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: March 31, 2006

[]   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.)


                  P. O. Box 141 Westminster, CO 80036
               ---------------------------------------------------
               (Address of principal executive offices) (Zip Code)

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


                 7102 La Vista Place, Suite 100, Niwot, CO 80503
               ---------------------------------------------------
                     (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. [ ] Yes [X] No

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

As of May 22, 2006, Registrant had 282,655,754 shares of common stock, No par
value, outstanding.

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes [X]   No []

Transitional Small Business Disclosure Format (check one):  YES []   NO [X]



<PAGE>

                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES


                                      INDEX


                                                                      Page No.
                                                                      --------

   Consolidated Financial Statements:

   Index to Consolidated Financial Statements                             1

   Consolidated Balance Sheet at December 31, 2005 and
      March 31, 2006 (unaudited)                                          2

   Consolidated Statements of Operations for the Three
      Months Ended March 31, 2005 and 2006 (unaudited)                    3

   Consolidated Statement of Stockholders' Deficit for the
      Three Months Ended March 31, 2006 (unaudited)                       4

   Consolidated Statements of Cash Flows for the Three Months
      Ended March 31, 2006 and 2005 (unaudited)                         5-6

   Notes to Unaudited Consolidated Financial Statements at
      March 31, 2006                                                   7-10

   Item 2  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                        11-15

   Part II - Other Information                                           16

   Signatures                                                            17


<PAGE>

                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
                           CONSOLIDATED BALANCE SHEET
                      December 31, 2005 and March 31, 2006
                                   (Unaudited)


                                                      2005            2006
                                                  ------------    ------------

                                     ASSETS

Current assets:
    Cash and cash equivalents                     $        224    $      6,522
    Prepaid expenses                                     3,000           3,000
                                                  ------------    ------------

      Total current assets                               3,224           9,522

Furniture and equipment, at cost net of
    accumulated depreciation of $17,747
    (2005) and $18,291 (2006)                            1,925           1,381
                                                  ------------    ------------

                                                  $      5,149    $     10,903
                                                  ============    ============

      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Accounts payable                              $    185,202    $     87,666
    Accrued expenses                                   366,464         366,425
    Accrued payroll taxes                              289,363         289,363
    Settlement due                                      18,650          18,650
    Notes payable - related parties                     31,704          40,870
                                                  ------------    ------------

      Total current liabilities                        891,383         802,974
                                                  ------------    ------------

Minority interest liability                               --              (503)
                                                  ------------    ------------

Stockholders' deficit (Notes 5 and 6):
    Common stock, no par value; 499,000,000
      shares authorized, 262,155,754 (2005)
      and 282,655,754 (2006) shares issued
      and outstanding                               12,462,975      12,525,025
    Accumulated deficit (including $1,956,232
      accumulated during the development stage)    (13,126,389)    (13,093,773)
    Notes receivable from sale of stock               (222,820)       (222,820)
                                                  ------------    ------------

      Total stockholders' deficit                     (886,234)       (791,568)
                                                  ------------    ------------

                                                  $      5,149    $     10,903
                                                  ============    ============

                             See accompanying notes

                                        2
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
                      CONSOLIDATED STATEMENT OF OPERATIONS
               For the three months ended March 31, 2005 and 2006
              and from inception (August 1, 2003 to March 31, 2006)
                                   (Unaudited)
<CAPTION>


                                                                                               Inception to
                                                                  2005             2006        March 31, 2006
                                                              -------------    -------------    -------------
<S>                                                           <C>              <C>              <C>
   Sales                                                      $        --      $        --      $        --
   Other income                                                        --              3,000            3,789
                                                              -------------    -------------    -------------
     Total revenues                                                    --              3,000            3,789
                                                              -------------    -------------    -------------

Operating expenses:
   Depreciation                                               $         592              544    $       6,414
   Rent                                                               3,170             --             33,413
   Other operating expenses                                         106,271           69,703        2,127,861
                                                              -------------    -------------    -------------

     Total operating expenses                                       110,033           70,247        2,167,688
                                                              -------------    -------------    -------------

      Total operating loss                                         (110,033)         (67,247)      (2,163,899)

Other income (expense):
   Loss on Sale of Investments                                         --               --            (10,502)
   Interest expense                                                    (687)            --            (40,442)
   Interest and miscellaneous income                                   --               --             23,494
                                                              -------------    -------------    -------------

     Total other income (expense)                                      (687)            --            (27,450)
                                                              -------------    -------------    -------------

Net loss from continuing operations                                (110,720)         (67,247)      (2,191,349)

Minority interest                                                      --              2,004            2,004
Extingusihment of Debt                                                 --             97,859          233,113
                                                              -------------    -------------    -------------

Net income (loss)                                             $    (110,720)   $      32,617    $  (1,956,232)
                                                              =============    =============    =============

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

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


Weighted average common shares outstanding                      190,600,000      272,445,000      180,400,000
                                                              =============    =============    =============
</TABLE>

* Less than $.01 per share

                             See accompanying notes

                                        3
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                    For the three months ended March 31, 2006
                                   (Unaudited)
<CAPTION>

                                                        Common stock
                                                 -----------------------------     Accumulated
                                                   Shares            Amount          deficit
                                                 ------------     ------------     ------------
<S>                                              <C>              <C>              <C>
Balance, December 31, 2005                        262,155,754     $ 12,462,975     $(13,126,389)


    Issuance of common stock to employees
      and consultants for services & directors     20,500,000           62,050             --



    Net loss for the three months ended
      March 31, 2006                                     --               --             32,617
                                                 ------------     ------------     ------------

Balance, March 31, 2006                           282,655,754     $ 12,531,025     $(13,093,773)
                                                 ============     ============     ============
</TABLE>
                             See accompanying notes

                                        4
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
                      CONSOLIDATED STATEMENT OF CASH FLOWS
               For the three months ended March 31, 2005 and 2006
              and from inception (August 1, 2003 to March 31, 2006)
                                   (Unaudited)
<CAPTION>

                                                                                       Inception to
                                                             2005            2006      March 31, 2006
                                                          -----------    -----------    -----------
<S>                                                       <C>            <C>            <C>
Cash flows from operating activities:
   Net loss                                               $  (110,720)   $    32,617    $(1,956,232)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
       Depreciation and amortization                              592            544          5,164
       Loss related to subsidiary spun-off                       --             --          284,872
       Stock  and options issued for services and
         interest on notes                                     81,592         62,050      1,504,096
       Changes in assets and liabilities:
         Interest receivable                                     --             --           44,325
         Inventory                                               --             --           25,243
         Prepaid expenses                                     (48,000)          --           (3,000)
         Accounts payable                                       7,796        (97,536)      (230,180)
         Accrued expenses                                         400            (40)      (210,474)
                                                          -----------    -----------    -----------

           Total adjustments                                   42,380        (34,982)     1,420,046
                                                          -----------    -----------    -----------

       Net cash used in operating activities                  (68,340)        (2,365)      (536,185)

Cash flows from investing activities:
   Purchase of property and equipment                            --             --           (5,072)
   Minority interest receivable                                  --             (503)          (503)
                                                          -----------    -----------    -----------

       Net cash provided (used) by investing activities          --             (503)        (5,575)

Cash flows from financing activities:
   Proceeds from issuance of preferred stock                     --             --            6,713
   Proceeds from issuance of common stock                       5,350           --           17,727
   Proceeds from exercise of stock options                      6,000           --          246,750
   Note Receivable from sale of stock                            --             --           16,000
   Payment of accrued wages                                      --             --          232,250
   Payment of note payable - related parties                   57,750          9,167         28,725
                                                          -----------    -----------    -----------

     Net cash provided by financing activities                 69,100          9,167        548,165
                                                          -----------    -----------    -----------

Net increase in cash and cash equivalents                         760          6,298          6,404
Cash and cash equivalents at beginning of period                  121            224            118
                                                          -----------    -----------    -----------

Cash and cash equivalents at end of period                $       881    $     6,522    $     6,522
                                                          ===========    ===========    ===========
</TABLE>

                             See accompanying notes

                                        5
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
                      CONSOLIDATED STATEMENT OF CASH FLOWS
               For the three months ended March 31, 2005 and 2006
              and from inception (August 1, 2003 to March 31, 2006)
                                   (Unaudited)

                         (Continued from preceding page)
<CAPTION>

                                                                                       Inception to
                                                             2005            2006      March 31, 2006
                                                          -----------    -----------    -----------
<S>                                                       <C>            <C>            <C>
Supplemental disclosure of cash flow information:


Interest paid during the period                           $  --          $  --          $  --
                                                          ===========    ===========    ===========
Income taxes paid during the period                       $  --          $  --          $  --
                                                          ===========    ===========    ===========
</TABLE>


Supplemental disclosure of non-cash investing and financing activities:

During the quarter ended March 31, 2005 wages to oficers and directors and fees
to consultants of $81,592 were paid by the issuance of common stock.

During the quarter ended March 31, 2006 wages to oficers and directors and fees
to consultants of $62,050 were paid by the issuance of common stock.

                                        6
<PAGE>


                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006

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,  2005 and March 31,  2006,  and the results of
     operations  and cash flows for the  periods  ended March 31, 2005 and 2006.
     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.

     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) During the fiscal quarter ended March 31, 2006 the
     results of operations and balance sheet of its subsidiary Avatar Technology
     Group will be consolidated in these financial statements.

     The Company has  incurred  significant  losses and at March 31,  2006,  the
     Company  has a working  capital  deficit of $ 793,452  and a  stockholders'
     deficit of $ 791,568. 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.

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

     As of March 31,  2006,  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.

                                        7
<PAGE>

                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006


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

     The book to tax temporary differences resulting in deferred tax assets and
     liabilities are primarily net operating loss carry forwards of $ 6,063,000
     which expire in years through 2025.

     100% valuation allowance has been established against the deferred tax
     assets, as utilization of the loss carry forwards and realization of other
     deferred tax assets cannot be reasonably assured.

     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 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  that it take the
     decisive  step to  formally  discontinue  its former  operations  beginning
     August 1, 2003. This decision is reflected by a change in the  presentation
     of the Company's financial statements to segregate  discontinued  operating
     results in previous periods from continuing operations going forward. There
     is no effect in the current  three month  period of this  reclassification.
     During  March  2000,  the  Company  abandoned  the  direct  mail and coupon
     business.  At March 31, 2006,  the remaining  liabilities  of this division
     were $58,230 in unpaid  payroll  taxes.  As of the year ended  December 31,
     2005, and the quarter ended March 31, 2006,  $54,054 and $ 0  respectively,
     of debt  were  reclassified  as  extinguished.  During  2003,  the  Company
     abandoned the development of Aggression Sports Inc., a subsidiary. At March
     31, 2006, the remaining  liabilities of this division were $91,077 in trade
     payables and $79,351 in unpaid payroll taxes.

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

     During the quarter  ended  March 31,  2006,  the Company  issued a total of
     20,500,000  common  shares for  compensation  of  officers,  directors  and
     consultants, valued at an aggregate of $62,050.

     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 March 31, 2006 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:

                                            2005          2006
                                         ------------  ----------

     Net income (loss) - as reported     $(110,720)    $ 32,617
     Net income (loss) - pro forma        (121,250)      29,617
     Loss per share - as reported          *               *
     Loss per share - pro forma            *               *

     * - Less than $0.01 per share

                                        8
<PAGE>

                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006


     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes  option-pricing model with the following weighted-average
     assumptions  used  for  grants  in 2005  and  2006,  dividend  yield of 0%;
     expected volatility of 100%, risk-free interest rate of 1.45% to 1.75%; and
     expected life of .5 to 2 years.

6.   Subsequent Events

     In May 2006,  the  Company  received a letter of intent  for due  diligence
     rights to pursue a merger. The letter of intent included a $25,000 deposit.
     The process will continue  after the filing of the  Company's  first fiscal
     quarter report for 2006.

     The Company's  subsidiary Avatar has received revenue and contracts for its
     business.  They  are  pursuing  their  direction  and  continuing  of their
     operating  plan  in  light  of  merger  plans  of the  parent  Company.  No
     disposition of Arete's share in Avatar has been made as of May 22, 2006.

     The Company is continuing  to evaluate  opportunities  for it's  subsidiary
     Aggression Sports LTD.

                                        9
<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations

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.
------------------

In the third quarter of 2003 we discontinued our previous business development
activities to focus on traditional and alternative energy. As a result, we
entered the development stage. This required us to recast our former operations
as discontinued, write down certain fixed assets and inventory from discontinued
operations, and, 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.

                                       10
<PAGE>


During the Third Quarter of 2003, we began to pursue acquiring direct
participations in traditional oil and gas projects as well as sponsoring and
financing alternative and renewable energy projects. This included pursuing
lower-risk projects involving overlooked and by-passed reserves of domestic oil
and gas, and seeking funding through professional equity funds looking
specifically for such opportunities. Since inception of our new development
stage, we have reviewed numerous prospects and pursued funding and acquisition
efforts for two specific deals through an oil and gas investment banking
consultant which we contracted in June of 2004. Ultimately, the first deal was
terminated without cause by the seller of that project in April of 2004, and
after significant evaluation and due diligence on our part, the second group of
prospects initiated in May of 2004 did not qualify for financing, and in the
first quarter of 2005, we terminated our negotiations with the seller group for
this prospect. We were able to develop and small oil & gas operation in Arete's
subsidiary Colorado Oil & Gas, Inc. In September Arete's spun-off 95% of its
ownership of Colorado Oil & Gas, Inc. in the form of a dividend of one share of
Colorado Oil & Gas, Inc. for every two hundred and fifty shares of Arete shares
owned on the record date.

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

Arete as part of its new business plan developed in mid 2005 has began the
process of pursuing a merger candidate for the parent company Arete Industries,
Inc. as soon as possible. To make a merger an alterative for the future of Arete
and its shareholders we have begun the task of settling old liabilities
including the payroll taxes, wages and other related payroll liabilities. The
ownership of and the future of Aggression Sports, Inc. and its related
liabilities have added to the process. We are pursuing a merger or active
business for Aggression Sports, Inc. and have to be able to settle their debt as
part of the process. We have had some discussions with a candidate but have no
plan or letter of intent.

                                       11
<PAGE>


Due to the fact that the Company presently relies exclusively upon contributions
of time and operating cash from its directors and officers to pursue its
business plan, this has been increasingly taxing on these individuals, and has
resulted in substantial dilution to the Company's shareholders. It has become
the chief priority of management to achieve cash flow sufficient to cover our
overhead as soon as possible an we will continue our efforts to compromise or
resolve outstanding obligations including accrued employee compensation,
withholding and other taxes, operating and trade payables of the Company and its
former subsidiary operations.

In the first quarter of 2006 we have begun identifying possible merger
candidates and have begun discussions on a merger with more than one company. We
have asked the merger candidates for a non refundable amount of $25,000 to be
put up by them to move this process forward. The main requirement for a merger
to take place will be the resolution of all remaining debt that the company has
outstanding that would allow for a merger candidate to accept a proposal of debt
liquidation and allow us to move forward with a merger.

While we are very optimistic about our progress in identifying merger candidates
to benefit the shareholders of this company there are no assurances that we can
resolve all of our debt obligations meet remaining expenses gain any significant
revenue for operations in the immediate future. We received a letter of intent
for due diligence, with a payment of $25,000, that calls for the due diligence
period to last no longer than June 8, 2006. We are now to be able to work the
debt issues out and move to a definitive agreement during this period.

Financial Condition
-------------------

In prior periods, we wrote off Aggression Sports, Inc.'s fixed assets and
inventory and molds held for disposal from discontinued. Additionally, we
continue to reduce certain amounts payable from discontinued operations as
extinguishment of debt, through the passage of statutes of limitation. We expect
future write-downs and reclassifications from discontinued operations and
extinguishment of debt to be nominal and incremental in nature.

As of the end of the quarter ended March 31, 2006, the Company had $10,903 in
total assets. This compares to total assets of $5,149 as of the fiscal year
ended December 31, 2005. Total liabilities were $802,974 as of March 31, 2006
compared to $891,383 as of the fiscal year ended December 31, 2005. Accounts
payable and accrued expenses at March 31, 2006 were $743,454 as compared to
$841,029 at December 31, 2005. During the quarter ended March 31, 2006, total
liabilities were decreased by $88,419. Net income was $32,617, reducing the
accumulated deficit as of March 31, 2006 of $13,093,773, as compared to an
accumulated deficit as of December 31, 2005 of $13,126,389.

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 March 31, 2006, the remaining liabilities of this subsidiary were
$91,077 in trade payables and $79,351 in unpaid payroll taxes. As of March 31,
2006, the consolidated entity owes $289,363 in unpaid payroll taxes of which
$151,782 applies specifically to the parent company for periods through the
fourth quarter of 2001.

                                       12
<PAGE>

During the quarter ended March 31, 2006, 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
quarter ended March 31, 2006, the Company paid $33,000 in compensation to
officers and directors, paid $29,050 to consultants and professionals with
20,500,000 shares of common stock.

As of March 31, 2006, 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
---------------------

The Company had $3,000 in revenues from operations during the quarter ended
March 31, 2006, and no revenues during the comparable period ended March 31,
2005. Net loss from continuing operations for the quarter ended March 31, 2006
was $67,247 as compared to a net loss from continuing operations of $110,720 for
the quarter ended March 31, 2005. The net loss during the quarter ended March
31, 2006 was offset by $97,859 in extinguishment of debt and reduction of the
share loss if its subsidiary that is 67% owned of $2004, resulting in net income
of $32,617 for the period. The net loss for the quarter ended March 31, 2005 was
$110,720.

The Company rents space for file storage and furniture for $125 per month. The
Company uses space rented by Colorado Oil & Gas for meetings and to keep current
records and pays no rent.

As stated above, we will continue to operate the Company on an austere program
of minimum overhead, while utilizing skills of its board members, independent
contractors as administrative staff and individual independent contractors with
expertise in business development, capital acquisition, corporate visibility,
oil and gas development, geology and operations with the use of our common stock
and common stock options as incentives during the development 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.

                                       13
<PAGE>

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

The Company had a working capital deficit as of March 31, 2006 of $793,452. This
compares to a working capital deficit of $888,159 as of December 31, 2005.
During the quarter ended March 31, 2006 an aggregate of 20,500,000 shares of
common stock were issued for aggregate consideration of $62,050 (for an average
of $0.003 per share).

The Company had a stockholder's deficit at March 31, 2006 of $791,568. This is
compared to stockholder's deficit at December 31, 2005 of $886,234. The
stockholder's deficit decreased due the Company's operating income and the
payment of services with the issuance of stock.

At March 31, 2006, 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.

Item 3. Controls and Procedures
        -----------------------

As of March 31, 2006, our Chief Executive Officer and Chief Financial Officer
(the "Certifying Officers") conducted evaluations of our disclosure controls and
procedures. As defined under Sections 13a-15(e) and 15d-15(e) of the Exchange
Act, the term "disclosure controls and procedures" means controls and other
procedures of an issuer that are designed to ensure that information required to
be disclosed by the issuer in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports

                                       14
<PAGE>


that it files or submits under the Exchange Act is accumulated and communicated
to the issuer's management, including the Certifying Officers, to allow timely
decisions regarding required disclosure. Based on this evaluation, the
Certifying Officers have concluded that our disclosure controls and procedures
were effective to ensure that material information is recorded, processed,
summarized and reported by our management on a timely basis in order to comply
with our disclosure obligations under the Exchange Act, and the rules and
regulations promulgated thereunder.

Further, there were no changes in our internal control over financial reporting
during the first fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting

                                       15
<PAGE>



PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

During the Quarter ended March 31, 2006, 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

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

   Exhibit 31.2       Certification of Interim 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 Pursuant to 18 U.S.C, Section 1350,
                      as adopted and Section 906 of the Sarbanes-Oxley Act of
                      2002.

   Exhibit 32.2       Certification of Interim CFO Pursuant to 18 U.S.C,
                      Section 1350, as adopted and Section 906 of the
                      Sarbanes-Oxley Act of 2002.

                                       16
<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: May 25, 2006

By: /s/ Charles L. Gamber, CEO
    --------------------------------------------------
   Charles L. Gamber, Principal Executive Officer


By: /s/ John Herzog, Interim CFO
    --------------------------------------------------
   John Herzog,
   Interim Principal Financial and Accounting Officer


                                       17