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: March 31, 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.                    [ ] Yes       [ ] No


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

As of May 12, 2004,  Registrant had  142,545,226  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 March 31, 2004 and
        December 31, 2003 (unaudited)                                     2

     Consolidated Statements of Operations for the
        Three Months Ended March 31, 2004 (unaudited)                     3

     Consolidated Statement of Stockholders' Deficit
        for the Three Months Ended March 31, 2004 (unaudited)             4

     Consolidated Statements of Cash Flows for the Three
        Months Ended March 31, 2004 and 2003 (unaudited)                5-6

     Notes to Unaudited Consolidated Financial Statements
        at March 31, 2004                                               7-10

     Item 2
     Management's Discussion and Analysis of Financial
     Condition and Results of Operations                                11-16

     Part II - Other Information                                          17

     Signatures                                                           18

<PAGE>

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

                                                                  2003            2004
                                                              ------------    ------------
<S>                                                           <C>             <C>
                                     ASSETS
                                     ------

Current assets:
    Cash and cash equivalents                                 $     25,345    $      9,313
    Accrued interest receivable                                     37,761          41,044
    Inventory and molds held for disposal (Note 4)                  25,243          25,243
                                                              ------------    ------------

      Total current assets                                          88,349          75,600

Furniture and equipment, at cost net of accumulated
    depreciation of $13,511 (2003) and $13,884 (2004)                1,089           5,788
Stock Investments                                                     --            55,268
                                                              ------------    ------------

                                                              $     89,438    $    136,656
                                                              ============    ============

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

Current liabilities:
    Accounts payable (Note 2)                                 $    288,059    $    243,436
    Accrued expenses                                               585,478         357,048
    Accrued payroll taxes (Note 2)                                 289,363         289,363
    Settlement due                                                  18,650          18,650
    Notes payable - related parties                                 11,573            --
                                                              ------------    ------------

      Total current liabilities                                  1,193,123         908,497

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 140,029,086 (2004)
      shares issued and outstanding                             10,383,703      11,406,277
    Accumulated deficit (including $999,424 accumulated
      during the development stage)                            (11,600,582)    (12,105,798)
    Notes receivable from sale of stock                           (238,820)       (223,820)
                                                              ------------    ------------

      Total stockholders' deficit                               (1,103,685)       (771,841)
                                                              ------------    ------------

                                                              $     89,438    $    136,656
                                                              ============    ============
</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 March 31, 2003 and 2004
              and from inception (August 1, 2003 to March 31, 2004)
                                   (Unaudited)
<CAPTION>
                                                                                                       Inception to
                                                                        2003             2004        March 31, 2004
                                                                    -------------    -------------    -------------


<S>                                                                 <C>              <C>              <C>
Operating expenses:
   Depreciation                                                     $        --      $         372    $         756
   Rent                                                                      --              3,125           12,328
   Other operating expenses                                                  --            531,976          980,070
                                                                    -------------    -------------    -------------

     Total operating expenses                                                --            535,473          993,154
                                                                    -------------    -------------    -------------

      Total operating loss                                                   --           (535,473)        (993,154)

Other income (expense):
   Interest expense                                                        (4,990)          (4,192)         (22,681)
   Interest and miscellaneous income                                        3,282            3,282           16,411
                                                                    -------------    -------------    -------------

     Total other income (expense)                                          (1,708)            (910)          (6,270)
                                                                    -------------    -------------    -------------

Net loss from continuing operations                                        (1,708)        (536,383)        (999,424)

Net loss from discontinued operations (including loss on disposal
   of $108,673 in 2003) (Note 4)                                         (147,908)            --               --
Extingusihment of Debt (Note 2)                                              --             31,167             --
                                                                    -------------    -------------    -------------

Net loss (Note 3)                                                   $    (149,616)   $    (505,216)   $    (999,424)
                                                                    =============    =============    =============

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

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


Weighted average common shares outstanding                             38,852,900      103,400,000       79,600,000
                                                                    =============    =============    =============
</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, 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)              --          --         --         --      4,500,000        71,000         --

   Issuance of common stock to employees
    and consultants for services (Note 5)          --          --         --         --     15,885,760       323,812         --

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

   Value of stock options granted to
    consultants (Note 5)                           --          --         --         --         --            22,248         --

   Net loss for the three months ended
    March 31, 2004                                 --          --         --         --         --             --          (505,216)
                                                --------   --------   ---------  --------  -----------   -----------  -------------

Balance, March 31, 2004                            --      $   --        15,150  $151,500  140,029,086   $11,406,277  $ (12,105,798)
                                                ========   ========   =========  ========  ===========   ===========  =============
</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, 2003 and 2004
              and from inception (August 1, 2003 to March 31, 2004)
                                   (Unaudited)
<CAPTION>

                                                                                  Inception to
                                                            2003         2004     March 31, 2004
                                                          ---------    ---------    ---------
<S>                                                       <C>          <C>          <C>
Cash flows from operating activities:
   Net loss                                               $(149,616)   $(505,216)   $(968,257)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
       Depreciation and amortization                          8,089          372          756
       Stock  and options issued for services and
         interest on notes                                  136,495      518,810      958,871
       Changes in assets and liabilities:
         Interest receivable                                 (3,282)      (3,283)       3,281
         Prepaid expenses                                     1,940         --           --
         Accounts payable                                     5,355      (44,623)     (71,834)
         Accrued expenses                                    (3,170)    (228,430)    (219,850)
                                                          ---------    ---------    ---------

           Total adjustments                                145,427      242,846      671,224
                                                          ---------    ---------    ---------

       Net cash used in operating activities                 (4,189)    (262,370)    (297,033)

Cash flows from investing activities:
   Purchase of property and equipment                          --         (5,071)      (5,071)
   Purchase of Stock Investments                               --        (55,268)     (55,268)
                                                          ---------    ---------    ---------

       Net cash provided (used) by investing activities        --        (60,339)     (60,339)

Cash flows from financing activities:
   Proceeds from issuance of preferred stock                  3,545         --          6,713
   Proceeds from issuance of common stock                      --           --         10,000
   Proceeds from exercise of stock options                     --         71,000      114,750
   Note Receivable from sale of stock                          --         15,000       15,000
   Payment of accrued wages                                    --        232,250      232,250
   Payment of note payable - related parties                    295      (11,573)     (12,146)
                                                          ---------    ---------    ---------

     Net cash provided by financing activities                3,840      306,677      366,567
                                                          ---------    ---------    ---------

Net increase in cash and cash equivalents                      (349)     (16,032)       9,195
Cash and cash equivalents at beginning of period                381       25,345          118
                                                          ---------    ---------    ---------

Cash and cash equivalents at end of period                $      32    $   9,313    $   9,313
                                                          =========    =========    =========
</TABLE>

                          (CONTINUED ON FOLLOWING PAGE)

                             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, 2003 and 2004
              and from inception (August 1, 2003 to March 31, 2004)
                                   (Unaudited)



                         (Continued from preceding page)
<CAPTION>

                                                                                  Inception to
Supplemental disclosure of cash flow information:           2003         2004     March 31, 2004
                                                          ---------    ---------    ---------
<S>                                                       <C>          <C>          <C>

    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, 2003,  an account  payable to a related party
with an outstanding balance of $3,545 was converted into preferred stock.

During the quarter  ended  March 31,  2004,  4,050  shares of Series 2 preferred
stock were used to exercise  common stock  options for the purchase of 4,050,000
common  shares  and  16,001  shares of  Series 1  preferred  stock  were used to
exercise  common stock options for the purchase of 8,000,700  common shares.  In
addition  wages to officers and  directors and fees to  consultants  of $496,562
were paid by the  issuance  of common  stock  and the  value  assigned  to stock
options issued was $22,248.

During the quarter  ended  March 31,  2004,  25,000,000  shares were issued to a
director  as payment  of  accrued  wages for  $232,250,  repurchase  of a future
interest in stock  distributions  for  $75,000,  and payment  for  services  for
$172,750.

                            See accompanying notes
                                        6
<PAGE>


                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 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 March 31,  2004,  and the results of
     operations  and cash flows for the  periods  ended March 31, 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 March 31,  2004,  the
     Company  has a working  capital  deficit of  $832,897  and a  stockholders'
     deficit of $771,841.  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
                                 March 31, 2004


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

     As of March 31,  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 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  requires  that it take the
     decisive step 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
     three 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 quarter ended March 31, 2004, the CEO received  2,893,070 common
     shares for services for the current  quarter through the first month of the
     second quarter of 2004, valued at $60,000. In January 2004, an affiliate of
     the CEO converted  16,001 shares of Series 1 Preferred Stock into 8,000,700
     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  shares of  unregistered
     common stock valued at $480,000.

     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.

     Four directors  received  125,000 common shares each for their services for
     the quarter  ended March 31, 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. Also,  during the quarter ended March
     31, 2004, three

                                       8
<PAGE>

                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2004



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

     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.

     During the quarter ended March 31, 2004,  the Company  recorded  $22,248 in
     compensation  upon granting  certain stock  options to  consultants.  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.  Additionally,  the
     Company  paid  consulting  and  professional   services  of  $253,812  with
     12,492,690 common shares (average value per share $0.02).

     In  connection  with the  execution  of a joint  venture  agreement  by the
     Company  during 2004 to pursue an oil and gas  re-entry  and  redevelopment
     project,  the Company granted four  individuals  incentive stock options to
     purchase  3,000,000 shares each, of which the 1,000,000 share option is for
     a six  month  exercise  period  at a  purchase  price of  $20,000,  and the
     2,000,000  share balance become  exercisable  if the  previously  mentioned
     stock  options are  exercised,  for a purchase  price of $60,000.  In total
     these options are for  12,000,000  common  shares at an aggregate  purchase
     price of $320,000.

     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, 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                  $  (149,616)      $  (505,216)
        Net loss - pro forma                       (175,794)         (505,216)
        Loss per share - as reported                *                 *
        Loss per share - pro forma                  *                 *

     * - 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  2003,  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 first quarter March 31, 2004, four directors  received
     125,000  shares  of common  stock  each for their  services  in the  second
     quarter of Fiscal 2004 valued at an aggregate  of $9,500,  and common stock
     options to purchase  250,000  common shares each for an aggregate  purchase
     price of $20,000, expiring 2 years from the date of grant.

                                        9
<PAGE>

                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2004



6.   Subsequent Events (continued)
     -----------------------------

     During the second quarter of 2004, the Company paid $13,300 to a consultant
     for  marketing,  corporate  positioning  and internet  media  services with
     700,000  common  shares.   The  Company  issued  1,316,140  common  shares,
     including   714,285  common  shares  valued  at  $15,000  to  the  CEO  for
     compensation through May, 2004, and 601,855 common shares valued at $12,639
     to the Company's  accountant for accounting services through the end of the
     first quarter 2004, and an  administrative  assistant for services  through
     May, 2004.

     During the second  quarter of 2004,  the Company  formed a new wholly owned
     subsidiary in anticipation of commencing  operations  pursuant to its Joint
     Venture  to  redevelop  capped  oil and  gas  wells  in  South  Texas.  The
     subsidiary has not commenced  operations,  hired  employees or issued stock
     and is currently inactive.

                                       10
<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.

On August 1, 2003, the Company discontinued operations as a business development
company  focused on certain  bond and other  funding  vehicles  for growth stage
companies.  The Company has  embarked on an entirely  new  business  focusing on
acquiring  interests in traditional  oil and gas ventures as well as development
of alternative  and renewable  energy  projects.  In the oil and gas field,  the
Company is looking for  conservation  oriented  projects that offer high profit,
low risk projects  including  overlooked and by-passed  reserves of natural gas,
which  will  include   shut-in  and  in-field   development,   stripper   wells,
re-completion  and re-working  projects.  The Company is interested in combining
traditional oil and gas  investments  with projects that advance and exploit the
use of  alternative  and renewable  energy  including  bio-mass,  co-generation,
solar,  wind,   municipal  and  organic  waste  conversion  to  bio-fuels,   and
alternative  electrical  energy  feed  stocks.  The  Company  will  seek to make
investments for direct  participations in the revenue streams from such projects
on a project  finance  basis,  as well as  through  acquisition  of  management,

                                       11
<PAGE>


capital,  and assets by one or more  acquisitions of going concerns.  Also under
consideration  is creation  and  operation  of one or more  investment  funds to
engage in energy  related and socially  responsible  investments.  However,  the
Company has not entirely  abandoned its vision of assisting  promising  emerging
and high  growth-stage  businesses  with  financial  and board level  managerial
support with a view of taking such companies public through a registered  rights
offering or dividend distribution to the Company's shareholders.

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,  recasting 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 as well as
recasting   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).

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.

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 plans to continue to take aggressive measures to bring in profitable
revenue  producing  projects  in  traditional  and  the  `New  Energy'  area  of
alternative and renewable energy while remaining  extremely frugal with our cash
and other  resources.  We  intend to avoid  expansion  of  overhead  in favor of
outsourcing professional services,  recruiting professionally qualified and high
profile experienced and well connected advisory board members in traditional and
alternative  energy. We also intend to ensure that transactional  costs of deals

                                       12
<PAGE>

in which the Company  engages  are shared by the various  parties to such deals,
and/or funded from proceeds of third party  financings or from revenue  streams.
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.

Given  the  limited  liquidity  and the  current  market  capitalization  of the
Company,  we cannot  rely upon the option to raise  capital  for  investment  in
energy  deals  from  private  placements  or public  offerings  of our common or
preferred  stock.  Nor do we desire to engage in financing  strategies that will
dilute the  interests of our current  shareholder  base.  Instead,  we intend to
utilize the contacts  and  expertise of our  management,  directors  and outside
consultants  to initiate  business  ventures  in which we match  entrepreneurial
opportunities  with  individual or  institutional  investors and earn management
fees and equity interests in developmental  projects.  We cannot be assured that
current  and   prospective   projects  will  be  successful  in  the  near  term
sufficiently to support ongoing  business  development  activities or management
and our consultants.

During the  current  period,  we made  considerable  progress  in several of our
previously  announced  initiatives.  In February  2004,  we entered into a Joint
Venture  Agreement  to pursue  redevelopment  of existing  capped wells in South
Texas through  outside  energy  developers  and  operators,  and have engaged in
negotiations with various funding sources introduced through our consultants. We
have expanded our search for projects including  evaluating and pursuing oil and
gas  redevelopment  projects,  primarily  in  Texas,  Oklahoma  and  New  Mexico
concurrently with our efforts to source  professional and institutional  capital
providers.  While management is very optimistic about its progress in developing
these projects and in its 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
March 31, 2004,  $31,167 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.

As of the end of the quarter  ended March 31, 2004,  the Company had $136,656 in
total  assets.  This  compares to total  assets of $89,438 as of the fiscal year
ended December 31, 2003.  Total  liabilities  were $908,497 as of March 31, 2004
compared to $1,193,123 as of the fiscal year ended  December 31, 2003.  Accounts

                                       13
<PAGE>

payable  and accrued  expenses  at March 31,  2004 were  $889,847 as compared to
$1,162,900 at December 31, 2003.  During the quarter ended March 31, 2004, total
liabilities were reduced by $284,626  including  $31,167 from  extinguishment of
debt.  Operating  losses  from  continuing  operations  of  $536,383  offset  by
extinguishment  of  debt  of  $31,167  resulted  in  a  net  loss  of  $505,216,
contributing to the accumulated deficit as of March 31, 2004 of $12,105,798,  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 trade  payables of $22,888 and $58,230 in
unpaid payroll taxes,  and as of March 31, 2004, an incremental  $31,167 of debt
was  reclassified  as  extinguished.  During  2003,  the Company  abandoned  the
development of the Aggression Sports,  Inc.  subsidiary.  At March 31, 2004, the
remaining  liabilities  of this  subsidiary  were $91,077 in trade  payables and
$79,351  in  unpaid  payroll  taxes.  As of March 31,  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 quarter  ended March 31,  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
quarter  ended March 31,  2004,  the Company  paid  $70,000 in  compensation  to
officers and directors,  paid $253,812 to  consultants  and  professionals  with
15,885,760  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  common shares valued at an
aggregate of $480,000;  received  $71,000 in cash on exercise of stock  options;
plus booked $22,248 as the value of stock options  granted to consultants  using
the Black-Sholes option pricing model.

As of March 31, 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 $5,000 from a third party for a total of $223,820.

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 quarter ended March 31,
2004,  and no revenues  during the  comparable  period ended March 31, 2003. Net
loss from  continuing  operations  for the  quarter  ended  March  31,  2004 was
$536,383 as compared to a net loss from continuing  operations of $1,708 for the
quarter ended March 31, 2003. Net loss from  discontinued  operations during the
quarter ended March 31, 2004 was $0 offset by $31,167 in extinguishment of debt.
The net loss from  discontinued  operations as reclassed  from the quarter ended
March 31, 2003 was  $147,908.  This  resulted in an  aggregate  net loss for the
quarter  ended  March  31,  2004 of  $505,216  compared  to a net  loss  for the
comparable period in fiscal year 2003 of $149,616.

                                       14
<PAGE>

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 March 31, 2004 of $832,897. This
compares to a working  capital  deficit of  $1,104,774  as of December 31, 2003.
During the quarter  ended March 31, 2004 an  aggregate of  45,385,760  shares of
common stock were issued for aggregate consideration of $874,812 (for an average
of $0.0193 per share).  In  addition,  $22,248 was booked as  compensation  upon
issuance of stock  options to  consultants  during the  quarter  ended March 31,
2004.

The Company had a stockholder's  deficit at March 31, 2004 of $771,841.  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  March  31,  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.

                                       15
<PAGE>

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.

                                       16
<PAGE>


PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

During the Quarter  ended March 31, 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 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.

Subsequent to the end of the quarter  ended March 31, 2004, a Current  Report on
Form 8-K dated as of May 5, 2004 was filed on May 5, 2004  disclosing  in Item 4
thereof,  Change  in  Registrant's  Certifying  Accountant  that  the  company's
principal  certifying  accountant had declined to stand for  re-election for the
fiscal year end  December  31,  2004 and that the  Company  had  appointed a new
certifying accountant to review and audit the Company's financial statements for
fiscal year 2004 forward. There were no disagreements with the former certifying
accountant  and the former  principal  accountant's  report  during the past two
fiscal years did not contain an adverse opinion or disclaimer of opinion, or was
modified as to uncertainty,  audit scope, or accounting principle.  Further, the
change in  accountants  was  mandated by  limitations  on terms for  independent
accountants  imposed by Federal  Securities  Laws including the  Sarbanes-Oaxley
Act,  and the audit  committee of the board of directors  has  acknowledged  the
former accountant's declination to stand for re-election.


                                       17
<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 17, 2004

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

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