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, 2004

                                       or

[]   Transition  Report  pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange Act of 1934.


         For the transition period from ___________ to ________________


                        Commission File Number 33-16820-D
                                               ----------


                             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.)


        7102 La Vista Place, Suite 100, Niwot, CO             80503
        -----------------------------------------           ----------
         (Address of principal executive offices)           (Zip Code)


                                 (303) 652-3113
              ----------------------------------------------------
              (Registrant's telephone number, including area code)


                                 Not Applicable
                  ---------------------------------------------
                     (Former name, former address and former
                   fiscal year, if changed since last report.)

<PAGE>


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 18, 2004,  Registrant had 166,313,081  shares of common stock, No
par value, outstanding.


<PAGE>

                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES


                                      INDEX
                                      -----
                                                                       Page No.
                                                                       --------

     Consolidated Financial Statements:

  Index to Consolidated Financial Statements                               1

  Consolidated Balance Sheet at December 31, 2003 and
     September 30, 2004 (unaudited)                                        2

  Consolidated Statements of Operations for the Three
     Months Ended September 30, 2003 and 2004 (unaudited)                  3

  Consolidated Statements of Operations for the Nine
     Months Ended September 30, 2003 and 2004 (unaudited)                  4

  Consolidated Statement of Stockholders' Deficit for
     the Nine Months Ended September 30, 2004 (unaudited)                  5

  Consolidated Statements of Cash Flows for the Nine
     Months Ended September 30, 2003 and 2004 (unaudited)                  6

  Notes to Unaudited Consolidated Financial Statements
     at September 30, 2004                                                7-11

  Item 2
  Management's Discussion and Analysis of Financial
     Condition and Results of Operations                                  12-17

  Part II - Other Information                                             18

  Signatures                                                              19


<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
                           CONSOLIDATED BALANCE SHEET
                    December 31, 2003 and September 30, 2004
                                   (Unaudited)
<CAPTION>

                                     ASSETS

                                                                  2003            2004
                                                              ------------    ------------
<S>                                                           <C>             <C>
Current assets:
    Cash and cash equivalents                                 $     25,345    $      2,019
    Accrued interest receivable                                     37,761          47,608
    Inventory and molds held for disposal (Note 4)                  25,243          25,243
    Prepaid expenses                                                  --            26,000
                                                              ------------    ------------

      Total current assets                                          88,349         100,870

Furniture and equipment, at cost net of accumulated
    depreciation of $13,511 (2003) and $15,097 (2004)                1,089           4,575
                                                              ------------    ------------

                                                              $     89,438    $    105,445
                                                              ============    ============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Accounts payable (Note 2)                                 $    288,059    $    262,025
    Accrued expenses                                               585,478         364,688
    Accrued payroll taxes (Note 2)                                 289,363         289,363
    Settlement due                                                  18,650          18,650
    Stock subscription payment received                               --             1,500
    Notes payable - related parties                                 11,573             848
                                                              ------------    ------------

      Total current liabilities                                  1,193,123         937,074

Commitments and contingencies (Notes 1, and 2)

Stockholders' deficit (Notes 5 and 6):
    Convertible Class A preferred stock; $10 face value,
      1,000,000 shares authorized:
        Series 1, 30,000 shares authorized, 16,001 (2003)
          shares issued and outstanding                            160,014            --
        Series 2, 25,000 shares authorized,19,200 (2003)
          and 15,150 (2004) shares issued and outstanding          192,000         151,500
    Common stock, no par value; 499,000,000 shares
      authorized, 82,592,626 (2003) and 162,995,915 (2004)
      shares issued and outstanding                             10,383,703      11,630,743
    Accumulated deficit (including $1,307,565 accumulated
      during the development stage)                            (11,600,582)    (12,391,052)
    Notes receivable from sale of stock                           (238,820)       (222,820)
                                                              ------------    ------------

      Total stockholders' deficit                               (1,103,685)       (831,629)
                                                              ------------    ------------

                                                              $     89,438    $    105,445
                                                              ============    ============
</TABLE>
                             See accompanying notes

                                        2
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
  CONSOLIDATED STATEMENT OF OPERATIONS For the three months ended September 30,
                                  2003 and 2004
                                   (Unaudited)
<CAPTION>



                                                                        2003             2004
                                                                    -------------    -------------
<S>                                                                 <C>              <C>
Operating expenses:
   Depreciation                                                     $         200    $         607
   Rent                                                                     2,277            3,500
   Other operating expenses                                                78,469          192,240
                                                                    -------------    -------------

     Total operating expenses                                              80,946          196,347
                                                                    -------------    -------------

       Total operating loss                                               (80,946)        (196,347)

Other income (expense):
   Loss on sale of investments                                               --            (19,545)
   Interest expense                                                        (4,234)          (4,800)
   Interest and miscellaneous income                                        3,282            3,282
                                                                    -------------    -------------

     Total other income (expense)                                            (952)         (21,063)
                                                                    -------------    -------------

Net loss from continuing operations                                       (81,898)        (217,410)

Net loss from discontinued operations (including loss on disposal
   of $108,673 in 2003) (Note 4)                                         (118,813)            --
Extingusihment of Debt (Note 2)                                              --              7,631
                                                                    -------------    -------------

Net loss (Note 3)                                                   $    (200,711)   $    (209,779)
                                                                    =============    =============

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

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


Weighted average common shares outstanding                             54,100,000      155,200,000
                                                                    =============    =============
</TABLE>

* Less than $.01 per share

                             See accompanying notes.

                                        3
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
                      CONSOLIDATED STATEMENT OF OPERATIONS
              For the nine months ended September 30, 2003 and 2004
            and from inception (August 1, 2003 to September 30, 2004)
                                  (Unaudited)
<CAPTION>


                                                                                                      Inception to
                                                                        2003             2004       September 30, 2004
                                                                    -------------    -------------    -------------
<S>                                                                 <C>              <C>              <C>
Operating expenses:
   Depreciation                                                     $         200    $       1,585    $       1,969
   Rent                                                                     2,277           10,000           19,203
   Other operating expenses                                                78,469          819,039        1,267,133
                                                                    -------------    -------------    -------------

     Total operating expenses                                              80,946          830,624        1,288,305
                                                                    -------------    -------------    -------------

      Total operating loss                                                (80,946)        (830,624)      (1,288,305)

Other income (expense):
   Loss on sale of investments                                               --            (10,502)         (10,502)
   Interest expense                                                       (13,560)         (13,245)         (31,734)
   Interest and miscellaneous income                                        9,847            9,847           22,976
                                                                    -------------    -------------    -------------

     Total other income (expense)                                          (3,713)         (13,900)         (19,260)
                                                                    -------------    -------------    -------------

Net loss from continuing operations                                       (84,659)        (844,524)      (1,307,565)

Net loss from discontinued operations (including loss on disposal
   of $108,673 in 2003) (Note 4)                                         (365,901)            --               --
Extingusihment of Debt (Note 2)                                              --             54,054             --
                                                                    -------------    -------------    -------------

Net loss (Note 3)                                                   $    (450,560)   $    (790,470)   $  (1,307,565)
                                                                    =============    =============    =============

Basic and diluted loss per share from continuing operations         $  *             $       (0.01)   $       (0.01)
                                                                    =============    =============    =============

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


Weighted average common shares outstanding                             46,600,000      134,000,000      118,200,000
                                                                    =============    =============    =============
</TABLE>

* Less than $.01 per share

                             See accompanying notes.

                                        4
<PAGE>

<TABLE>
                    ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
                CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                  For the nine months ended September 30, 2004
                                  (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, 2003                   16,001    $ 160,014     19,200  $ 192,000   82,592,626   $10,383,703   $(11,600,582)

   Exercise of stock options upon
    conversion of Series 1 preferred
    stock  (Note 5)                         (16,001)    (160,014)      --         --      8,000,700       160,014           --

   Exercise of stock options upon
    conversion of Series 2 preferred
    stock (Note 5)                             --           --       (4,050)   (40,500)   4,050,000        40,500           --

   Issuance of common  stock to
    repurchase a portion of a future
    interest  in stock distributions,
    payment of accrued wages
    and for services (Note 5)                  --           --         --         --     25,000,000       405,000           --

   Exercise of stock options (Note 5)          --           --         --         --      4,750,000        73,500           --

   Issuance of common stock to
   employees and consultants for
   services (Note 5)                           --           --         --         --     38,602,589       547,168           --

   Purchase of stock by directors in
    connection with granted purchase
    rights                                     --           --         --         --           --            --             --

   Value of stock options granted to
    consultants (Note 5)                       --           --         --         --           --          20,858           --

   Net loss for the nine months ended
    September 30, 2004                         --           --         --         --           --            --         (790,470)
                                            -------    ---------  ---------  ---------   ----------   -----------   ------------

Balance, September 30, 2004                    --      $    --       15,150  $ 151,500   62,995,915   $11,630,743   $(12,391,052)
                                            =======    =========  =========  =========   ==========   ===========   ============
</TABLE>
                             See accompanying notes.

                                        5
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
                      CONSOLIDATED STATEMENT OF CASH FLOWS
              For the nine months ended September 30, 2003 and 2004
            and from inception (August 1, 2003 to September 30, 2004)
                                  (Unaudited)
<CAPTION>



                                                                                         Inception to
                                                             2003           2004      September 30, 2004
                                                          -----------    -----------    -----------
<S>                                                       <C>            <C>            <C>
Cash flows from operating activities:
   Net loss                                               $  (450,560)   $  (790,470)   $(1,253,511)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
       Depreciation and amortization                           21,050          1,585          1,969
       Stock  and options issued for services and
         interest on notes                                    276,595        740,776      1,180,837
       Impairment loss                                        102,006           --             --
       Changes in assets and liabilities:
         Interest receivable                                   (9,847)        (9,847)        (3,282)
         Prepaid expenses                                       2,285        (26,000)       (26,000)
         Accounts payable                                       9,257        (26,034)       (53,246)
         Accrued expenses                                       4,216       (220,790)      (212,210)
                                                          -----------    -----------    -----------

           Total adjustments                                  405,562        459,690        888,068
                                                          -----------    -----------    -----------

       Net cash used in operating activities                  (44,998)      (330,780)      (365,443)

Cash flows from investing activities:
   Purchase of property and equipment                            --           (5,071)        (5,071)
                                                                         -----------    -----------

       Net cash provided (used) by investing activities          --           (5,071)        (5,071)

Cash flows from financing activities:
   Proceeds from issuance of preferred stock                   14,575           --            6,713
   Proceeds from issuance of common stock                      65,500           --           10,000
   Proceeds from exercise of stock options                       --           73,500        117,250
   Proceeds from stock subscription                              --            1,500          1,500
   Note Receivable from sale of stock                         (20,000)        16,000         16,000
   Payment of accrued wages                                      --          232,250        232,250
   Payment of note payable - related parties                  (11,554)       (10,725)       (11,298)
                                                          -----------    -----------    -----------

     Net cash provided by financing activities                 48,521        312,525        372,415
                                                          -----------    -----------    -----------

Net increase in cash and cash equivalents                       3,523        (23,326)         1,901
Cash and cash equivalents at beginning of period                  381         25,345            118
                                                          -----------    -----------    -----------

Cash and cash equivalents at end of period                $     3,904    $     2,019    $     2,019
                                                          ===========    ===========    ===========
</TABLE>


                             See accompanying notes.

                                        6
<PAGE>



                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

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, 2003 and September 30, 2004, and the results of
     operations  and cash flows for the  periods  ended  September  30, 2003 and
     2004. The Company is currently considered to be in the development stage as
     more fully defined in Financial Accounting Standards Board Statement No. 7.
     The Company has not generated  any revenues from its  activities in the oil
     and gas business.

     The Company formed Global Direct  Marketing  Services in October 1998 as an
     operating  subsidiary  for its then  ongoing  operations  as a direct  mail
     cooperative coupon advertising business.  Certain assets and liabilities of
     Arete were contributed to Global. The consolidated  financial statements of
     the  Company  include  the  accounts  of Arete for the entire  period,  the
     accounts of Global since inception, and Aggression Sports, Inc., a majority
     owned  subsidiary,  now inactive,  since October 1, 2001. All  intercompany
     accounts have been eliminated in the consolidation. All operations prior to
     August 1, 2003 have been reclassified as discontinued.

     Since August 1, 2003, the Company's financial statements have been prepared
     on the  basis of the  Company  being a  development  stage  entity,  having
     discontinued   several   unsuccessful   ventures  including   cessation  of
     operations of its subsidiary,  Aggression Sports, Inc., having discontinued
     operations as a business  development company focused on developing certain
     bond and other  funding  vehicles  for growth stage  companies,  and having
     embarked on an entirely new  business of  developing  opportunities  in the
     traditional  and  alternative  and  renewable  energy  sectors,  and  which
     contemplates  the formation of capital and  management  resources to pursue
     development  of new  business  opportunities.  The recast of the Company as
     development stage is intended to more correctly and accurately  reflect the
     current status of the Company and to properly  record results of operations
     and changes in financial  condition as it pursues its new business plan. As
     shown in the accompanying financial statements,  the Company has recast its
     financial  statements  to reflect this  divergence  from its past  business
     endeavors  including  losses  from write down of assets  and  valuation  of
     assets held for  disposal  from  discontinued  operations.  (See:  Note 4 -
     Discontinued Operations)

     The Company has incurred  significant losses and at September 30, 2004, the
     Company  has a working  capital  deficit of  $836,204  and a  stockholders'
     deficit of $831,629.  In addition,  the Company is delinquent on payment of
     payroll  taxes and creditor  liabilities.  As a result,  substantial  doubt
     exists about the  Company's  ability to continue to fund future  operations
     using its existing resources.

     As a development stage company,  the Company continues to rely on infusions
     of  debt  and  equity  capital  to  fund  operations.  The  Company  relies
     principally on cash infusions from its directors and  affiliates,  deferred
     compensation  and  expenses  from  the  executive  officers,   and  paid  a
     significant  amount of personal  services,  salaries and  incentives in the
     form of common stock and common stock options.

                                        7
<PAGE>


                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

2.   Delinquent amounts payable
     --------------------------

     As of September 30, 2004,  the Company is delinquent on payments of various
     amounts  to  creditors  including  payroll  taxes.  Failure  to  pay  these
     liabilities  could result in liens being filed on the Company's  assets and
     may result in assets being attached by creditors resulting in the Company's
     inability to continue operations.

3.   Income taxes
     ------------

     The book to tax temporary  differences resulting in deferred tax assets and
     liabilities  are primarily net operating loss  carryforwards  of $4,962,000
     which expire in years through 2023.

     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 reasonably assured.

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

4.   Discontinued Operations
     -----------------------

     The  Company's  decision  in 2003 to pursue  projects  and  investments  in
     traditional  oil and gas as well as the  `New'  alternative  and  renewable
     Energy  business is an entirely new business  direction that required it to
     formally discontinue its former operations. This decision is reflected by a
     change  in  the  presentation  of the  Company's  financial  statements  to
     segregate   discontinued   operating   results  in  previous  periods  from
     continuing operations going forward. There is no effect in the current nine
     month period of this  reclassification.  During 2003, the Company wrote off
     various fixed assets and revalued  inventory in order to  reclassify  these
     items at fair market value listed as inventory  and molds held for disposal
     at a value of $25,243.

5.   Stock transactions
     ------------------

     During the first quarter of 2004, the CEO received  2,893,070 common shares
     for services for the first  quarter  through the first month of the current
     quarter of 2004,  valued at  $60,000.  During the second  quarter,  the CEO
     received  3,393,710  common  shares for  services  for the  second  quarter
     through the first month of the third quarter, valued at $45,000. During the
     third quarter,  the CEO received  6,785,714  common shares for services for
     the third  quarter  and the first  month of the  fourth  quarter  valued at
     $45,000.  In January 2004, an affiliate of the CEO converted  16,001 shares
     of Series 1  Preferred  Stock into  8,000,700  restricted  shares of common
     stock  pursuant  to the  terms  of  the  Series  1  Preferred  Stock.  By a
     settlement  agreement approved by the board of directors on March 17, 2004,
     the CEO converted $232,250 in accrued wages, cancelled his right to receive
     3% of total future stock dividends for $75,000,  and received  compensation
     of $172,750  for  25,000,000  restricted  shares of common  stock valued at
     $480,000.  During  the Third  Quarter,  the CEO was  granted  common  stock
     options to purchase  500,000 common shares for an aggregate  purchase price
     of $3,000.

     On March 25, 2004 a company  affiliated  with the CEO and a second director
     converted 4,050 shares of Series 2 Preferred  Stock to 4,050,000  shares of
     common stock, which shares were contemporaneously  distributed to unrelated
     parties.

                                        8
<PAGE>

                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2004

     Four directors  received  125,000 common shares each for their services for
     the first  quarter of 2004,  valued at an  aggregate  of $10,000,  and were
     granted  common  stock  options  to  purchase  250,000  shares  each for an
     aggregate  purchase  price of $22,000  granted during the fourth quarter of
     2003 which  vested in January  of 2004.  During the first  quarter of 2004,
     three  directors  exercised  stock  options  for a total of 500,000  common
     shares at an  exercise  price of  $0.022  per  share  for an  aggregate  of
     $11,000.  On April 15, 2004, four directors  received 125,000 common shares
     each for their  services  for the  second  quarter  valued at $9,500 in the
     aggregate and were granted common stock options to purchase  250,000 shares
     each for an aggregate purchase price of $20,000,  expiring 2 years from the
     date of grant.

     On June 30, 2004,  four board members  received  250,000 common shares each
     for their services for the third quarter of 2004, valued at an aggregate of
     $11,000 and were granted  common stock options to purchase  500,000  shares
     each for an aggregate purchase price of $22,000.  Additionally, on June 30,
     2004 a director  received  2,500,000  common shares,  valued at $27,500 for
     conducting  an  independent  verification  of  the  reserve  estimates  and
     economic projections relating to certain oil and gas prospects under review
     for acquisition and funding by the Company.

     On August 20, 2004, two directors exercised incentive stock purchase rights
     granted under the Company's 2003 Incentive  Stock  Compensation  Plan for a
     total of 250,000 common shares for aggregate consideration of $2,500 cash.

     On September 22, 2004,  four board members  received  250,000 common shares
     each for  their  services  for the  fourth  quarter  of 2004,  valued at an
     aggregate of $6,000 and one director  was paid  666,667  common  shares for
     consulting services valued at $4,000. Also, on September 22, 2004, the four
     outside  directors  were granted  common stock options to purchase  500,000
     common shares each for an aggregate purchase price of $12,000. On September
     29,  2004,  a director  exercised  part of an  incentive  stock  option for
     125,000 common shares for consideration of $1,500, which shares were issued
     in the fourth quarter.

     During the first quarter of 2004, the Company paid $253,812 in compensation
     to consultants  with 12,492,690  shares of common stock.  During the second
     quarter,  the Company  paid $44,328 in  compensation  to  consultants  with
     2,940,363  shares of common stock.  During the third  quarter,  the Company
     paid $31,028 in compensation to consultants with 3,930,375 shares of common
     stock.

     During  the  first  quarter  of  2004,  the  Company  recorded  $22,248  in
     compensation  upon granting certain stock options to consultants,  of which
     one option  was  cancelled  and  returned  resulting  in an  adjustment  of
     ($5,562) to compensation. Also, options to purchase 4,000,000 common shares
     were  exercised by a consultant for $0.015 per share for a total of $60,000
     in cash.

     Also,  during the first  quarter,  the  Company  granted  four  individuals
     incentive stock options to purchase  3,000,000  shares each at an aggregate
     purchase price of $320,000.  During the Second Quarter,  3,000,000 of these
     stock  options were  cancelled  and during the Period ended  September  30,
     2004, the remaining 9,000,000 of these stock options expired.

                                        9

<PAGE>


     5.  Stock transactions (continued)
     ----------------------------------

     On August 4, 2004 the Company  adopted its 2004  Omnibus  Stock  Option and
     Incentive  Plan,  setting  aside  50,000,000  common  shares,  granting new
     designated  stock  options to  insiders,  created  incentive  common  stock
     purchase  rights to officers,  directors,  employees and consultants for an
     aggregate  of up to  10,000,000  shares,  and replaced a total of 8,500,000
     stock options granted under the Company's 2003 Plan into the new 2004 Plan.

     The Company has adopted the  disclosure-only  provisions  of  Statement  of
     Financial   Accounting   Standards  No.  123,  Accounting  for  Stock-Based
     Compensation. Accordingly, no compensation cost has been recognized for the
     stock option plans. Had  compensation  costs for the Company's stock option
     plans been determined  based on the fair value at the grant date for awards
     during  the  quarter  ended  September  30,  2004 in  accordance  with  the
     provisions of SFAS No. 123, the Company's net loss and loss per share would
     have been increased to the pro forma amounts indicated below:

                                                2003          2004
                                             ----------    -----------

        Net loss - as reported               $ (288,601)   $ (790,470)
        Net loss - pro forma                   (310,033)     (790,470)
        Loss per share - as reported               (.01)         (.01)
        Loss per share - pro forma                 (.01)         (.01)

     * - Less than $0.01 per share

     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes  option-pricing model with the following weighted-average
     assumptions  used for  grants  in  2004,  dividend  yield  of 0%;  expected
     volatility of 100%, risk-free interest rate of 1.45% to 1.75%; and expected
     life of .5 to 2 years.

6.   Subsequent Events
     -----------------

     Following  the end of the third  quarter  2004, an officer and director was
     granted and  exercised a special  compensatory  stock option for  1,000,000
     common  shares for $5,000.  Also,  a director  exercised a stock option for
     250,000  shares for  $1,500.  In  addition,  the  Company  paid  $10,176 in
     compensation to consultants with 1,817,166 shares of common stock.

     The CEO has  agreed to accrue  his salary  commencing  the  fourth  quarter
     through  the end of the first  quarter  of 2005.  On  October  27,  2004 an
     affiliate of the CEO  exercised  conversion  rights under 15,150  shares of
     Series 2 Preferred Stock into 15,150,000  restricted common shares. At this
     time,  their remain no outstanding  shares of either the Series 1 Preferred
     or Series 2 Preferred Stock.

                                       10
<PAGE>


     The Company is  currently in the process of  evaluation  of certain oil and
     gas  development  prospects  for  acquisition  by the Company.  The Company
     continues  to use  the  services  of oil and gas  consultants,  to  provide
     technical  and  operational  analysis,  business  development,  and general
     energy  consulting  to the Company on a per diem basis,  who have agreed to
     accept payment in the form of common stock on an interim basis. The Company
     has also  retained  an  independent  energy  finance  firm to  assist it in
     obtaining financing for development of certain oil and gas prospects. These
     prospects are currently under  evaluation for funding through  referrals to
     private  equity  funds  and other  professional  investment  vehicles.  The
     Company is performing  legal,  technical  and financial due diligence  upon
     these  prospects to determine  their  feasibility and suitability for these
     types  of  financing  sources.  The  Company  will be  required  to  obtain
     financing  to  cover  its  costs  of  drilling,   completion   and  surface
     improvements in order to acquire any oil and gas development prospects,  of
     which there is no assurance.

                                       11
<PAGE>


Item 2 - Management's Discussion and Analysis/Plan of Operation

Critical accounting policies

The Company has identified the accounting  policies  described below as critical
to its business  operations and the  understanding  of the Company's  results of
operations. The impact and any associated risks related to these policies on the
Company's  business  operations is discussed  throughout this section where such
policies  affect the  Company's  reported and expected  financial  results.  The
preparation  of  this  Report   requires  the  Company  to  make  estimates  and
assumptions  that affect the reported  amount of assets and  liabilities  of the
Company,  revenues and expenses of the Company  during the reporting  period and
contingent  assets and  liabilities  as of the date of the  Company's  financial
statements.  There can be no assurance  that the actual  results will not differ
from those estimates.

Stock issuances:

The Company has relied upon the  issuance of shares of its common and  preferred
stock, and options to purchase its common stock and preferred stock to fund much
of the Company's operations.  The following describes the methods used to record
various stock related transactions.

Stock issued for services is valued at the market price of the  Company's  stock
at the date of grant.

Compensation related to the issuance of stock options to employees and directors
is recorded at the intrinsic value of the options,  which is the market price of
the  Company's  common  stock  less  the  exercise  price of the  option  at the
measurement  date. The Company's  common stock issued to consultants is recorded
at the market price of the Company's  common stock at the measurement  date. The
Company's  common stock options issued to  consultants  are recorded at the fair
value of the Company's options computed using the Black-Scholes Model.

Plan of Operation.

The  Company  has  determined  to  discontinue  certain  operations  in favor of
exclusively  focusing its resources on developing business  opportunities in the
Energy  sector as more  specifically  described  herein,  and as a  result,  has
entered the development  stage.  As such it has recast its former  operations as
discontinued  and has written  down  certain  fixed  assets and  inventory  from
discontinued  operations of its Aggression Sports, Inc. subsidiary,  as held for
disposition.  It has,  as  well,  recast  operating  results  into  discontinued
operations and continuing operations, respectively, beginning August 1, 2003 and
continuing through the current period. As a result, operating results, including
losses,  expenses and revenues attributed to discontinued  operations are stated
separately from these same items from continuing  operations.  Therefore,  since
the  current  and  past  business   operations  relate  to  entirely   different
businesses, the financial statements now provide two separate comparisons of the
current and comparable prior period for continuing operations,  and the same for
discontinued operations. (See: Note 4 - Financial Statements).

                                       12
<PAGE>


During the Third Quarter of 2003, the Company changed its business direction and
began engaging in an entirely new business of acquiring direct participations in
traditional oil and gas projects as well as sponsoring and financing alternative
and renewable energy  projects.  In September of 2003, the Company formally took
the  first  steps to  engage  in this new  direction  with  the  appointment  of
independent   outside  directors  and  formation  of  Audit,   Compensation  and
Nominating Committees,  and retention of professionals and consultants to assist
in the formation of capital and development of new business  opportunities.  The
Company has determined  also to actively  recruit senior,  highly  qualified and
high  profile  individuals  involved  in the energy  sector to serve as advisory
board members,  to assist us locating and evaluating  deals for funding,  and in
making  other  introductions  to  potential   investment  partners  and  service
providers.  No advisory board members have been appointed as of the date of this
report.

Additionally,  we continue  our  efforts to  compromise  or resolve  outstanding
obligations  including  accrued  employee  compensation,  withholding  and other
taxes,  operating  and trade  payables of the Company and its former  subsidiary
operations.  To date these efforts have been funded by cash advances,  infusions
from related  parties,  and by the issuance of common  stock for  services.  The
Company  will be  required to rely upon  ongoing  financial  support  from these
parties for the foreseeable future.

The Company's CEO manages the business of the Company accessing the expertise of
the board members and outside  consultants.  In order to compensate the CEO, the
directors and these  consultants  without revenue or equity capital available to
the Company,  we have endeavored to provide  incentives through direct issuances
of common stock and granting of stock options.  Aided by its drastic  reductions
in overhead,  the Company has been  nominally  successful  satisfying  operating
costs  from   proceeds  of  exercise  of  stock   options,   cash  advances  and
contributions  by affiliates  and insiders.  As of November 1, 2004, the CEO has
agreed to accrue his salary in lieu of direct stock compensation through the end
of the first quarter of 2005.

Our immediate  and  pre-dominant  strategy is to generate  revenue by developing
production from oil and gas reserves in known producing fields.  Our acquisition
criteria  include  measures  that  correspond  to  the  funding   parameters  of
professional or  institutional  equity funds that are seeking  low-risk and high
return energy investment opportunities. As indicated, part of our strategy is to
develop  relationships  with fund  managers and  financial  intermediaries  with
relationships with institutional fund managers. Our particular challenges are to
acquire  control of viable  prospects  to present  to the fund  managers,  which
requires that we complete due diligence and independent verification of economic
and  geological  data  about  the  prospects  and keep them off the  market  for
sufficient time to finish the evaluation,  prepare and submit  applications  for
funding and close on the  financing.  Therefore,  until the Company has achieved
capital and revenue sufficient to purchase or option these prospects,  it cannot
be assumed that if the Company locates a viable candidate for acquisition,  that
it will be able to raise  capital to make the  acquisition,  or for that  matter
will be able to  control  the  prospect  for  sufficient  time to  complete  the
financing application process.

                                       13
<PAGE>


During the nine month period ended September 30, 2004, and continuing forward we
have focused our entire  attention on sourcing and  evaluating  specific oil and
gas development  prospects  presented to us for acquisition and funding.  In the
first quarter of 2004, we entered into a Joint Venture with certain  individuals
for the development of a re-entry and  re-completion  project in South Texas. In
May 2004,  negotiations  to acquire these  prospects  were  terminated  when the
promoters chose to pursue other funding alternatives. Immediately thereafter, we
engaged in  evaluation  and  negotiations  with another oil and gas developer to
acquire and fund drilling and completion of oil and gas wells on three prospects
located in Texas and Oklahoma.  In  connection  with these  activities,  we have
retained the services of an independent oil and gas financing  intermediary that
has  relationships  with a  number  of  institutional  funding  sources.  We are
currently in the process of  evaluating  and  verifying  financial and technical
information on these and other  prospects  with a view to pursuing  financing of
any prospects  that meet our  investment  criteria.  The Company will find great
difficulty  developing new oil and gas prospects without working capital to hold
prospects for  evaluation  and then to drill and complete  wells on the selected
prospects, and no assurances can be made that it will successfully complete such
financing in the near future.

During 2003 and continuing  through the current period,  we have been engaged in
business  development  activities with various third parties involved in oil and
gas development,  corporate  finance,  and other related activities to develop a
source  of deals  and  financing  and to build  relationships  with  people  and
companies  that can provide value to the company in executing its business plan.
We have also taken  preliminary steps to develop several longer term initiatives
to develop  advanced  in-house  operational  and financing  capabilities.  These
included the  development  of a Master Energy Fund to provide the  capability to
internally  generate  funding to refinance  future oil and gas production and an
energy trading platform as a means to leverage future production with a creative
system  to trade  the  commodities  into the open  market.  The  Company  has an
interest  in  pursuing  the  energy  trading  platform,  but  does  not have the
resources currently to focus on this project, nor has the potential partner been
able to pursue  discussions  for the  development of the  opportunity.  Until we
establish  revenue from oil and gas production,  we have not felt it appropriate
to divert our resources to move these initiatives  forward.  We continue to seek
oil and gas development  projects conforming to our stated criteria of low-risk,
high  return  potential  in  under-developed  fields  that have  overlooked  and
by-passed   reserves  and/or  existing   production  and  in-field   development
possibilities.  While we are very  optimistic  about our progress in  developing
these projects and confident in our overall approach to entering the oil and gas
business, no assurances can be made that the current projects will result in any
significant revenue for operations in the immediate future.

Financial Condition

In prior periods,  we have principally  written down Aggression  Sports,  Inc.'s
fixed  assets  and  inventory  and molds  held for  disposal  from  discontinued
operations  either  entirely or by a  percentage  that we have  estimated  would
reasonably  be  recovered  from  liquidation  or by selling the entire  business
opportunity  outright to a third party.  Additionally,  during prior periods, we
reduced certain amounts payable from  discontinued  operations as extinguishment
of debt, through the passage of statutes of limitation. During the quarter ended
September 30, 2004, $7,631 of such debt from Global Direct was extinguished.  We
expect future write-downs and reclassifications from discontinued operations and
extinguishment of debt to be nominal and incremental in nature.

                                       14
<PAGE>


As of September 30, 2004,  the Company had $105,445 in total assets and $937,074
in total liabilities, as compared to $89,438 and $1,193,123 as of the end of the
fiscal year ended December 31, 2003, respectively.  Accounts payable and accrued
expenses at  September  30, 2004 were  $916,076  as  compared to  $1,162,900  at
December 31, 2003.  During the nine-month period ended September 30, 2004, total
liabilities were reduced by $256,049  including  $54,054 from  extinguishment of
debt.  Operating  losses  from  continuing  operations  of  $844,524  offset  by
extinguishment  of  debt  of  $54,054  resulted  in  a  net  loss  of  $790,470,
contributing to the accumulated deficit as of September 30, 2004 of $12,391,052,
as compared to an  accumulated  deficit as of December 31, 2003 of  $11,600,582.
(See: Note 1 to Financial Statements.)

The Company's subsidiary,  Global Direct Marketing Services,  Inc., which is now
inactive,  has left an obligation  of $58,230 in unpaid  payroll  taxes.  During
2003,  the Company  abandoned the  development of the  Aggression  Sports,  Inc.
subsidiary.  At September 30, 2004, the remaining liabilities of this subsidiary
were  $91,077 in trade  payables  and  $79,351 in unpaid  payroll  taxes.  As of
September 30, 2004,  the Company owes  approximately  $151,782 in unpaid payroll
taxes for periods  through the fourth  quarter of 2001.  (See:  Notes 1 and 2 to
Financial Statements.)

During the period ended  September 30, 2004, the Company  continued to rely upon
infusions  of cash from  exercise of stock  options by officers,  directors  and
consultants,  and upon  payment  of  compensation  to  officers,  directors  and
consultants  in the form of common  stock and common stock  options.  During the
nine-month  period  ended  September  30,  2004,  the Company  paid  $193,000 in
compensation  with 15,072,494  shares of common stock to officers and directors,
and prepaid for the subsequent  quarter $25,000 in  compensation  with 4,166,667
shares of common stock,  paid $329,168 to  consultants  and  professionals  with
19,362,428  shares  of  common  stock;  converted  $232,250  in  accrued  wages,
cancelled a special stock dividend right for $75,000,  and paid  compensation of
$172,750 to the CEO for  consideration  of 25,000,000  restricted  common shares
valued at an  aggregate  of  $480,000;  received  $71,000 in cash on exercise of
stock  options;  plus booked  $20,580 as the value of stock  options  granted to
consultants using the Black-Sholes option pricing model.

As of  September  30,  2004,  executive  salaries  and bonuses of $286,624  were
accrued and unpaid,  and the Company had $218,820 in notes  receivable for stock
sales  from  former  management  members  together  with a note  receivable  for
exercise of a stock option of $4,000 from a third party for a total of $222,820.

Results of operations

As stated  above,  the  Company  discontinued  former  operations  and set about
pursuing a new  business  plan in the energy  industry  as a  development  stage
entity  and  reported  results  of  continuing  operations  and of  discontinued
operations separately for the current period and the comparable period of fiscal
2003.

The Company had no revenues from operations  during the three month period ended
September 30, 2004, and no revenues during the comparable period ended September
30, 2003. Net loss from  continuing  operations for the three month period ended
September  30,  2004 was  $217,410  as  compared  to $81,898 for the three month
period ended September 30, 2003. Net loss from  discontinued  operations  during
the three  month  period  ended  September  30,  2004 was $0 offset by $7,631 in
extinguishment of debt. The net loss from  discontinued  operations as reclassed
from the three month period ended September 30, 2003 was $118,813. This resulted
in an aggregate net loss for the three month period ended  September 30, 2004 of
$209,779 compared to a net loss for the comparable period in fiscal year 2003 of
$200,711.

The Company had no revenues from operations  during the nine-month  period ended
September 30, 2004, and no revenues during the comparable period ended September
September  30, 2003.  Net loss from  continuing  operations  for the  nine-month
period  ended  September  30,  2004 was  $844,524 as compared to a net loss from
continuing  operations of $84,659 for the comparable  period ended September 30,

                                       15
<PAGE>


2003. Net loss from  discontinued  operations during the nine-month period ended
September 30, 2004 was $0 offset by $54,054 in  extinguishment  of debt. The net
loss from discontinued  operations as reclassed from the nine-month period ended
September 30, 2003 was $365,901.  This resulted in an aggregate net loss for the
nine-month  period ended  September 30, 2004 of $790,470  compared to a net loss
for the comparable period in fiscal year 2003 of $450,560.

The Company  occupies an  executive  suite on a month to month basis for monthly
rent of $1,000 per month.  The Company rents space for file  storage,  furniture
and excess equipment as well as its Arete Outdoors inventory for $125 per month.

As stated above,  we will continue to operate the Company on an austere  program
of minimum  overhead,  while utilizing skills of its board members,  independent
contractors as administrative staff and individual independent  contractors with
expertise in business  development,  capital acquisition,  corporate visibility,
oil and gas development, geology and operations with the use of our common stock
and common stock options as incentives  during the development  stage of our new
business model. Further as opportunities for participation in profitable revenue
producing projects come forward, we intend that consultants and advisors will be
offered  compensation  from  revenues  or  interests,   direct   participations,
royalties  or  other  incentives  from  the  specific  projects  to  which  they
contribute.  While reducing the amount of variable costs, there is almost no way
to  reduce or  offset  our fixed  expenses  related  to office  expense,  legal,
accounting, transfer agent fees, Securities Act reporting, corporate governance,
and shareholder communications. Our future expectation is that monthly operating
expenses will remain as low as possible until new  opportunities  are initiated,
of which there can be no assurance,  in which event,  the operating costs of the
Company may increase relative to the need for administrative and executive staff
and overhead to provide support for these new business activities.

Liquidity and Capital Resources

The Company had a working  capital deficit as of September 30, 2004 of $836,204.
This  compares to a working  capital  deficit of  $1,104,774  as of December 31,
2003.  During the quarter  ended  September  30, 2004 an aggregate of 12,632,756
shares of common stock were issued for aggregate  consideration  of $92,700 (for
an average of $0.0073 per share).

                                       16
<PAGE>


The Company had a stockholder's deficit at September 30, 2004 of $831,629.  This
is compared to  stockholder's  deficit at December 31, 2003 of  $1,103,685.  The
stockholder's  deficit  decreased  due to  exercise  of stock  options for cash,
partial payment of notes receivable for issuance of stock and payment of accrued
salary, offset by the Company operating at a loss.

At  September  30,  2004,  the Company had no material  commitments  for capital
expenditures.

Due to its ongoing 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.

Management  believes  that the Company will  experience  significant  difficulty
internally  raising  significant  additional  equity capital or debt until these
matters have been resolved and the Company has  eliminated a substantial  amount
of its outstanding debt and/or achieves  operating revenue from its proposed oil
and gas operations.  The Company looks to earn management fees through its newly
formed  subsidiary and revenue from proposed oil and gas development  activities
that it can earn-in on successful  financing and commencement of operations,  of
which there is no assurance.

Unless and until it achieves success in its proposed activities,  of which there
is no assurance,  the Company may continue to be required to issue further stock
to pay executives,  consultants and other employees, which may have a continuing
dilutive effect on other shareholders of the Company.  Failure of the Company to
acquire  additional  capital  in the form of either  debt or equity  capital  or
revenue  from  proposed  operations  will most likely  impair the ability of the
Company to meet its obligations in the near-term.

                                       17
<PAGE>


PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

During the Quarter  ended  September  30, 2004,  there were no material  pending
legal  proceedings  initiated by or against the Company or any of its  officers,
directors or subsidiaries.

Item 2. Changes in Securities

None

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Securities Holders

None.

Item 5. Other Information.

None.

Item 6. Exhibits and Reports on Form 8-K

Exhibit 10.1      Arete Industries, Inc. 2004 Omnibus Stock Option and Incentive
                  Plan.

Exhibit 31.1      Certification of CEO and CFO Pursuant to 18 U.S.C, Section
                  7241, as adopted and Section 302 of the Sarbanes-Oxley
                  Act of 2002.

Exhibit 32.1      Certification of CEO and CFO Pursuant to 18 U.S.C, Section
                  1350, as adopted and Section 906 of the Sarbanes-Oxley
                  Act of 2002.

                                       18
<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 18, 2004

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

                                       19