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, 2001
                            ------------------
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 310, 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.  [X] Yes     [ ] No

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

As of November 1, 2001, Registrant had 486,825,562 shares of common stock, No
par value, outstanding.


<PAGE>

                      ARETE INDUSTRIES, INC. AND SUBSIDIARY


                                      INDEX


                                                                     Page No.

Consolidated Financial Statements:

Consolidated Balance Sheet at September 30, 2001 and
December 31, 2000 (unaudited)                                           2

Consolidated Statements of Operations for the Three
Months Ended September 30, 2001 and 2000 (unaudited)                    3

Consolidated Statements of Operations for the Nine
Months Ended September 30, 2001 and 2000 (unaudited)                    4

Consolidated Statement of Stockholders' Deficit for the
Nine Months Ended September 30, 2001 (unaudited)                        5

Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2001 and 2000                               6-7

Notes to Unaudited Consolidated Financial Statements at
September 30, 2001                                                     8-10


Item 2

Management's Discussion and Analysis of Financial Condition
and Results of Operations                                             11-14

Financial Condition                                                   15-19


Part II - Other Information

Signatures                                                            19

<PAGE>


<TABLE>

                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                    September 30, 2001 and December 31, 2000
                                   (Unaudited)
<CAPTION>


                                     ASSETS
                                     ------

                                                                                   2001            2000
                                                                               ------------    ------------
<S>                                                                            <C>             <C>
Current assets:
    Cash and cash equivalents                                                  $      1,464    $     13,376
    Certificate of deposit                                                             --            52,387
    Prepaid expenses                                                                 19,651          26,031
                                                                               ------------    ------------

      Total current assets                                                           21,115          91,794

Furniture and equipment, at cost net of accumulated
    depreciation of $11,014 (2001) and $5,478 (2000)                                  9,287          18,995

Security deposit                                                                      5,409           5,954

Investment in and advances to Applied Behavior Systems,
    LLC (Note 2)                                                                       --              --

Investment in and advances to Aggression Sports
    (Note 2)                                                                        100,395          89,222
                                                                               ------------    ------------

                                                                               $    136,206    $    205,965
                                                                               ============    ============

                                       LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Accounts payable (Note 3)                                                  $    319,261    $    201,979
    Accrued expenses                                                                786,983         508,462
    Accrued payroll taxes (Note 3)                                                  198,445         191,755
    Settlement due                                                                   15,650            --
    Notes payable (Note 4)                                                          100,000          50,000
    Notes payable - related parties (Note 4)                                        175,767         201,561
                                                                               ------------    ------------

      Total current liabilities                                                   1,596,106       1,153,757

Commitments and contingencies (Notes 1, 3 and 6)

Stockholders' deficit (Note 4):
    Convertible Class A preferred stock; $10 face value, 100,000 shares
      authorized, no shares issued and
      outstanding                                                                      --              --
    Common stock, no par value; 499,900,000 shares
      authorized, 470,825,562 (2001) and 372,422,912 (2000)
      shares issued and outstanding                                               9,068,130       8,515,871
    Accumulated deficit                                                         (10,310,415)     (9,346,413)
    Notes receivable from sale of stock                                            (217,615)       (117,250)
                                                                               ------------    ------------

      Total stockholders' deficit                                                (1,459,900)       (947,792)
                                                                               ------------    ------------

                                                                               $    136,206    $    205,965
                                                                               ============    ============
</TABLE>

                             See accompanying notes.

                                        2
<PAGE>

<TABLE>
                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF OPERATIONS
             For the three months ended September 30, 2001 and 2000
                                   (Unaudited)
<CAPTION>

                                                                 2001              2000
                                                             -------------    -------------
<S>                                                          <C>              <C>
Revenues:
    Management fees - Aggression Sports (Note 2)             $        --      $     108,000
    Other income                                                      --               --
                                                             -------------    -------------

      Total revenues                                                  --            108,000

Operating expenses:
    Depreciation                                                     1,696            1,972
    Research and development (Note 2)                                 --               --
    Rent                                                            15,285           19,947
    Salaries                                                          --            162,023
    Other operating expenses                                       102,428          162,201
                                                             -------------    -------------

      Total costs and expenses                                     119,409          346,143
                                                             -------------    -------------

        Total operating income (loss)                             (119,409)        (238,143)

Other income (expense):
    Equity in loss of Aggression Sports (Note 2)                    (4,562)         (49,228)
    Impairment of investment in Aggression Sports (Note 2)            --               --
    Interest expense                                                (5,104)          (1,034)
    Interest and miscellaneous income                                3,017            1,760
                                                             -------------    -------------

      Total other income (expense)                                  (6,649)         (48,502)
                                                             -------------    -------------

Net loss from continuing operations                               (126,058)        (286,645)

Net loss from discontinued operations (Note 1)                        --               --
                                                             -------------    -------------

Net loss applicable to common shareholders                   $    (126,058)   $    (286,645)
                                                             =============    =============


Basic and diluted loss per share from continuing operations  $        *       $         *
                                                             =============    =============

Basic and diluted loss per share                             $        *       $         *
                                                             =============    =============

Weighted average common shares outstanding                     476,938,000      332,752,000
                                                             =============    =============
</TABLE>

* - Less than $.01 per share

                             See accompanying notes.

                                        3
<PAGE>

<TABLE>
                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF OPERATIONS
              For the nine months ended September 30, 2001 and 2000
                                   (Unaudited)
<CAPTION>
                                                                2001              2000
                                                            -------------    -------------

<S>                                                         <C>              <C>
Revenues:
   Management fees - Aggression Sports (Note 2)             $      33,400    $     138,000
   Other income                                                    48,564             --
                                                            -------------    -------------

     Total revenues                                                81,964          138,000

Operating expenses:
   Depreciation                                                     5,536            2,821
   Research and development (Note 2)                              121,936           26,878
   Rent                                                            55,936          274,254
   Salaries                                                          --            175,000
   Other operating expenses                                       621,829          148,904
                                                            -------------    -------------

     Total costs and expenses                                     805,237          627,857
                                                            -------------    -------------

       Total operating income (loss)                             (723,273)        (489,857)

Other income (expense):
   Equity in loss of Aggression Sports (Note 2)                   (48,575)        (126,233)
   Impairment of investment in Aggression Sports (Note 2)        (141,711)          10,000
   Interest expense                                               (62,002)          (9,638)
   Interest and miscellaneous income                               11,559            2,186
                                                            -------------    -------------

     Total other income (expense)                                (240,729)        (123,685)
                                                            -------------    -------------

Net loss from continuing operations                              (964,002)        (613,542)

Net loss from discontinued operations (Note 1)                       --            (70,520)
                                                            -------------    -------------

Net loss applicable to common shareholders                  $    (964,002)   $    (684,062)
                                                            =============    =============


Basic and diluted loss per share from continuing operations $        *       $         *
                                                            =============    =============

Basic and diluted loss per share                            $        *       $         *
                                                            =============    =============

Weighted average common shares outstanding                    464,790,000      323,610,000
                                                            =============    =============
</TABLE>

* - Less than $.01 per share

                            See accompanying notes.

                                        4
<PAGE>

<TABLE>
                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                  For the nine months ended September 30, 2001
                                   (Unaudited)
<CAPTION>
                                                 Common stock
                                                 ------------                  Accumulated
                                                    Shares         Amount        deficit
                                                 ------------   ------------   ------------
<S>                                              <C>            <C>            <C>
Balance, December 31, 2000                        372,422,912   $  8,515,871   $ (9,346,413)

    Issuance of common stock for
      services (Note 4)                            31,253,283        126,507           --

    Issuance of common stock upon conversion
      of note payable - related party (Note 4)     46,649,367        178,912           --

    Issuance of common stock in payment of
      interest on notes payable (Note 4)            8,000,000         44,350

    Common stock issued upon exercise
      of options (Note 4)                          11,500,000         88,000           --

    Interest in sale of Arete common stock
      by equity-method investee (Note 2)            2,000,000         34,490           --

    Common stock issued upon exercise
      of options paid for by a note
      receivable (Note 4)                           5,000,000         80,000
    Net loss for the nine months ended
      September 30, 2001                                 --             --         (964,002)
                                                 ------------   ------------   ------------

Balance, September 30, 2001                       476,825,562   $  9,068,130   $(10,310,415)
                                                 ============   ============   ============
</TABLE>
                            See accompanying notes.

                                        5
<PAGE>
<TABLE>

                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
              For the nine months ended September 30, 2001 and 2000
                                   (Unaudited)
<CAPTION>


                                                               2001         2000
                                                             ---------    ---------
<S>                                                          <C>          <C>
Cash flows from operating activities:
   Net loss                                                  $(964,002)   $(684,062)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
       Depreciation and amortization                             5,536        2,937
       Equity in loss of Aggression Sports                      48,575      126,233
       Impairment of investment in Aggression Sports           141,711         --
       Stock issued for services and interest on notes         161,507      225,863
       Changes in assets and liabilities:
         Accounts receivable                                      --        (69,675)
         Prepaid expenses                                        6,023       (1,193)
         Accounts payable                                      117,282        5,326
         Accrued expenses                                      315,793      150,599
                                                             ---------    ---------

           Total adjustments                                   796,427      440,090
                                                             ---------    ---------

       Net cash used in operating activities                  (167,575)    (243,972)

Cash flows from investing activities:
   Purchase of property and equipment                             --         (3,932)
   Security deposit                                                545       (5,664)
   Investments in and advances to Aggression Sports           (171,969)     106,334
   Maturity (purchase) of certificate of deposit                52,387      (25,919)
                                                             ---------    ---------

       Net cash provided by (used in) investing activities    (119,037)      70,819

Cash flows from financing activities:
   Proceeds from issuance of common stock                         --         67,152
   Proceeds from exercise of stock options                      88,000       68,500
   Proceeds from note payable - related parties                136,700         --
   Proceeds from note payable                                   50,000       26,500
   Payments on long term debt                                     --           --
                                                             ---------    ---------

     Net cash provided by financing activities                 274,700      162,152
                                                             ---------    ---------

Net increase in cash and cash equivalents                      (11,912)     (11,001)
Cash and cash equivalents at beginning of period                13,376       15,844
                                                             ---------    ---------

Cash and cash equivalents at end of period                   $   1,464    $   4,843
                                                             =========    =========
</TABLE>

                            See accompanying notes.

                                        6
<PAGE>

<TABLE>

                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
              For the nine months ended September 30, 2001 and 2000
                                   (Unaudited)

                         (Continued from preceding page)
<CAPTION>



Supplemental disclosure of cash flow information:              2001         2000
                                                             ---------    ---------

<S>                                                          <C>          <C>
    Interest paid during the period                          $       -    $   9,638
                                                             =========    =========
    Income taxes paid during the period                      $       -    $       -
                                                             =========    =========
</TABLE>

Supplemental disclosure of non-cash investing and financing activities:

    During the quarter  ended March 31, 2000,  the Company  issued  common stock
    valued at  $15,548 to  employees  of  Aggression  Sports  and  treated  such
    issuance as an advance.

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


                            See accompanying notes.

                                        7
<PAGE>

                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2001


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, 2000 and September 30, 2001, and the results of
     operations  and cash flows for the  periods  ended  September  30, 2000 and
     2001.

     Discontinued operations:

     During  March  2000,  the  Company  abandoned  the  direct  mail and coupon
     business and shifted its focus toward Aggression Sports,  Inc.  (Aggression
     Sports) (see Note 2). The direct mail coupon business continued until March
     2000. The Company provided  executive support to help Aggression Sports get
     prepared to start its own operations.  Aggression  Sports is in the process
     of developing a web site to market its proprietary outdoor products.

     Basis of presentation:

     The financial  statements have been prepared on a going concern basis which
     contemplates  the  realization of assets and  liquidation of liabilities in
     the ordinary  course of business.  As shown in the  accompanying  financial
     statements,  the Company has incurred  significant  losses and at September
     30, 2001,  the Company has a working  capital  deficit of $1,589,341  and a
     stockholders' deficit of $1,474,250. In addition, the Company is delinquent
     on payment of payroll taxes and creditor  liabilities  pursuant to the plan
     of reorganization, and is being investigated by the Securities and Exchange
     Commission for alleged securities law violations (see Note 6). As a result,
     substantial  doubt exists about the  Company's  ability to continue to fund
     future operations using its existing resources.

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

     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.  Arete's 31% interest in the proceeds
     of $34,490 has been recorded as additional paid-in capital.

     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 impair-
     ment in the value of this investment.

                                        8
<PAGE>

                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2001


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 was entitled to fees for management  services and was to receive an
     equity  interest  in this  new  application  development  company.  Through
     September 30, 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 $80,000 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, 2001,  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.   Stockholders' equity
     --------------------

     During the nine months ended  September  30, 2001,  (1) two officers of the
     Company  converted  $178,912 of notes payable into 46,649,367 shares of the
     Company's common stock, (2) the Company issued  31,253,283 shares of common
     stock for services  valued at $126,507,  (3) the Company  issued  2,000,000
     shares of common stock in exchange  for a $30,000 of accrued  interest on a
     note payable (4) the Company issued  11,500,000 shares of common stock upon
     the exercise of stock options and (5) the Company issued  8,000,000  shares
     of  common  stock as part of the  settlement  price for an  additional  30%
     investment in Aggression  Sports. The Company also issued 10,000,000 shares
     of its common stock to be held as  collateral  for the payment of two notes
     payable with a principal balance of $100,000 in the aggregate. These shares
     have not been  reflected as  outstanding  as they are  considered  Treasury
     shares.  As of September 30, 2001, the 10,000,000 shares of common stock as
     collateral  for the  payment of two notes  payable  may be kept by the note
     holders  upon  conversion  of the  notes  into  stock at the note  holders'
     option.

     In January 2001, the board of directors  authorized the issuance of options
     to purchase  5,000,000 and  6,500,000  shares of common stock for $.015 and
     $.010 per share,  respectively,  to one individual.  The 5,000,000  options
     were  exercised  in  exchange  for a note  receivable  of  $75,000  and the
     6,500,000  options were  exercised by reducing the balance of accrued wages
     payable to the individual.

     As of September 30, 2001, the Company  has granted  options and convertible
     instruments which  if exercised  into common stock would exceed the author-
     ized  shares  of stock of  the Company. The  excess options and convertible
     instruments are held by two officers/directors of the Company.

                                   9
<PAGE>



                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2001


5.   Income taxes
     ------------
     The book to tax temporary  differences resulting in deferred tax assets and
     liabilities  are primarily net operating  loss carryforwards  of $3,790,000
     which expire in years through 2021.

     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.   Commitments and contingencies
     -----------------------------

     Securities and Exchange Commission investigation:

     In  August  1999,  the  U.S.   Securities  and  Exchange   Commission  (the
     "Commission")  instituted a civil action in the Federal  District  Court in
     Colorado for the District of Colorado instituting an injunctive  proceeding
     against the Company,  its current CEO and former  officers  and  directors,
     under Section 17(a) of the  Securities Act of 1933 and Section 10(b) of the
     Securities  Exchange Act of 1934 and Rule 10b-5  thereunder,  alleging that
     false and/or misleading information was contained in certain press releases
     issued by the Company in February 1998,  and further  citing  violations of
     Section  15(d) of the  Exchange  Act and rules 15d-1 and 15d-3 for late and
     missing filings of periodic  reports under the Exchange Act. As of the date
     of this report, a final order approving a consent to entry of an injunction
     has been entered as to the two former  officers and directors in which they
     consented to the entry of an injunction  against them without  admitting or
     denying the factual findings of the commissions contained in the settlement
     offer and order and agreeing to payment of civil penalties.

     Under provisions of the Company's  Articles and By-laws and pursuant to the
     Change in Control  Agreement  dated April 30, 1998, in which the two former
     officers and directors  resigned,  the Company  agreed to indemnify and pay
     legal  fees and the  civil  penalties  of these  two  former  officers  and
     directors  which  agreement  has  been  finalized  in the  form  of a final
     settlement   agreement  between  the  Company,   the  former  officers  and
     directors,  their attorney and the current CEO,  entered into in the fourth
     quarter of 2000.

     Following the end of the current quarter, 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
     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 con-
     clusions 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.

     As authorized in the Company's  corporate  charter,  the board of directors
     has agreed to  indemnify  and advance  fees and expenses to the CEO for his
     costs of defending this action.

                                       10
<PAGE>



ITEM 2: MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Forward Looking Statements

This Quarterly Report on Form 10-QSB includes forward-looking  statements within
the meaning of the Private  Securities  Litigation  Reform Act of 1995. This Act
provides a "safe harbor" for  forward-looking  statements to encourage companies
to provide  prospective  information  about  themselves so long as they identify
these statements as forward looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected  results.  All statements  other than  statements of historical  fact,
including   statements  regarding  industry  prospects  and  future  results  of
operations of financial  position,  made in this Quarterly Report on Form 10-QSB
are forward looking. We use words such as "anticipates,"  "believes," "expects,"
"future"  and  "intends"  and similar  expressions  to identify  forward-looking
statements. Forward-looking statements reflect management's current expectations
and are inherently  uncertain.  Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially and adversely
from  those  set forth in the  forward-looking  statements,  including,  without
limitation:  Company has been unprofitable since inception to the end of the 3rd
Quarter,  2001.  This may affect the stock  price and public  float and  further
reducing liquidity.  The Company's actual results may differ  significantly from
management's  expectations.  The following  discussion includes  forward-looking
statements regarding expectations of future profitability of our business, gross
margin,  improvement  in operating  loss and sales,  all of which are inherently
difficult to predict. Actual results could differ significantly for a variety of
reasons,  including the accessibility to additional capital,  the rate of growth
and consumer acceptance of the Internet and online commerce, the amount that the
Company  invests  in  new  business   opportunities  and  the  timing  of  those
investments,  customer-spending patterns, the mix of products sold to customers,
the mix of revenues  derived  from product  sales as compared to  services,  and
risks of fulfillment throughout and productivity. These risks and uncertainties,
as well as other  risks and  uncertainties,  could  cause the  Company's  actual
results to differ significantly from management's statements.

Following  the end of the  current  period,  as a result of a  settlement  of an
enforcement  action  brought by the  Securities  and Exchange  Commission  (SEC)
against the  Company,  the Company  consented to the entry by the SEC of a Cease
and Desist Order,  without  admitting or denying the allegations and findings of
the SEC,  which  ordered  them to cease and desist  from  further  violation  of
certain  anti-fraud  provisions of the federal securities laws including Section
10b and Rule 10b-5 of the  Securities Act of 1933. As a result of such Cease and
Desist Order,  the Company is unable to rely upon the safe harbor  provisions of
the  Private  Securities  Litigation  Reform  Act  of  1995  without  the  SEC's
permission.  None-the-less, the Company is making the above statement concerning
forward-looking statements as advisory to the reader hereof.

                                       11
<PAGE>

General Summary

As previously  reported,  during the second quarter,  the Company  determined to
terminate  supporting  operations of its new venture  management  projects,  the
Arete Outdoors outdoors sports products  venture;  the Applied Behavior Systems'
SpeechTeach  project  ("ABS") and the  development  of  artificial  intelligence
applications through Seventh Generation  Technologies,  Inc. ("7GT"). During the
current quarter,  the Company  continued to take measures to reduce its overhead
to a minimum,  to protect and preserve the assets and opportunities  that it had
developed through these ventures, and to put the Company in a position to pursue
new  ventures  under  its  new  vision  to  develop  more   promising   business
opportunities with immediate revenue  potential.  As the Company's first project
in this direction,  we planned to organize a commercial construction finance and
bonding brokerage service through a new company to be formed in partnership with
Gerald J.  Brandimarte,  entitled  Eagle  Capital  Funding  Corporation  ("Eagle
Capital"), in which Mr. Brandimarte was to be the principal employee. Operations
of Eagle  Capital  were to  commence  upon  funding  of certain  projects  to be
contributed  to Eagle Capital by Mr.  Brandimarte.  As of the end of the current
quarter, these projects had not been funded and the events of September 11, 2001
acted to put the likelihood of success of this venture into considerable  doubt.
In addition to the  construction  funding  aspect of the Eagle Capital  business
plan,  the Company  sought Mr.  Brandimarte's  help in  bringing  in  additional
working  capital into the Company and into its subsidiary,  Arete  Outdoors.  On
August 30,  2001 a  preliminary  operating  arrangement  was  initiated  and Mr.
Brandimarte  became a member of the Company's board of directors.  Subsequent to
the end of the current quarter,  Mr. Brandimarte accepted an offer of employment
at a major Wall  Street  investment-banking  firm on an  exclusive  and  captive
basis,  and was  required  to resign as an  employee  of Eagle  Capital and as a
director  of the  Company.  The  Company  has  redoubled  its  efforts to find a
financial partner to assist in funding the Company to restart operations under a
revised plan,  and hopes to use Eagle Capital as a financing  vehicle to attract
new investors and business  opportunities,  although no specific candidates have
been identified at the date of this report.

As indicated above, the Company has revised its business  development focus from
new venture  management,  requiring  substantial  overhead in the form of senior
management  associates and office support toward the development of new business
opportunities with established management and business models, proven market for
products,  an existing  customer and revenue  base,  and high growth  potential.
Management  desires  to engage  in  relationships  with  businesses  which  have
exhibited sufficient  managerial,  financial and operational maturity to rapidly
grow  beyond  the  development  stage as self  sustaining  businesses  with only
nominal  additional capital and input from the Company or investors which it may
be able to attract on behalf of these  businesses.  The current  objective is to
emulate the  structure and  activities  of a publicly held Business  Development
Corporation ("BDC").

To achieve this objective,  the Company must resolve  internal issues  including
reducing  its  overhead,  resolving  outstanding  liabilities  and  maximize its
potential to achieve a return on its past investments. Refusing to abandon these

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<PAGE>


ventures  entirely,  Management is  considering a spin-off of Arete Outdoors and
ABS/7GT into separate, independent companies with their own management teams and
investors,  and the  shareholders  of the Company will  continue to  participate
through the spin-offs.

To put this plan in motion,  the  Company  is  developing  a plan to  transfer a
majority of its  ownership of these assets to the  Company's  shareholders.  The
Company's CEO will undertake  responsibility  to build a new management team and
seek new investors and business  opportunities for Arete Outdoors. The Company's
CFO will undertake responsibility to solidify the various technological elements
of the software  development  project,  develop business  opportunities and seek
third party  financing  through a new company he has formed for such purposes as
well as entirely new ventures,  entitled New Public Capital ("NPC"). The Company
already owns a significant  equity interest in Arete Outdoors and is considering
a transfer of the ABS and 7GT business  opportunities  to NPC in exchange for an
equity  interest.  The Company intends to distribute  through a registered stock
dividend, its equity position in these two ventures to its shareholders.

A  major  challenge  facing  the  Company  in   accomplishing   either  goal  of
distributing  its ownership of the current  ventures to its shareholders and the
current plan of attracting new  businesses and investors for future  projects is
in resolving its liabilities and acquiring immediate operating capital to effect
these  transactions.  Management  views the Company's  ability of raising either
short term debt or equity  funding as highly  problematic,  as either  avenue is
viewed as  extremely  difficult  in the current  business  environment.  This is
further  complicated  by the fact that the  Company has reached the limit of its
authorized   capital  stock  and  cannot  issue  new  equity  without  obtaining
permission of its shareholders to recapitalize or authorize  additional capital.
Therefore,  in addition to  negotiating  conversion of existing debt and accrued
employee  compensation  into  equity,  Management  will  be  required  to  raise
sufficient  funds  either  from  insiders  or new  investors  to pay its ongoing
operating  expenses  and to defer the costs of holding  its annual  shareholders
meeting  as soon as  possible,  neither  of which can be  assured  at this time.
Management, consisting of its CEO and CFO, and former members of the new venture
management team, have deferred their salary and have agreed to continue to do so
for the foreseeable future.

Description of Businesses:

Outdoors Equipment: Aggression Sports, Inc. dba Arete Outdoors.

Arete Outdoors has two principal  products that it developed and introduced into
the  outdoor  retailer  market in the  Winter  of 2001.  The  products  received
excellent  reviews from the field and feedback from the marketplace was positive
and  encouraging.  While they are viable products in their own right,  they will
not generate sufficient sales to create a sustainable business until significant
additional  investment can be made in product  evolution,  marketing,  sales and
customer  service  infrastructure.  Arete  Outdoors  intends to pursue a plan to
acquire promising young companies in a number of growing segments in the outdoor
sports  industry.  In order to execute this plan,  Arete  Outdoors  must be made
attractive to experienced  entrepreneurs and investors who are knowledgeable of,

                                       13
<PAGE>


and sympathetic to, the outdoor industry. Lack of sales revenues and the current
adverse economic conditions are creating a significant challenge to successfully
executing this plan. The Company  intends to assist Arete Outdoors in overcoming
this  adversity in raising  acquisition  and  operating  capital and in becoming
attractive to  prospective  acquisition  candidates and investors by effecting a
registered stock dividend and/or rights offering of Arete Outdoors' stock to the
Company's shareholders.

This new  vision  includes  taking  advantage  of  opportunities  that  focus on
alternative  distribution  channels  including  direct  marketing,   e-business,
catalogue  sales and hand picked  wholesale  distribution,  which is a departure
from the  industry  norm of relying on  expensive  and  unpredictable  wholesale
distribution networks. Arete Outdoors looks to focus on businesses with existing
revenue  at or near  profitability  in low  overhead,  multi-season  high-margin
products  that are  manufactured  by third  parties  or  outsourced  to low cost
independent   facilities.   If  the  company  is   successful   in  making  such
acquisitions,  it will look to consolidate  resources to share among the various
entities to take advantage of cost savings and economies of scale. Specifically,
we anticipate  that the  particular  resources  that can be shared among diverse
businesses are financial and accounting controls and systems,  marketing,  sales
and  distribution  infrastructure,  especially  in the area of direct  marketing
including, for example, graphic design and production of catalogues,  management
and cooperation of customer databases,  permission-based  e-marketing,  BtoB and
BtoC  transaction  execution  and  fulfillment.  In  turn,  we will  try to find
manufacturers  with interests and resources to put into proper  marketing of the
SnowFangs  snowshoe and the Rush  Downhiller  products,  as a licensing or joint
venture project.

Management  has  determined  to cease  all  operating  expenses  in an effort to
preserve  Outdoors'  assets  pending   development  of  outside  investment  and
e-commerce  operations.  Toward  that  vane  all  expenses,  including  employee
compensation,  have  ceased.  To date the  Company  has  invested  approximately
$782,000 in Outdoors, which has generated approximately $22,000 in revenues.

The current financial  statements  contained herein treat subsidiary  Aggression
Sports,  Inc. (d/b/a Arete  Outdoors) on a  non-consolidated  basis,  i.e. as an
investment.

Artificial Intelligence Applications:  ABS and 7GT Opportunities.

During the latter half of 2000 through May of this year,  we worked with our new
venture management client,  Applied Behavior Systems,  LLC, ("ABS") and Behavior
Systems,  LLC, ("BS") to package and pursue funding for the commercialization of
the SpeechTeach language-learning program. The formation in late 2000 of 7GT was
intended as a vehicle to extend the scope of the  initiative  into voice  driven
e-mail and human machine interface for robotics applications. In connection with
these efforts,  we contributed  senior management  services and funded marketing
and research and  development  operations  while  seeking  venture  partners and
venture capital sources to expand these programs toward  commercialization.  Due
to a variety of causes, no outside capital was obtained,  forcing  Management to
stop incurring further expenses in May, 2001. There are currently no employee or
other expenses being incurred in connection with these programs. To date Company
has expended  approximately $485,000 in the ABS/BS software development program,
which has yet to generate any revenues.

                                       14
<PAGE>


During the current period,  both ABS and 7GT became inactive and the designer of
the intelligent  agent software engine,  Mr. William  Hutchison,  filed personal
bankruptcy under Chapter 7 of the bankruptcy code.  Notwithstanding this, he and
his associates continued  independently to develop the SpeechTeach software to a
point  where it could be  released  in  limited  form in the  near-term.  To the
Company's  knowledge,  this has not been completed as of the time of filing this
report.  The Company,  through the efforts of its CFO  continued to seek funding
and business  opportunities for the overall  technology.  Due to Mr. Hutchison's
bankruptcy,  his ownership of the SpeechTeach  technology as well as that of the
technology  being  applied in the  extended 7GT  project,  came into doubt.  The
bankruptcy  also put collection of the Company's  $485,000  receivable  from ABS
into  jeopardy.  Due to these  challenges,  the Company has been  prevented from
successfully  completing negotiations to consolidate and reconfirm the Company's
interest in these business opportunities with no further financial commitment on
the part of the  Company  and to thereby  maximize  their  current  value to the
shareholders,  while allowing the opportunities to be developed by new investors
and venture partners.

The Company and Mr.  Gorman  intend to cooperate in  distributing  the Company's
equity ownership in NPC to the Company's shareholders through a registered stock
dividend in the near future. Holders of the Company's common stock on the record
date of such proposed  dividend will receive a pro-rata portion of the Company's
referenced equity interest after the Securities and Exchange Commission approves
the filing.  The Company's  interest will most likely be subject to a percentage
dilution when NPC sells  additional  securities to fund its initial  activities.
Mr. Gorman and NPC intend to pursue funding and business development of this and
other business  opportunities as an independent  publicly held company following
execution of the stock dividend.

Employees:

Arete  Industries,  Inc.  has three  full time  employees,  and its  subsidiary,
Aggression  Sports,  Inc.  presently  has no  employees  other  than its  acting
president,  the Company's  current CEO. Seventh  Generation  Technologies,  Inc.
presently  has no  operations  and has no  employees.  Messrs.  Raabe and Gorman
remain on a  deferred  salary  basis as the  Company's  principal  officers  and
directors.

Financial Condition
-------------------
The  Company  had a  working  capital  deficit  as of  September  30,  2001,  of
$1,574,991. This compares to a working capital deficit of $1,061,963 at December
31, 2000.  Losses were partially funded through increased  accounts payable,  by
accruing  or  deferring  salaries  and shares  issued for  services.  During the
3-month period ended September 30, 2001, the Company issued 17,662,260 shares of
common stock for services.

                                       15
<PAGE>


Results of Operations
---------------------

The company's operations during the third quarter have been confined to business
development   activities  of  its  two  principal  officers  and  administrative
bookkeeping tasks related to creditor and investor  relations and securities act
compliance.  The Company is not  providing  new venture  management  or advisory
activities  and therefore not  generating  revenue from executive and management
services.

For the quarter  ended  September  30, 2001,  the Company  incurred  $119,409 in
operating expenses.  We anticipate reducing operating costs even further and are
hoping to eliminate rent expenses from our current office lease which  continues
for another 17 months,  either by  subletting  the space or  obtaining a release
from our landlord. We envision operating the Company as a holding company in the
future for other going concerns and revenue  generating  businesses,  which will
require  minimal staff for accounting  and  administrative  matters.  Our future
expectation  is that monthly  operating  expenses will remain as low as possible
until new  opportunities are initiated,  of which there can be no assurance,  in
which event,  the  operating  costs of the Company may increase  relative to the
need for  administrative and executive staff and overhead to provide support for
these new business entities.

Liquidity and Capital Resources
-------------------------------

The Company 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. The Company's
current   business  plan  will  require  minimal  funds  for  overhead  and  for
maintaining its financial reporting  obligations.  We are refocusing our efforts
on developing business opportunities through merger or acquisition of businesses
with  established  revenue,  markets and  products  and which have a high growth
potential with only a nominal infusion of additional  capital.  We believe those
opportunities  will become  available  due to the lack of  opportunities  in the
current  financial   environment  for  young  businesses  to  raise  capital  in
traditional forms such as initial public offerings,  venture capital investments
and angel investments. Our previous activities involved employing highly skilled
senior management personnel and administrative staff, which required significant
cash  resources  that we were unable to replenish by raising  additional  equity
capital.  When the  former  business  development  projects  failed to yield any
appreciable revenues,  they had to be terminated.  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.  The Company
continues because its principal  officers continue to support the plan described
above on a salary deferred basis.

Additionally,  we are continuing to seek revenue generating activities for Arete
Outdoors  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.

                                       16
<PAGE>


In  order  to  raise  additional  capital  and  free up  resources  to  focus on
activities more appropriately  suited to the current economy,  the Company seeks
to  spin-off  its  current  business  development  projects  to  an  independent
management team that can attract private investors and acquisition opportunities
by becoming themselves,  publicly traded companies.  It is anticipated that this
will benefit the Company and its shareholders by limiting or eliminating  future
investment by the Company, by freezing the Company's current investment in them;
by  releasing  the  Company's  resources  to develop new  opportunities,  and by
returning  value  directly to our public  shareholders  who have  supported  our
initiatives  through the past several years.  From that point, we hope to either
find a single  business  opportunity  to  acquire,  which may be a roll-up  type
transaction,  or to recruit  investors to support a program to acquire  minority
positions  in  a  number  of  business   enterprises  seeking  the  benefits  of
affiliation with a publicly held vehicle.

The Company had a  stockholder's  deficit at September  30, 2001 of  $1,459,900.
This is compared to stockholder's deficit at December 31, 2000 of $947,792.  The
stockholder's deficit increased due to the Company's operating at a loss.

Management is committed to refocusing its efforts toward generation of immediate
revenues. While we believe the business opportunities presented in both Outdoors
and ABS were sound,  the  extensive  need for  capital  exceeded  our  available
resources,  and current economic  conditions have made it extremely difficult to
raise  capital in a  situation  without a  reasonable  expectation  of near term
revenue from operations.

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 or medium term and will threaten its ability to continue
as a going  concern.  Currently the Company has issued most of the capital stock
authorized to be issued in its Articles of Incorporation.  It has commitments in
the form of stock options and debt conversion rights in excess of its authorized
common stock. It has one class of Preferred Stock authorized with commitments to
designate  a second  class of  convertible  Preferred  stock in the  event of an
investment  by Eagle  Capital.  There are currently no shares of either class of
Preferred Stock currently  issued and  outstanding.  Such shares would also have
conversion  privileges  into common stock in excess of the currently  authorized
amount. In order to honor these  obligations,  the Company must seek approval of
its  shareholders  of either a roll-back  of its  outstanding  shares  and/or an
increase in its authorized  capital stock,  which approval  cannot be guaranteed
due to the  anticipated  expense of holding a shareholder  meeting and the large
percentage of common stock held by the public.

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.

                                       17
<PAGE>


At  September  30,  2001,  the Company had no material  commitments  for capital
expenditures.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

During the Period  ended  September  30,  2001,  there  were no  material  legal
proceedings  initiated  by or  against  the  Company  or any  of  its  officers,
directors or subsidiaries. Following the end of the current quarter, 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. The enforcement  action arose out of
the publication of certain press releases issued by former management concerning
a proposed  acquisition in February of 1998, before the current  management team
and board of directors took office, and concerned the late filing of a number of
the Company's  periodic  financial  reports over a period of several years since
its initial  public  offering in 1987 through  November of 1998 when the current
management team brought the Company's  financial  reporting  obligations current
after taking over in May of that year. Otherwise,  no material legal proceedings
other than routine  matters  involving the ordinary  business  operations of the
company have been instituted or are anticipated.

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.

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<PAGE>


Item 5. Other Information.

None.

Item 6. Exhibits and Reports on Form 8-K

There are no Exhibits filed herewith.

There were no Reports on Form 8-K filed during the period covered by this
report.




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, 2001

By: /s/ Thomas Y. Gorman, CFO
-------------------------------
Thomas Y. Gorman, CFO
Principal Financial and Accounting Officer


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