[[Arete LOogo]]
John Herzog, CFO
7102 La Vista Place
Niwot, Colorado 80503
Tel. (303) 652-3113
Fax: (303) 652-1488
Email: johnherzog@comcast.net
October 26, 2005
Karl Hiller
United States
Securities and Exchange Commission
Division of Corporate Finance
100 F Street, N.E.
Washington, D.C. 20549-7010
Re: Arete Industries , Inc.
Form 10-KSB for Fiscal Year Ended December 31, 2004 Filed April 15,
2005 Forms 10-QSB for Fiscal Quarters Ended March 31, 2005 And June 30,
2005 Filed May 16, 2005 and August 22, 2005 File No. 033-16820-D
Dear Mr. Hiller:
In connection with the above listed filings we submit the following in response
to your Comment Letter dated September 22, 2005.
Response to Comment No. 1:
- --------------------------
Arete Industries, Inc., in replying to this comment, will amend its Form 10-KSB
for Fiscal Year Ended December 31, 2004 to include Item 8A, Controls and
Procedures on page 13. Arete Industries, Inc. will also amend the filing for
Form 10-QSB for Fiscal Quarters Ending March 31, 2005 and June 30, 2005 to
include Item 3, Controls and Procedures.
The addition of Item 8A to the Amended Form 10KSB for year ending December 31,
2004 is as follows:
Item 8A. Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-KSB the
Company carried out an evaluation, under the supervision and with the
participation of the Company's CEO/Acting Chief Financial Officer and Chairman
of the Audit Committee, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as such terms are defined in Rules
13a-15e and 15d-15e under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Based upon such evaluation, such officers have concluded that
the Company's disclosure controls and procedures are effective.
There have been no significant changes to the Company's internal controls over
financial reporting that have materially affected, or are reasonably likely to
materially effect, the Company's internal controls over financial reporting.
The addition of Item 3 to the Amended Form 10-QSB for the period Ending March
31, 2005 is as follows:
Item 3. Controls and Procedures
A review and evaluation was performed by the Company's management, including the
Company's CEO/Acting Chief Financial Officer and Chairman of the Audit
Committee, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of the end of the period covered by this
Quarterly report.. Based upon such evaluation, such officers have concluded that
the Company's disclosure controls and procedures are effective.
There have been no significant changes in the Company's internal controls
subsequent to the date of their evaluation. There were no material weaknesses
identified in the course of such review and evaluation and, therefore, no
corrective measures were taken by the Company
The addition of Item 3 to the Amended Form 10-QSB for the period Ending June 30,
2005 is as follows:
Page 2
Response to Comment No. 2:
- --------------------------
Arete Industries will amend its Form 10KSB for Fiscal Year Ended December 31,
2004 with the revised auditor opinion paragraph on page F-1. The auditor
statement is attachment to this letter.
Response to Comment No. 3:
- --------------------------
Arete Industries, Inc. will amend its Form 10KSB for Fiscal Year Ending December
31, 2004 to reflect accrued wages as zero and such amounts reflected under
"Stock and Options issued for services, accrued payables, and interest on
notes". Arete Industries, Inc will also amend the filings for Form 10-QSB for
Quarters Ending March 31, 2005 and June 30, 2005. The changed pages are an
attachment to this letter.
Response to Closing Comments:
- -----------------------------
Arete Industries, Inc. ("the company") acknowledges that:
o The company is responsible for the adequacy and accuracy of the disclosures
in the filings.
o Staff comments or changes to disclosures in response to staff comments do
not foreclose the Commission from taking any action with respect to the
filings.
o The company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws
of the United States.
Unless we hear differently from you we will file the amended Forms 10-KSB and
Forms 10 QSB the week of October 26, 2005.
Sincerely,
/s/ John Herzog
----------------------------------------------------
John Herzog
Interim Chief Financial Officer and Principal
Accounting Officer, and Director
By /s/ Charles Gamber
---------------------------------------------------
Charles Gamber, Chief Executive Officer and Director
EXHIBTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Arete Industries, Inc.
Boulder, Colorado
I have audited the accompanying consolidated balance sheets of Arete
Industries, Inc. and Subsidiaries (a development stage entity) as of
December 31, 2004, and the related consolidated statements of operations,
stockholders' deficit, and cash flows for the year then ended and for the
period from inception of the development stage (August 1, 2003) through
December 31, 2004. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit. The Company's financial statements
as of and for the year ended December 31, 2003, and for the period from
inception of the development stage (August 1, 2003) through December 31,
2003 were audited by other auditors whose report, dated April 1, 2004,
included an explanatory paragraph describing going concern issues as
discussed in Note 1 to the financial statements. The financial statements
for the period from inception of the development stage (August 1, 2003)
through December 31, 2003 reflect a net loss applicable to common
stockholders of $463,041 of the related total. The other auditors' report
has been furnished to me, and in my opinion, insofar as it relates to the
amounts for such prior period, is based solely on the report of such other
auditors.
I conducted my audit in accordance with the audit standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that I plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, based on my audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Arete Industries,
Inc. and Subsidiaries at December 31, 2004, and the consolidated results of
their operations and their cash flows for the year then ended and for the
period from inception of the development stage (August 1, 2003) through
December 31, 2004 in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has suffered recurring
losses from operations, has a working capital deficit and a stockholders'
deficit, and is delinquent on the payment of creditor liabilities including
payroll taxes. These conditions raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
April 11, 2005 /s/ Ronald R. Chadwick, P.C.
----------------------------
Aurora, Colorado RONALD R. CHADWICK, P.C.
ARETE INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Entity)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended December 31, 2003 and 2004
and from inception (August 1, 2003) to December 31, 2004
Inception to
2003 2004 Dec. 31, 2004
----------- ----------- -----------
Cash flows from operating activities:
Net (loss) $ (723,274) $ (922,983) $(1,386,024)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 19,509 2,192 2,576
Stock and options issued for services,
accrued payables, and interest on notes 669,366 994,281 1,434,342
Write down of assets included in loss from
Cash and cash equivalents at end of period $
Changes in assets and liabilities:
Interest receivable (13,129) 37,761 44,325
Inventory (4,941) 25,243 25,243
Prepaid expenses 2,285 (3,000) (3,000)
Accounts payable (134,638) (26,040) (53,251)
Accrued expenses 8,747 (216,970) (208,390)
----------- ----------- -----------
Total adjustments 655,872 813,467 1,241,845
----------- ----------- -----------
Net cash used in operating activities (67,402) (109,516) (144,179)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (5,072) (5,072)
----------- ----------- -----------
Net cash used in investing activities -- (5,072) (5,072)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 14,575 6,713
Proceeds from issuance of common stock 10,000 10,000
Proceeds from exercise of stock options 83,750 81,500 125,250
Note receivable from sale of stock 16,000 16,000
Line Deleted
Payment of note payable - related parties (15,959) (8,136) (8,709)
----------- ----------- -----------
Net cash provided by financing activities 92,366 89,364 149,254
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 24,964 (25,224) 3
Cash and cash equivalents at beginning of period 381 25,345 118
----------- ----------- -----------
Cash and cash equivalents at end of period $ 25,345 $ 121 $ 121
=========== =========== ===========
ARETE INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Entity)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended June 30, 2004 and 2005
and from inception (August 1, 2003) to June 30, 2005
(Unaudited)
Inception to
2004 2005 June 30, 2005
----------- ----------- -----------
Cash flows from operating activities:
Net (loss) $ (580,691) $ (235,870) $(1,621,894)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 978 1,199 3,775
Stock and options issued for services,
accrued payables, and interest on notes 882,826 151,187 1,585,529
Changes in assets and liabilities:
Interest receivable (6,565) 44,325
Inventory 25,243
Prepaid expenses (86,535) (3,100) (6,100)
Deposits (50,000) (50,000)
Accounts payable (48,821) (35,617) (88,868)
Accrued expenses (224,610) 758 (207,632)
----------- ----------- -----------
Total adjustments 517,273 64,427 1,306,272
----------- ----------- -----------
Net cash provided (used) in operating activities (63,418) (171,443) (315,622)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (5,071) (5,072)
Purchase of stock investments (28,691)
----------- ----------- -----------
Net cash used in investing activities (33,762) -- (5,072)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 6,713
Proceeds from issuance of common stock 7,727 17,727
Proceeds from exercise of stock options 71,000 121,500 246,750
Note receivable from sale of stock 16,000 (21,078) (5,078)
Line Deleted
Payment of note payable - related parties (11,573) 68,050 59,341
----------- ----------- -----------
Net cash provided by financing activities 75,427 176,199 325,453
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (21,753) 4,756 4,759
Cash and cash equivalents at beginning of period 25,345 121 118
----------- ----------- -----------
Cash and cash equivalents at end of period $ 3,592 $ 4,877 $ 4,877
=========== =========== ===========
ARETE INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Entity)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended March 31, 2004 and 2005
and from inception (August 1, 2003) to March 31, 2005
Inception to
2004 2005 Mar. 31, 2005
----------- ----------- -----------
Cash flows from operating activities:
Net (loss) $ (505,216) $ (110,720) $(1,496,744)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 372 592 3,168
Stock and options issued for services,
accrued payables, and interest on notes 751,060 81,592 1,515,934
Changes in assets and liabilities:
Interest receivable (3,283) 44,325
Inventory 25,243
Prepaid expenses (48,000) (51,000)
Accounts payable (44,623) 7,796 (45,455)
Accrued expenses (228,430) 400 (207,990)
----------- ----------- -----------
Total adjustments 475,096 42,380 1,284,225
----------- ----------- -----------
Net cash provided (used) in operating activities (30,120) (68,340) (212,519)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (5,071) (5,072)
Purchase of stock investments (55,268)
----------- ----------- -----------
Net cash used in investing activities (60,339) -- (5,072)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 6,713
Proceeds from issuance of common stock 5,350 15,350
Proceeds from exercise of stock options 71,000 6,000 131,250
Note receivable from sale of stock 15,000 16,000
Line Deleted
Payment of note payable - related parties (11,573) 57,750 49,041
----------- ----------- -----------
Net cash provided by financing activities 74,427 69,100 218,354
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (16,032) 760 763
Cash and cash equivalents at beginning of period 25,345 121 118
----------- ----------- -----------
Cash and cash equivalents at end of period $ 9,313 $ 881 $ 881
=========== =========== ===========