2006, and the quarter ended June 30, 2007, $9,650 and $0 respectively, of debt were classified as extinguished. During 2003, the Company abandoned the development of Aggression Sports Inc., a subsidiary. At June 30, 2007, the remaining liabilities of this division were $6,305 in trade payables and $79,351 in unpaid payroll taxes. As of the quarter ended June 30, 2006, and the six months ended June 30, 2007, $320,521 and $0 respectively, of debt were classified as extinguished.
 
 
5.           Stock transactions

During the six months ended June 30, 2007, the Company issued a total of 55,000,000 common shares for compensation of officers, directors and consultants, valued at an aggregate of $181,375.

During the three months ended June 30, 2007, the Company issued a total of 32,500,000 common shares for compensation of officers, directors and consultants, valued at an aggregate of $125,125.

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 six months ended June 30, 2007 in accordance  with the  provisions of SFAS No. 123, the  Company's net loss.

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 2005  and  2006,  dividend  yield of 0%; expected volatility of 100%, risk-free interest rate of 1.45% to 1.75%; and expected life of 0.5 to 2 years.

 
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, 2006 and June 30, 2007, the Company owed the related parties are unsecured, due on demand, and working capital advances:

 
 
December 31,
   
June 30,
 
 
 
2006
   
2007
 
             
          Advances – Donald Prosser
  $ 184,190     $ 224,290  
          Advances – Charles Gamber
    4,966       4,967  
          Advances – William Stewart
    75,219       95,219  
          Advances – John Herzog
    --       2,650  
          Advances – Charles Davis
    125,000       165,000  
          Advances – Thomas Raabe                                                                                                 
    30,000        30,000  
Balances
  $ 419,375     $ 522,126  
                 
    $430,000 of the advances bears interest at 9.7% per annum ;
               
    $  62,026 of the advances bears interest at 8.0% per annum;
               
    $  30,000 of the advances bears no interest.
               


 
- 8 -

 


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

We were able to develop a small oil & gas operation in Arête’s subsidiary Colorado Oil & Gas, Inc.
 
In September 2005, Arête spun-off 95% of its ownership of Colorado Oil & Gas, Inc. in the form of a dividend of one share of Colorado Oil & Gas, Inc. for every two hundred and fifty shares of Arête shares owned on the record date.

 
- 9 -

 


Arête Energy Development Group LTD was originally formed as a Colorado corporation on April 29, 2004 as a subsidiary of Arête Industries, Inc. for the purpose of pursuing a joint venture in oil and gas. The joint venture opportunity for Arête Energy Development Group LTD was abandoned with no further activity occurring in Arête Energy Development Group Ltd. as we were unable to develop the business or raise the funds needed to enter into a business plan that made sense. The name was changed to Avatar Energy Development Group, LTD. in September 2004 in anticipation of developing an alternative energy business. The corporation remained dormant until late 2005. The board decided to change the direction of Avatar Energy Development Group, LTD to pursue a technology related business which was consistent with the expertise of one of the current directors. The board approved a name change to Avatar Technology Group, Inc. The main business focus for Avatar Technology Group is the delivery of technology solutions for small to medium size businesses as well as public entities. These solutions include business services, custom software development and web design, network security services and IT solutions. Avatar has secured reseller/affiliate agreements with major partners in each area to deliver these services primarily through a website model. Avatar Technology Group maintains a website at www.avtekgroup.com. Avatar plans to market these services to specific vertical markets using advertising in print media and targeted opt in email campaigns. Most of the services are based on a recurring revenue model. All of the technology solution offerings were selected to be complimentary to each other. In July 2006, Arête spun-off 97% of its ownership of Avatar Technology Group. in the form of a dividend of one share of Colorado Oil & Gas, Inc. for every nine hundred and seventy-five shares of Arête shares owned on the record date.

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.

Due to the fact that the Company presently relies exclusively upon contributions of time and operating cash from its directors and officers to pursue its business plan, this has been increasingly taxing on these individuals, and has resulted in substantial dilution to the Company's shareholders. It has become the chief priority of management to achieve cash flow sufficient to cover our overhead as soon as possible and we will 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.

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. We received a letter of intent for due diligence, with a payment of $25,000, that calls for the due diligence period to last no longer than June 8, 2006. We should then be able to work the debt issues out and move to a definitive agreement during this period.

 
- 10 -

 


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.

Financial Condition

As of the end of the six months ended June 30, 2007, the Company had $571,295 in total assets. This compares to total assets of $339,861 as of the fiscal year ended December 31, 2006. Total liabilities were $1,033,869 as of June 30, 2007 compared to $745,026 as of the fiscal year ended December 31, 2006. Accounts payable and accrued expenses at June 30, 2007 were $489,119 as compared to $325,651 at December 31, 2006. Advances, notes payable, and accrued interest to related parties at June 30, 2007 were $544,750 as compared to $419,375 at December 31, 2006. During the six months ended June 30, 2007, total liabilities were increased by $288,433 due to purchase of the pipeline and related costs. Net (loss) was $(238,783), increasing the accumulated deficit as of June 30, 2007 to $13,440,052, as compared to an accumulated deficit as of December 31, 2006 of $13,201,268.

The Company's subsidiary, Global Direct Marketing Services, Inc. abandoned 2000, which is now inactive, has left an obligation of $58,230 in unpaid payroll taxes. During 2003, the Company abandoned the development of the Aggression Sports, Inc. subsidiary. At June 30, 2007, the remaining liabilities of this subsidiary were $6,304 in trade payables and $102,554 in unpaid payroll taxes. As of June 30, 2007, the consolidated entity owes $306,311 in unpaid payroll taxes of which $56,595 applies specifically to the parent company for periods through the fourth quarter of 2000.

During the quarters ended June 30, 2007, the Company continued to rely upon infusions of cash from exercise of stock options by officers, directors and consultants, and upon payment of compensation to officers, directors and consultants in the form of common stock and common stock options. During the six months ended June 30, 2007, the Company paid $107,000 in compensation to officers and directors, paid $66,250 to consultants and professionals with 55,000,000 shares of common stock. During the three months ended June 30, 2007, the Company paid $77,000 in compensation to officers and directors, paid $40,000 to consultants and professionals with 32,500,000 shares of common stock.

As of June 30, 2007, executive salaries and bonuses of $88,932 were accrued and unpaid, and the Company had $14,525 in notes receivable for stock sales from former management members.

Results of operations for the Six Months ended June 30, 2007 Compared to Six Months ended June 30, 2006.

The Company had $112,797 in revenues from operations during the six months ended June 30, 2007, and no revenues during the comparable period ended June 30, 2006. Net loss from operations for the six months ended June 30, 2007 was $(223,690) as compared to a net loss from continuing operations of $(97,147) for the six months ended June 30, 2006. The net loss during the six months ended June 30, 2006 was offset by $340,171 in extinguishment of debt and reduction of the share loss of its subsidiary that is 95% owned of $7,608, resulting in net income of $32,617 for the period. The net loss for the quarter ended June 30, 2007 was $(238,738).

Results of operations for the Three Months ended June 30, 2007 Compared to Three Months ended June 30, 2006.

The Company had $108,864 in revenues from operations during the quarter ended June 30, 2007, and no revenues during the comparable period ended June 30, 2006. Net loss from operations for the quarter ended June 30, 2007 was $(162,778) as compared to a net loss from continuing operations of $(26,900) for the quarter ended June 30, 2006. The net loss during the quarter ended June 30, 2006 was offset by $242,312 in extinguishment of debt and reduction of the share loss of its subsidiary that is 95% owned of $5,624, resulting in net income of $221,036 for the period. The net loss for the quarter ended June 30, 2007 was $(174,576).

 
- 11 -

 


The Company rents space for file storage and furniture for $625 per quarter. The Company uses space rented by Director for meetings and to keep current records and pays no rent.

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 and common stock options as incentives during the development of our new 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 June 30, 2007 of $891,758. This compares to a working capital deficit of $735,400 as of December 31, 2006. During the six months ended June 30, 2007 an aggregate of 55,000,000 shares of common stock were issued for aggregate consideration of $181,375 (for an average of $0.0033 per share).

The Company had a stockholder's deficit at June 30, 2007 of $462,574. This is compared to stockholder's deficit at December 31, 2006 of $405,165. The stockholder's deficit increased due the Company's operating loss and increased by the payment of services with the issuance of stock.

At June 30, 2007, 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.
 

 
- 12 -

 


Item 4 - Controls and Procedures

As of June 30, 2007 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.
 

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


 
- 13 -

 

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: December 21, 2010
   
   
By:   
/s/ John Herzog, Interim CFO
 
John Herzog,
 
Interim Principal Financial and Accounting Officer
 
Dated: December 21, 2010

 
 
 
 
- 15 -