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, 2002

                                       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


                             ARETE INDUSTRIES, INC.
                 -----------------------------------------------
             (Exact name of registrant as specified in its charter)


           Colorado                                              84-1508638
--------------------------------                            -------------------
 State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization                               Identification No.)


2955 Valmont Road, Suite 300, Boulder, CO                               80301
-----------------------------------------                             ---------
 (Address of principal executive offices)                             (Zip Code)


                                 (303) 247-1313
                        --------------------------------
              (Registrant's telephone number, including area code)


                                 Not Applicable
                     --------------------------------------
                     (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 November 15, 2002,  Registrant had 32,716,248  shares of common stock,  No
par value, outstanding.  The share figures contained in this report are adjusted
to  reflect a reverse  stock  split of twenty to one (20:1)  effective  July 15,
2002.

<PAGE>

                      ARETE INDUSTRIES, INC. AND SUBSIDIARY


                                      INDEX


                                                                        Page No.
                                                                        --------

Consolidated Financial Statements:

Index to Consolidated Financial Statements                                 1

Consolidated Balance Sheet at September 30, 2002 and
December 31, 2001 (unaudited)                                              2

Consolidated Statements of Operations for the Three
Months Ended September 30, 2002 and 2001 (unaudited)                       3

Consolidated Statements of Operations for the Nine
Months Ended September 30, 2002 and 2001 (unaudited)                       4

Consolidated Statement of Stockholders' Deficit for
the Nine Months Ended September 30, 2002 (unaudited)                       5

Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2002 and 2001 (unaudited)                      6-7

Notes to Unaudited Consolidated Financial Statements
at September 30, 2002                                                     8-11

Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations                                       12-18

Part II - Other Information                                               18

Signatures                                                                19

                                        1
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                    December 31, 2001 and September 30, 2002
                                   (Unaudited)
<CAPTION>


                                     ASSETS
                                     ------
                                                                 2001             2002
                                                              ------------    ------------
<S>                                                           <C>             <C>
Current assets:
    Cash and cash equivalents                                 $        110    $      1,091
    Accrued interest receivable                                     11,503          21,336
    Inventory                                                       65,029          65,029
    Prepaid expenses                                                 3,509           3,085
                                                              ------------    ------------

      Total current assets                                          80,151          90,541

Furniture and equipment, at cost net of accumulated
    depreciation of $49,547 (2001) and $73,851 (2002)              124,822         100,518
Security deposit                                                    12,598           7,382
Intellectual property                                               34,516          34,516
Investment in and advances to Aggression Sports
    (Note 2)                                                          --              --
                                                              ------------    ------------

                                                              $    252,087    $    232,957
                                                              ============    ============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT
                                                                              ------------

Current liabilities:
    Accounts payable (Note 3)                                 $    411,849    $    420,301
    Accrued expenses                                               852,323         578,742
    Accrued payroll taxes (Note 3)                                 289,128         289,528
    Settlement due                                                  18,650          18,650
    Notes payable (Note 4)                                         100,000            --
    Notes payable - related parties (Note 4)                       165,568          35,493
                                                              ------------    ------------

      Total current liabilities                                  1,837,518       1,342,714

Commitments and contingencies (Notes 1, 3 and 4)

Stockholders' deficit (Notes 6 and 7):
    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
        Series 2, 25,000 shares authorized, 15,012
          shares issued and outstanding                               --           150,115
    Common stock, no par value; 499,000,000 shares
      authorized, 24,416,248 (2001) and 32,716,248 (2002)
      shares issued and outstanding                              9,074,130       9,567,276
    Accumulated deficit                                        (10,440,741)    (10,729,342)
    Unearned stock compensation                                       --           (39,000)
    Notes receivable from sale of stock                           (218,820)       (218,820)
                                                              ------------    ------------

      Total stockholders' deficit                               (1,585,431)     (1,109,757)
                                                              ------------    ------------

                                                              $    252,087    $    232,957
                                                              ============    ============
</TABLE>

                             See accompanying notes.
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
             For the three months ended September 30, 2001 and 2002
                                   (Unaudited)
<CAPTION>

                                                                2001             2002
                                                             ------------    ------------
<S>                                                          <C>             <C>
Revenues:
    Management fees - Aggression Sports                      $       --      $       --
    Sales                                                            --              --
    Other income                                                     --              --
                                                             ------------    ------------

      Total revenues                                                 --              --

Operating expenses:
    Depreciation                                                    1,696           8,101
    Research and development (Note 2)                                --              --
    Rent                                                           15,285           8,327
    Other operating expenses                                      102,428         118,881
                                                             ------------    ------------

      Total operating expenses                                    119,409         135,309
                                                             ------------    ------------

        Total operating loss                                     (119,409)       (135,309)

Other income (expense):
    Equity in loss of Aggression Sports (Note 2)                   (4,562)           --
    Impairment of investment in Aggression Sports (Note 2)           --              --
    Interest expense                                               (5,104)        (16,360)
    Interest and miscellaneous income                               3,017           3,277
                                                             ------------    ------------

      Total other income (expense)                                 (6,649)        (13,083)
                                                             ------------    ------------

Net loss (Note 5)                                            $   (126,058)   $   (148,392)
                                                             ============    ============

Basic and diluted loss per share                             $      (0.01)   $      (0.01)
                                                             ============    ============


Weighted average common shares outstanding                     23,846,900      28,900,000
                                                             ============    ============
</TABLE>

                             See accompanying notes.
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
              For the nine months ended September 30, 2001 and 2002
                                   (Unaudited)
<CAPTION>

                                                                 2001            2002
                                                             ------------    ------------
<S>                                                          <C>             <C>
Revenues:
    Management fees - Aggression Sports                      $     33,400    $       --
    Sales                                                            --               379
    Other income                                                   48,564            --
                                                             ------------    ------------

      Total revenues                                               81,964             379

Operating expenses:
    Depreciation                                                    5,536          24,304
    Research and development (Note 2)                             121,936            --
    Rent                                                           55,936          24,595
    Other operating expenses                                      621,829         228,685
                                                             ------------    ------------

      Total operating expenses                                    805,237         277,584
                                                             ------------    ------------

        Total operating loss                                     (723,273)       (277,205)

Other income (expense):
    Equity in loss of Aggression Sports (Note 2)                  (48,575)           --
    Impairment of investment in Aggression Sports (Note 2)       (141,711)           --
    Interest expense                                              (62,002)        (21,229)
    Interest and miscellaneous income                              11,559           9,833
                                                             ------------    ------------

      Total other income (expense)                               (240,729)        (11,396)
                                                             ------------    ------------

Net loss (Note 5)                                            $   (964,002)   $   (288,601)
                                                             ============    ============

Basic and diluted loss per share                             $      (0.04)   $      (0.01)
                                                             ============    ============


Weighted average common shares outstanding                     23,239,500      25,900,000
                                                             ============    ============
</TABLE>
                            See accompanying notes.

<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                  For the nine months ended September 30, 2002
                                   (Unaudited)
<CAPTION>


                                                     Series 1              Series 2
                                                  preferred  stock      preferred stock           Common stock
                                                -------------------   -------------------   -----------------------    Accumulated
                                                 Shares     Amount     Shares      Amount      Shares        Amount      deficit
                                                --------   --------   ---------  --------   ----------   ----------   -------------
<S>                                             <C>        <C>        <C>        <C>        <C>          <C>          <C>


Balance, December 31, 2001 (Note 7)                 --     $   --       --       $  --      24,416,248   $9,074,130   $ (10,440,741)

    Issuance of Series 1 preferred stock
      for conversion of note payable (Note 6)     16,001    160,014     --          --             --           --            --

    Issuance of Series 2 preferred stock
      to reimburse advances made to the
      Company (Note 6)                              --         --      5,012       50,115          --           --            --

    Issuance of Series 2 preferred stock
      for cancellation of notes payable
      (Note 4)                                      --         --     10,000      100,000          --           --            --

    Cancellation of accrued wages for future
      interest in stock distributions (Note 6)      --         --       --          --             --       344,000           --

    Issuance of common stock to employees
      and consultants for services (Note )          --         --       --          --       7,800,000      101,399           --

    Issuance of common stock in payment
      of accrued interest                           --         --       --          --         500,000       10,000           --

    Value of options issued to consultants
      (Note 6)                                      --         --       --          --             --        37,747           --

    Net loss for the nine months ended
      September 30, 2002                            --         --       --          --             --           --         (288,601)
                                                --------   --------   ---------  --------   ----------   ----------   ------------

Balance, September 30, 2002                       16,001   $160,014   15,012     $150,115   32,716,248    9,567,276   $ (10,729,342)
                                                ========   ========   =========  ========   ==========   ==========   ============
</TABLE>

                             See accompanying notes.
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
              For the nine months ended September 30, 2001 and 2002
                                   (Unaudited)
<CAPTION>

                                                                2001          2002
                                                              ---------    ---------
<S>                                                           <C>          <C>
Cash flows from operating activities:
    Net loss                                                  $(964,002)   $(288,601)
    Adjustments to reconcile net loss to net
      cash used in operating activities:
        Depreciation and amortization                             5,536       24,504
        Equity in loss of Aggression Sports                      48,575         --
        Impairment of investment in Aggression Sports           141,711         --
        Stock issued for services and interest on notes         175,857      110,146
        Changes in assets and liabilities:
          Accounts receivable                                      --           --
          Interest receivable                                      --         (9,833)
          Prepaid expenses                                        6,023          424
          Accounts payable                                      117,282        8,452
          Accrued expenses                                      301,443       95,943
                                                              ---------    ---------

            Total adjustments                                   796,427      229,636
                                                              ---------    ---------

        Net cash used in operating activities                  (167,575)     (58,965)

Cash flows from investing activities:
    Purchase of property and equipment                             --           (200)
    Security deposit                                                545        5,216
    Investments in and advances to Aggression Sports           (171,969)        --
    Maturity of certificate of deposit                           52,387         --
                                                              ---------    ---------

        Net cash provided by (used in) investing activities    (119,037)       5,016

Cash flows from financing activities:
    Proceeds from issuance of preferred stock                      --         54,930
    Proceeds from exercise of stock options                      88,000         --
    Proceeds from note payable - related parties                136,700         --
    Proceeds from note payable                                   50,000         --
                                                              ---------    ---------

      Net cash provided by financing activities                 274,700       54,930
                                                              ---------    ---------

Net increase (decrease) in cash and cash equivalents            (11,912)         981
Cash and cash equivalents at beginning of period                 13,376          110
                                                              ---------    ---------

Cash and cash equivalents at end of period                    $   1,464    $   1,091
                                                              =========    =========
</TABLE>
                             See accompanying notes.
<PAGE>

                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
              For the nine months ended September 30, 2001 and 2002
                                   (Unaudited)

                        (Continued from preceding page)

Supplemental disclosure of cash flow information:       2001       2002
                                                       ------     ------

Interest paid during the period                        $ --       $ --
                                                       ======     ======
Income taxes paid during the period                    $ --       $ --
                                                       ======     ======


During the nine months ended  September  30, 2001,  notes payable to two related
parties with outstanding balances of $178,912 were converted into common stock.

During the nine months  ended  September  30,  2002, a note payable to a related
party with an outstanding balance of $160,014 was converted into preferred stock
and notes payable to two individuals with an aggregate  balance of $100,000 were
converted  into common  stock.  Interest of $10,000 was paid by the  issuance of
common  stock.  In  addition,  $344,000 in wages  payable to two officers of the
Company were cancelled in exchange for future interests in stock  distributions,
wages and fees to  consultants  of $101,399  were paid by the issuance of common
stock and the value assigned to stock options issued was $37,747.

                             See accompanying notes.
<PAGE>

                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2002


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, 2001 and September 30, 2002, and the results of
     operations  and cash flows for the  periods  ended  September  30, 2001 and
     2002.

     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, 2002,  the Company has a working  capital  deficit of $1,252,173  and a
     stockholders' deficit of $1,109,757. 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
     September  30,  2002,  the  Company  received  proceeds  of $50,115 for the
     purchase of 5,012 shares of Series 2 Convertible Preferred Stock.

2.   Investment in and advances to affiliates
     ----------------------------------------

     Aggression Sports:

     In prior years, the Company acquired a 31% ownership interest in Aggression
     Sports in exchange  for  30,000,000  shares of the  Company's  common stock
     valued at  $150,000.  During the three  months  ended June 30 and March 31,
     2001, Aggression Sports sold 550,000 and 5,690,000 shares,  respectively of
     Arete for gross proceeds of $82,362.

     During May 2001,  the Company agreed to buy out the 30% share of Aggression
     Sports owned by the creator of  Aggression's  products for $40,000 worth of
     the Company's stock to be issued over a four-month  period. As of September
     30, 2001,  8,000,000 shares of common stock were issued and the Company had
     a remaining liability of $15,650. The Company has recorded an impairment in
     the value of this investment.


<PAGE>

                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2002


2.   Investment in and advances to affiliates (continued)
     ----------------------------------------------------

     Applied Behavior Systems, LLC:

     The Company has an agreement to provide new venture management  services to
     assist in the  formation of a new company and product  development  process
     concerning  several unique  applications  of a patented  neural-networking,
     intelligent  agent  software  engine in conjunction  with Applied  Behavior
     Systems,  LLC (ABS),  an  unaffiliated  company.  Under the agreement,  the
     Company earned fees for  management  services and is entitled to receive an
     equity  interest  in this  new  application  development  company.  Through
     December  31, 2001,  the Company has advanced  $260,672 as a bridge loan to
     finance  operations.  As these  advances  have been used for  research  and
     development  by ABS,  these  amounts  have been  recorded as  research  and
     development expenses in the accompanying financial statements. During 2001,
     the Company  charged  management  fees of $81,419 to ABS. These  management
     fees have not been recorded as revenue at this time since collectibility is
     not reasonably  assured.  During May 2001, the Company ceased funding ABS's
     operations.

3.   Delinquent amounts payable

     As of September 30, 2002,  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.

4.   Notes payable

     Notes payable - individuals:

     During  January  2001,  the Company  borrowed  $100,000  from two unrelated
     individuals  evidenced by a note  bearing no interest,  payable on June 15,
     2002,  but callable  initially  on January 15,  2001,  and then on July 15,
     2001.   The  Company   issued   100,000  shares  of  its  common  stock  as
     consideration  for the loans and 500,000  shares of its common  stock to be
     held as  collateral  for  payment of the loans.  The loans were not paid by
     June 15, 2001,  therefore,  the lenders  have the option of  retaining  the
     collateral  shares  in full  payment  of the  notes.  The  Company's  Chief
     Executive  Officer  also  transferred  75,000  shares of common stock owned
     personally  to  the  note  holders  as  additional  consideration  for  the
     transaction.

     On May 31, 2002, the Board of Directors approved two assignment  agreements
     between third party  creditors of the Company  holding  secured  promissory
     notes  in the  aggregate  amount  of  $100,000  and a  company  owned  by a
     director.  The agreements provided for the purchase of the referenced notes
     and collateral  consisting of 500,000 common shares and a security interest
     in certain inventory of the Company's  subsidiary,  Aggression Sports, Inc.
     and the subsequent  surrender for cancellation of such notes by the related
     company  with the  Company  for  10,000  shares  of  Series  2  Convertible
     Preferred  Stock of the  Company  (convertible  into  10,000,000  shares of
     common stock). The assignments were finalized upon the closing of a private
     placement by the related company during September 2002.


<PAGE>


                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2002


4.   Notes payable (continued)


     Notes payable - related parties:

     During 2000, an officer of the Company and a company owned by the Company's
     Chief  Executive  Officer  loaned  to the  Company  $17,957  and  $116,700,
     respectively,  evidenced by notes payable.  During 2001,  three officers of
     the Company and a company owned by the Company's  Chief  Executive  Officer
     loaned to the Company  $171,634  and  $40,264,  respectively,  evidenced by
     notes payable.  The notes are due upon demand, bear interest at 9.5% to 10%
     per annum and are unsecured.  On May 31, 2002,  $160,014 of these notes was
     converted into common stock (see Note 6).

     During 2002, an officer of the Company and a company owned by the Company's
     Chief Executive Officer loaned $21,804 to the Company.

5.   Income taxes

     The book to tax temporary  differences resulting in deferred tax assets and
     liabilities  are primarily net operating loss  carryforwards  of $4,193,000
     which expire in years through 2022.

     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 reasonable assured.

     The Company's net  operating  losses are  restricted as to the amount which
     may be utilized in any one year.

6.   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
     September  30,  2002,  the  Company  received  proceeds  of $50,115 for the
     purchase of 5,012 shares of Series 2  Convertible  Preferred  Stock.  These
     preferred  shares are convertible into 5,011,519 shares of common stock. In
     addition,  10,000  preferred  shares were issued in connection  with a note
     conversion (see Note 4).

     On May 31, 2002, a company owned by the Company's Chief  Executive  Officer
     converted a note payable with a principal  balance of $160,014  into 16,001
     shares of Series 1 Class A  Preferred  Stock.  These  preferred  shares are
     convertible into 8,000,700 shares of common stock.

     During  April  2002,  two  officers of the  Company  cancelled  $344,000 in
     accrued  wages owed by the Company in exchange  for the right to receive in
     the aggregate 12% of the total future stock  dividend  distribution  by the
     Company from the first four companies that it spins off to its shareholders
     in a registered stock dividend and/or a registered rights offering.

     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.


<PAGE>

                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2002


6.   Stock transactions

     On August 9, 2002, the Company issued  6,000,000  shares of common stock to
     three  directors  of the Company and  1,800,000  shares of common  stock to
     three  consultants  for services  performed  and to be performed  valued at
     $101,399.

     During  the  quarter  ended  September  30,  2002,  the board of  directors
     approved  the  issuance of a stock  option for the  purchase  of  2,000,000
     shares of common stock to a consultant. The options are exercisable at $.02
     per share for two years and were valued at $37,747.

                                 End Financials

<PAGE>

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 Quarterly  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 stock,  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 at this time since collectibility is not reasonably assured.

Research and development:

The Company has also advanced funds to these start-up companies. As the start-up
companies have used these advances for research and  development,  these amounts
have  been  recorded  as  research  and  development  expense  in the  Company's
financial statements.

<PAGE>


Overview.

During the quarter ended  September 30, 2002, the Company filed a current report
on Form  8-K  reporting  events  commencing  May  31,  2002  including  material
transactions  through August 7, 2002 which disclosure is incorporated  herein by
reference,  and which  information  is briefly  summarized  below,  but which is
qualified  in its  entirety by the more  detailed  disclosure  contained in such
Current Report.

During the Quarter ended  September 30, 2002, we held our  shareholders  meeting
and  completed a  recapitalization  that included a 20 to 1 reverse stock split,
installed a new board of directors  and brought two new members to our executive
management  team. New management  jointly agreed to accept  compensation for the
balance of the fiscal year in the form of common stock  grants and options,  and
to accept  future cash and/or  stock  compensation  after the end of the current
fiscal year, based on achieving  successful,  positive business results that add
value to the Company.

Eagle Capital  Funding  Corp.,  an affiliate of the Company  ("Eagle  Capital"),
continued  to  advance   funds  to  cover  the  Company's   expenses,   totaling
approximately $12,448 during the third quarter 2002. Subsequently, Eagle Capital
advanced an additional  $14,817 through the date of this report. In total, Eagle
has advanced  $73,951,  in cash of which $50,115 has been  converted  into 5,012
shares of Series 2 Convertible  Preferred Stock,  which has conversion rights to
convert into  5,011,519  shares of common stock of the  Company.  As  previously
disclosed in the  Company's  Periodic  Report on Form 8-K  described  above,  an
additional  10,000 shares of the Series 2 Convertible  Preferred  Stock has been
issued to Eagle Capital  Fund-I,  LLC, an affiliate of Eagle Capital (the "Eagle
Fund") in payment of two $50,000  promissory  notes of the  Company.  As part of
agreements  pertaining to this  transaction,  500,000  restricted  shares of the
Company's common stock  originally  pledged by the Company as collateral for the
two notes and deemed  unissued for  accounting  purposes,  was deemed issued and
recorded as additional interest expense of $10,000.

We continue in our efforts to resolve our outstanding employment tax liabilities
by  pursuing an offer in  compromise  with the  Internal  Revenue  Services.  As
previously disclosed,  during the second Quarter,  2002, we settled or converted
certain  debts owed to the CEO and the former CFO in the amount of $344,000.  We
continue to pursue  settlements  or  conversion of debt  including  payables and
accrued  salaries  and  bonuses  owed  to  former  management  employees  in the
approximate amount of $300,000.

With the aid of these  transactions,  we are nearing  completion  of our plan to
change our capital and corporate structure.  With the continuing  development of
Eagle Capital's  business plan, we have become  confident enough to move forward
on several  business  initiatives  that we believe will set the  groundwork  for
attracting more valuable acquisition and investment opportunities to the Company
in the future.

<PAGE>


In November,  2002,  we became  engaged by Celexx  Corporation,  a publicly held
holding  company,  to provide certain  investment  banking  consulting  services
including arranging or providing directly a short term loan to Celexx, assisting
it in its efforts to recapitalize and restructure itself,  including resolving a
dispute with its preferred  shareholder,  and are consulting with the company to
structure and arrange for permanent debt and/or equity  financing for its wholly
owned  subsidiary,  Pinneast.com  to  expand  its  operations  and make  certain
contemplated acquisitions. We have presented our recommendations to Celexx for a
structure and plan, and the client is evaluating our proposal, at which time the
relationship  will  either  proceed or be  terminated.  The  Company may receive
compensation including equity participation,  Celexx common shares, professional
and consulting fees and origination fees for successful  completion of permanent
debt and/or equity financing, and acquisitions.

We have recently retained our affiliate,  Eagle Capital,  operated by Mr. Gerald
Brandimarte,  who is an officer  and  director of the  Company,  to assist us in
implementing a proprietary Variable Rate Bond Note program (the "Note Program").
The  initial  plan is for the  Company to sell  Variable  Rate Bond Notes in the
approximate  amount of from $10  Million  to $20  Million.  The Note  Program is
designed to provide the Company with funds for  operations and  acquisitions  of
from $4.5 Million to $9 Million,  with the balance invested in rated instruments
and pledged  against the bond notes to cover debt service.  This is a unique and
innovative  structure  that has recently been developed by Mr.  Brandimarte  and
launched by Eagle Capital.  Eagle Capital is currently drafting a prospectus and
is in the  process  of  obtaining  necessary  confirmations  to set up this Note
Program  for a  current  client,  and we  intend  to  employ  the Note  Program,
customized for our use as a principal feature among other financing alternatives
for our potential  investment banking consulting  projects,  future acquisitions
and portfolio investments.

Since  obtaining our  shareholders'  permission to change the Company's state of
domicile to Nevada,  we have deferred our decision to effect the change while we
evaluate corporate  governance and other requirements for listing on the new BBX
exchange  being  proposed  by NASDAQ,  and until we can  determine  whether  the
benefits  we  hoped to  obtain  from  redomestication  would  be  eliminated  by
requirements of Business Development  Companies under the Investment Company Act
of 1940 (the "'40 Act").

During the period ended September 30, 2002, the Company's  operations  continued
to be  funded  principally  by cash  infusions  from  insiders  including  Eagle
Capital, by management deferring its salaries, and issuances of common stock for
services.  Management  anticipates that ongoing expenses for the short term will
be covered by proceeds of its current private  placement to Eagle Capital and by
exercise of stock  options,  to be replaced by revenues  from  operations  as it
executes its business plan as a Business Development Company.

<PAGE>


Financial Condition

As of  September  30,  2002,  the  Company  had  $232,957  in total  assets  and
$1,342,714 in total  liabilities,  as compared to $252,087 and $1,837,518 at the
end of fiscal year ended December 31, 2001,  respectively.  Accounts payable and
accrued expenses at September 30, 2002 were $1,288,571 as compared to $1,553,300
at December 31, 2001. The decrease in accounts payable and accrued expenses from
December 31, 2001 of $264,729 is attributable  to increases in accrued  salaries
of $60,000 and settlement of other  outstanding  accrued salaries to insiders of
$344,000 off set by accrued and unpaid legal,  accounting,  transfer agent fees,
and increases in general payables.  Additional reduction in total liabilities of
$230,075 from December 31, 2001 through the end of the third  Quarter,  2002 was
achieved by payment of $100,000 in notes  payable to third parties with issuance
of  Series 2  Convertible  Preferred  Stock,  payment  of a note  payable  to an
affiliate of the CEO of $160,014 with Series 1 Convertible  Preferred Stock, and
an  increase  in notes  payable-related  parties  by $29,939  including  $21,804
advanced to the Company by the CEO and a company  owned by the CEO.  Losses were
partially  funded through  increased  accounts  payable by accruing or deferring
salaries,  and advances from officers and  affiliates  and issuance of Preferred
Stock.

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 $46,897 remaining from its printing and direct mail advertising
business. The Company owes approximately $79,000 in unpaid Federal payroll taxes
for calendar  years 1995 through 1997  including  penalties  and  interest.  The
Company owes approximately $65,858 in 2000 and $97,373 in 2001, respectively, in
accrued payroll taxes, including penalties and interest.

During the nine months ended  September 30, 2002, the Company  continued to rely
upon infusions of cash from loans and cash advances by executives and affiliates
of the Company.  The proceeds were used for overhead,  expenses  associated with
the  shareholders   meeting  payment  of  corporate   obligations  and  business
development  activities.  Also during the nine-month  period ended September 30,
2002, of a total of $99,000 in director and executive salaries, $78,000 was paid
in common  stock  ($39,000 to be expensed in the next  quarter)  and $60,000 was
accrued;  plus cash  advances by directors  and  executives of $21,804 have been
accrued; a total of $24,400 in compensation was paid in cash and common stock to
employees  and  consultants;  and salaries  and bonuses of $477,232,  which were
accrued as of December 31, 2001, remain unpaid.

Results of operations

The company's  operations during the third quarter of 2002 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 did not engage in venture  management or
advisory  activities and therefore was not generating revenue from executive and
management services.

For the quarter ended September 30, 2002, the Company incurred $135,309 in total
operating  expenses.  This  included  $39,000 of executive  compensation  to its
officers  and  directors  in the form of  registered  common  stock,  $37,747 to
consultants  in the  form of  stock  options,  rent of  $8,327  other  operating
expenses   of   $50,235   including   consulting,    bookkeeping,    shareholder
communication,  transfer agent fees,  accounting and auditing expenses and costs

<PAGE>


associated with the annual shareholder's meeting.  During the first quarter, the
Company was successful in reducing its rental expense by negotiating  out of its
larger space and moving to a smaller  suite in the same  building,  reducing its
monthly rental to $1,968 for office. The Company continues to rent storage space
for its files, inventory and excess office equipment.  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.

Total other  income  (expense)  of  ($13,083)  included  $3,277 in interest  and
miscellaneous  income,  and an interest expense of $16,360  including $10,000 in
additional interest booked on payment of $100,000 in notes payable-third parties
with  Series  2  Convertible  Preferred  Stock  resulting  in a  net  loss  from
operations of $148,392.

Liquidity and Capital Resources

The  Company  has  a  working  capital  deficit  as of  September  30,  2002  of
$1,252,173.  This  compares to a working  capital  deficit of  $1,757,367  as of
December 31,  2001.  The $505,194  decrease in working  capital  deficit for the
quarter  ended  September  30, 2002 is primarily  attributable  to a decrease of
$273,581 in accrued expense from $852,323 for the fiscal year ended December 31,
2001, a decrease of $230,075 in notes payable from $265,568 at December 31, 2001
and  payment of $100,000 in notes  payable - third  parties.  During the quarter
ended  September  30,  2002,  7,800,000  shares of common  stock were issued for
services,  and the Company issued 1,117 shares of Series 2 Convertible Preferred
stock valued at face value of $11,170.

The Company had a  stockholder's  deficit at September  30, 2002 of  $1,109,757.
This is compared to  stockholder's  deficit at December 31, 2001 of  $1,585,431.
The  stockholder's  deficit  decreased due to the Company's  operating at a loss
plus  payment of  compensation  with  common  stock,  offset by the  issuance of
preferred  stock for cash,  for  conversion of certain notes payable and accrued
compensation to related parties.

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 September 30, 2002, the Company had raised $50,115 in
gross proceeds of this private placement and issued 5,012 outstanding  shares of
Series 2  Convertible  Preferred  Stock.  Also,  the Company  paid off two notes
payable of $50,000 each with  issuance of 10,000  shares of Series 2 Convertible
Preferred Stock. In addition,  the Company has $23,836 in note payable - related
parties for cash advances from Eagle  Capital  through  November 15, 2002. It is
expected  that these cash  advances will be exchanged for issuance of additional
shares of Series 2 Convertible Preferred stock under the private placement.

<PAGE>

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.

At  September  30,  2002,  the Company had no material  commitments  for capital
expenditures.

The Company finds itself in a highly  illiquid  situation with few assets and no
revenue  to fund  ongoing  operations.  The  Company  has  relied on loans  from
insiders and deferral of salary and  compensation  by its employees,  as well as
issuance of Common Stock and  Convertible  Preferred  Stock to  affiliates.  The
Company's  current business plan will require minimal funds for overhead and for
maintaining its financial reporting  obligations.  Due to the illiquidity in the
Company's public trading market and the investment  environment in general,  the
Company's  ability to raise  additional  capital publicly or privately to launch
its  current  business  plan in the near term is severely  limited.  Due to such
conditions 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. The Company continues  because its principal  officers and affiliates
continue to support the Company on a deferred compensation basis.

Subsidiaries/Employees:

Arete Industries,  Inc. has one full time employee,  and two part-time Corporate
Officers, and its subsidiary, Aggression Sports, Inc. presently has no employees
other than its acting president,  the Company's current CEO. In December,  2001,
Eagle  Capital  became  independent  of Arete's  ownership and has been operated
principally by Mr.  Brandimarte,  with Mr. Raabe and Mr. Stewart on its board of
directors. Eagle Capital has since become a major controlling shareholder of the
Company.  The CEO remains on a deferred  salary basis for the first two quarters
of 2002 and has accepted a 2,000,000  share stock grant and an  Incentive  stock
option to purchase  2,000,000  shares of common stock at $0.02 per share in lieu
of salary for the balance of 2002, as have Mr. Stewart and Mr. Brandimarte.

Although the Aggression Sports, Inc.  subsidiary is inactive,  we are continuing
to seek revenue generating  activities  including finding  manufacturing  and/or
marketing partners for our developed  products,  and are hoping to recruit a new
management   team  and  investors   focused  on  growing  this  company  through
acquisition of young outdoor sports companies,  neither of which is currently in
place nor can be assured with any degree of certainty.

<PAGE>

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

During the Period  ended  September  30,  2002,  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

A Report on Form 8-K, filed on August 8, 2002,  was  previously  reported in the
Quarterly  Report on Form  10-QSB for the period  ended  June 30,  2002,  and is
incorporated herein by reference.

Exhibit 99.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

<PAGE>

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: November 19, 2002

By: /s/ Thomas P. Raabe, Interim CFO
------------------------------------
Thomas P. Raabe, Interim CFO
Principal Financial and Accounting Officer
Principal Executive Officer

<PAGE>


                            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 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  September  30,  2002,  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: November 19, 2002                     By: /s/ Thomas P. Raabe
                                                     ---------------------------
                                                     Chief Executive Officer and
                                                     Chief Financial Officer