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: June 30, 2004
                                             -------------

                                       or

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



  For the transition period from ___________________ to _______________________



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


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



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


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


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


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

<PAGE>


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                [ X ] Yes [ ] No


APPLICABLE  ONLY TO  ISSUERS  INVOLVED  IN  BANKRUPTCY  PROCEEDINGS  DURING  THE
PRECEDING FIVE YEARS:

Indicated  by check mark  whether the  registrant  has filed all  documents  and
reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.
                                 [ ] Yes [ ] No


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

As of August 23, 2004, Registrant had 155,244,494 shares of common stock, No par
value, outstanding.

<PAGE>

                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES


                                      INDEX
                                      -----


                                                                    Page No.
                                                                    --------

     Consolidated Financial Statements:

     Index to Consolidated Financial Statements                         1

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

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

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

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

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

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

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

     Part II - Other Information                                        18

     Signatures                                                         19

<PAGE>

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

<CAPTION>
                                     ASSETS


                                                                  2003            2004
                                                              ------------    ------------
<S>                                                           <C>             <C>
Current assets:
    Cash and cash equivalents                                 $     25,345    $      3,592
    Accrued interest receivable                                     37,761          44,326
    Inventory and molds held for disposal (Note 4)                  25,243          25,243
    Prepaid expenses                                                  --            86,535
                                                              ------------    ------------
      Total current assets                                          88,349         159,696

Furniture and equipment, at cost net of accumulated
    depreciation of $13,511 (2003) and $14,490 (2004)                1,089           5,182
Stock Investments                                                     --            28,691
                                                              ------------    ------------
                                                              $     89,438    $    193,569
                                                              ============    ============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Accounts payable (Note 2)                                 $    288,059    $    239,238
    Accrued expenses                                               585,478         360,868
    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         908,119

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 150,362,159 (2004)
      shares issued and outstanding                             10,383,703      11,538,043
    Accumulated deficit (including $1,099,198 accumulated
      during the development stage)                            (11,600,582)    (12,181,273)
    Notes receivable from sale of stock                           (238,820)       (222,820)
                                                              ------------    ------------
      Total stockholders' deficit                               (1,103,685)       (714,550)
                                                              ------------    ------------
                                                              $     89,438    $    193,569
                                                              ============    ============
</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 June 30, 2003 and 2004
                                   (Unaudited)
<CAPTION>

                                                                        2003             2004
                                                                    -------------    -------------
<S>                                                                 <C>              <C>
Operating expenses:
   Depreciation                                                     $        --      $         372
   Rent                                                                      --              3,125
   Other operating expenses                                                  --             95,308
                                                                    -------------    -------------
     Total operating expenses                                                --             98,805

       Total operating loss                                                  --            (98,805)

Other income (expense):
   Gain on sale of investments                                               --              9,043
   Interest expense                                                        (4,334)          (4,252)
   Interest and miscellaneous income                                        3,282            3,282
                                                                    -------------    -------------
     Total other income (expense)                                          (1,052)           8,073
                                                                    -------------    -------------
Net loss from continuing operations                                        (1,052)         (90,732)

Net loss from discontinued operations (including loss on disposal
   of $108,673 in 2003) (Note 4)                                          (99,177)            --
Extingusihment of Debt (Note 2)                                              --             15,257
                                                                    -------------    -------------
Net loss (Note 3)                                                   $    (100,229)   $     (75,475)
                                                                    =============    =============

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

Weighted average common shares outstanding                             46,545,000      143,200,000
                                                                    =============    =============
</TABLE>

* Less than $.01 per share

                             See accompanying notes
                                        3
<PAGE>

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

<S>                                                                 <C>              <C>              <C>
Operating expenses:
   Depreciation                                                     $        --      $         979    $       1,363
   Rent                                                                      --              6,500           15,703
   Other operating expenses                                                  --            626,799        1,074,893
                                                                    -------------    -------------    -------------
     Total operating expenses                                                --            634,278        1,091,959
                                                                    -------------    -------------    -------------
      Total operating loss                                                   --           (634,278)      (1,091,959)

Other income (expense):
   Gain on sale of investments                                               --              9,043            9,043
   Interest expense                                                        (9,326)          (8,444)         (26,933)
   Interest and miscellaneous income                                        6,565            6,565           19,694
                                                                    -------------    -------------    -------------
     Total other income (expense)                                          (2,761)           7,164            1,804
                                                                    -------------    -------------    -------------
Net loss from continuing operations                                        (2,761)        (627,114)      (1,090,155)

Net loss from discontinued operations (including loss on disposal
   of $108,673 in 2003) (Note 4)                                         (247,084)            --               --
Extinguishment of Debt (Note 2)                                              --             46,423             --
                                                                    -------------    -------------    -------------
Net loss (Note 3)                                                   $    (249,845)   $    (580,691)   $  (1,090,155)
                                                                    =============    =============    =============
Basic and diluted loss per share from continuing operations         $       (0.01)   $       (0.01)   $       (0.01)
                                                                    =============    =============    =============

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

Weighted average common shares outstanding                             42,720,000      123,200,000       97,000,000
                                                                    =============    =============    =============
</TABLE>

* Less than $.01 per share

                             See accompanying notes
                                        4
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                     For the six months ended June 30, 2004
                                   (Unaudited)
<CAPTION>

                                                      Series 1              Series 2
                                                  preferred  stock      preferred stock          Common stock
                                                -------------------   -------------------  -------------------------   Accumulated
                                                 Shares     Amount     Shares      Amount     Shares       Amount      deficit
                                                --------   --------   ---------  --------  -----------   -----------  -------------
<S>                                             <C>        <C>        <C>        <C>       <C>           <C>          <C>
Balance, December 31, 2003                        16,001   $ 160,014     19,200  $192,000   82,592,626   $10,383,703  $(11,600,582)

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

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

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

   Exercise of stock options (Note 5)               --          --         --        --      4,500,000        71,000          --

   Issuance of common stock to employees
     and consultants for services (Note 5)          --          --         --        --     26,218,833       466,702          --

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

   Value of stock options granted to consultants
     (Note 5)                                       --          --         --        --           --          16,686          --

   Net loss for the six months ended
     June 30, 2004                                  --          --         --        --           --            --        (580,691)
                                                --------   ---------  ---------  --------  -----------   -----------  ------------
Balance, June 30, 2004                              --     $    --       15,150  $151,500  150,362,159   $11,543,605  $(12,181,273)
</TABLE>
                             See accompanying notes
                                        5
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Entity)
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                 For the six months ended June 30, 2003 and 2004
              and from inception (August 1, 2003 to June 30, 2004)
                                   (Unaudited)
<CAPTION>
                                                                                        Inception to
                                                             2003           2004       June 30, 2004
                                                          -----------    -----------    -----------
<S>                                                       <C>            <C>            <C>
Cash flows from operating activities:
   Net loss                                               $  (249,845)   $  (580,691)   $(1,043,732)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
       Depreciation and amortization                           15,263            978          1,362
       Stock  and options issued for services and
         interest on notes                                    200,495        650,576      1,090,637
       Changes in assets and liabilities:
         Interest receivable                                   (6,565)        (6,565)          --
         Prepaid expenses                                       2,010        (86,535)       (86,535)
         Accounts payable                                       7,187        (48,821)       (76,032)
         Accrued expenses                                         565       (224,610)      (216,030)
                                                          -----------    -----------    -----------
           Total adjustments                                  218,955        285,024        713,402
                                                          -----------    -----------    -----------
       Net cash used in operating activities                  (30,890)      (295,668)      (330,330)

Cash flows from investing activities:
   Purchase of property and equipment                            --           (5,071)        (5,071)
   Purchase of Stock Investments                                 --          (28,691)       (28,691)
                                                          -----------    -----------    -----------
       Net cash provided (used) by investing activities          --          (33,762)       (33,762)

Cash flows from financing activities:
   Proceeds from issuance of preferred stock                    7,862           --            6,713
   Proceeds from issuance of common stock                        --             --           10,000
   Proceeds from exercise of stock options                     40,000         71,000        114,750
   Note Receivable from sale of stock                            --           16,000         16,000
   Payment of accrued wages                                      --          232,250        232,250
   Payment of note payable - related parties                  (17,264)       (11,573)       (12,146)
                                                          -----------    -----------    -----------
     Net cash provided by financing activities                 30,598        307,677        367,567
                                                          -----------    -----------    -----------
Net increase in cash and cash equivalents                        (292)       (21,753)         3,474
Cash and cash equivalents at beginning of period                  381         25,345            118
                                                          -----------    -----------    -----------
Cash and cash equivalents at end of period                $        89    $     3,592    $     3,592
                                                          ===========    ===========    ===========

</TABLE>
                             See accompanying notes
                                        6
<PAGE>


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


1. Summary of significant accounting policies

     Basis of presentation:

     The  accompanying  financial  statements have been prepared by the Company,
     without audit.  In the opinion of management,  the  accompanying  unaudited
     financial  statements  contain all  adjustments  (consisting of only normal
     recurring  accruals)  necessary  for a fair  presentation  of the financial
     position as of  December  31,  2003 and June 30,  2004,  and the results of
     operations and cash flows for the periods ended June 30, 2003 and 2004. The
     Company is  currently  considered  to be in the  development  stage as more
     fully defined in Financial  Accounting Standards Board Statement No. 7. The
     Company has not generated  any revenues from its  activities in the oil and
     gas business.

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

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

     The Company  has  incurred  significant  losses and at June 30,  2004,  the
     Company  has a working  capital  deficit of  $748,423  and a  stockholders'
     deficit of $714,550.  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
                                  June 30, 2004


2.   Delinquent amounts payable

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

3.   Income taxes

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

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

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

4.   Discontinued Operations

     The Company's  decision 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
     six month period of this  reclassification.  During 2003, the Company wrote
     off various  fixed  assets and revalued  inventory  in order to  reclassify
     these items at fair market  value  listed as  inventory  and molds held for
     disposal at a value of $25,243.

5.   Stock transactions

     During the first quarter of 2004, the CEO received  2,893,070 common shares
     for services for the first  quarter  through the first month of the current
     quarter of 2004,  valued at $60,000.  During the current  quarter,  the CEO
     received  3,393,710  common  shares for  services  for the  second  quarter
     through the first month of the third quarter, valued at $45,000. 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 first  quarter of 2004,  valued at an  aggregate  of $10,000,  and were
     granted  common  stock  options  to  purchase  250,000  shares  each for an
     aggregate  purchase  price of $22,000  granted during the fourth quarter of
     2003.


                                        8
<PAGE>


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


     5.  Stock transactions (continued)

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

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

     During the first quarter of 2004, the Company paid $253,812 in compensation
     to consultants with 12,492,690  shares of common stock.  During the quarter
     ended  June  30,  2004,  the  Company  paid  $44,328  in   compensation  to
     consultants with 2,939,363 shares of common stock.

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

     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.  During the quarter  ended June 30,  2004,  3,000,000 of
     these stock options were cancelled.


                                        9
<PAGE>



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


     5.  Stock transactions (continued)

     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 June 30, 2004 in accordance with the provisions of
     SFAS No.  123,  the  Company's  net loss and loss per share would have been
     increased to the pro forma amounts indicated below:

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

        Net loss - as reported               $ (149,616)   $ (580,691)
        Net loss - pro forma                   (175,794)     (580,691)
        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

     During the third quarter 2004, the Company issued the CEO 2,142,857  common
     shares for  services for August 2004 valued at $15,000.  Also,  the Company
     issued  2,077,778  common shares to two oil and gas  consultants  valued at
     $18,700 and 661,600 common shares to an administrative assistant to the CEO
     valued at $4,632.

     During the  quarter  ended  June 30,  2004,  the  Company's  Joint  Venture
     Agreement  to develop  certain  oil and gas  properties  in South Texas was
     dissolved with the  termination of  negotiations  to pursue the subject oil
     and gas  prospects.  Certain  stock  options  granted to the members of the
     Joint Venture have been  cancelled and the balance will expire in September
     of 2004. The Company is in the process of evaluation of certain oil and gas
     development  prospects  for  acquisition  by the  Company.  The Company has
     retained the services of two oil and gas consultants, a geophysicist and an
     operating,  drilling and production  specialist,  to provide  technical and
     operational analysis,  business development,  and general energy consulting
     to the  Company on a per diem basis,  who have agreed to accept  payment in
     the form of common  stock on an interim  basis.  The  Company  must  obtain
     financing to cover its costs of due diligence,  independent evaluations and
     verifications of engineering,  geological and economic data, and to pay for
     the costs of  drilling,  completion  and surface  improvements  in order to
     acquire  any  oil and gas  development  prospects,  of  which  there  is no
     assurance.

                                       10
<PAGE>


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


     6.  Subsequent Events (continued)

     During the first and  second  quarter,  the  Company  inadvertently  issued
     shares and/or  granted  stock  options which  exceeded the number of common
     shares allocated to its 2003 Incentive Stock Option Plan.  Certain of these
     include  shares  reserved  for  issuance on exercise of  outstanding  stock
     options.  During the third  quarter,  the  Company  adopted  its 2004 Stock
     Option and  Incentive  Plan,  and suspended  certain  options from the 2003
     Plan, and included them under the 2004 Plan.

                                       11
<PAGE>


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

Critical accounting policies

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

Stock issuances:

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

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

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

Plan of Operation.

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

                                       12
<PAGE>


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

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

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

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

                                       13
<PAGE>

During the six month period ended June 30, 2004, and continuing  forward we have
focused our entire  attention  on sourcing and  evaluating  specific oil and gas
development  prospects presented to us for acquisition and funding. In the first
quarter of 2004,  we entered into a Joint Venture with certain  individuals  for
the development of a re-entry and  re-completion  project in South Texas. In May
2004, negotiations to acquire these prospects were terminated when the promoters
chose to pursue other funding alternatives.  Immediately thereafter,  we engaged
in evaluation and negotiations with an oil and gas developer to acquire and fund
drilling and completion of oil and gas wells on three prospects located in Texas
and Oklahoma. In connection with these activities, we have retained the services
of an independent oil and gas financing intermediary that has relationships with
a number of institutional  funding  sources.  We are currently in the process of
evaluating and verifying financial and technical  information on these and other
prospects  with a view to  pursuing  financing  of any  prospects  that meet our
investment criteria.  The Company cannot pursue development of these oil and gas
prospects without raising the necessary capital to hold prospects for evaluation
and  then  to  drill  and  complete  wells  on the  selected  prospects,  and no
assurances can be made that it will successfully  complete such financing in the
near future.

During 2003 and continuing  through the current period,  we have been engaged in
business  development  activities with various third parties involved in oil and
gas development,  corporate  finance,  and other related activities to develop a
source  of deals  and  financing  and to build  relationships  with  people  and
companies  that can provide value to the company in executing its business plan.
We have also taken  preliminary steps to develop several longer term initiatives
to develop  advanced  in-house  operational  and financing  capabilities.  These
included the  development  of a Master Energy Fund to provide the  capability to
internally  generate  funding to refinance  future oil and gas production and an
energy trading platform as a means to leverage future production with a creative
system to trade the commodities into the open market. Until we establish revenue
from oil and gas  production,  we have not felt it  appropriate  to  divert  our
resources  to move these  initiatives  forward.  We continue to seek oil and gas
development projects conforming to our stated criteria of low-risk,  high return
potential in under-developed  fields that have overlooked and by-passed reserves
and/or existing production and in-field development possibilities.  While we are
very optimistic about our progress in developing these projects and confident in
our overall approach to entering the oil and gas business,  no assurances can be
made that the  current  projects  will  result in any  significant  revenue  for
operations in the immediate future.

Financial Condition

In prior periods,  we have principally  written down Aggression  Sports,  Inc.'s
fixed  assets  and  inventory  and molds  held for  disposal  from  discontinued
operations  either  entirely or by a  percentage  that we have  estimated  would
reasonably  be  recovered  from  liquidation  or by selling the entire  business
opportunity  outright to a third party.  Additionally,  during prior periods, we
reduced certain amounts payable from  discontinued  operations as extinguishment
of debt, through the passage of statutes of limitation. During the quarter ended
June 30,  2004,  $15,257 of such debt from Global  Direct was  extinguished.  We
expect future write-downs and reclassifications from discontinued operations and
extinguishment of debt to be nominal and incremental in nature.

                                       14
<PAGE>

As of June 30,  2004,  the Company had  $193,569 in total assets and $908,119 in
total  liabilities,  as compared to $89,438 and  $1,193,123 as of the end of the
fiscal year ended December 31, 2003, respectively.  Accounts payable and accrued
expenses at June 30, 2004 were  $889,469 as compared to  $1,162,900  at December
31, 2003.  During the six-month  period ended June 30, 2004,  total  liabilities
were  reduced  by  $285,004  including  $46,423  from  extinguishment  of  debt.
Operating losses from continuing operations of $627,114 offset by extinguishment
of debt of  $46,423  resulted  in a net loss of  $580,691,  contributing  to the
accumulated  deficit  as of June 30,  2004 of  $12,181,273,  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 during the six-month  period ended June 30, 2004, an
incremental  $46,423 of debt was reclassified as extinguished.  During 2003, the
Company abandoned the development of the Aggression Sports, Inc. subsidiary.  At
June 30, 2004,  the remaining  liabilities  of this  subsidiary  were $91,077 in
trade  payables and $79,351 in unpaid  payroll  taxes.  As of June 30, 2004, the
Company owes approximately  $151,782 in unpaid payroll taxes for periods through
the fourth quarter of 2001. (See: Notes 1 and 2 to Financial Statements.)

During the period  ended  June 30,  2004,  the  Company  continued  to rely upon
infusions  of cash from  exercise of stock  options by officers,  directors  and
consultants,  and upon  payment  of  compensation  to  officers,  directors  and
consultants  in the form of common  stock and common stock  options.  During the
six-month  period ended June 30, 2004, the Company paid $109,500 in compensation
with 5,923,144 shares of common stock to officers and directors, and prepaid for
the subsequent  quarter $53,500 in compensation  with 4,863,636 shares of common
stock, paid $298,140 to consultants and professionals  with 15,432,053 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 $16,686 as
the value of stock options granted to consultants using the Black-Sholes  option
pricing model.

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

Results of operations

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

                                       15
<PAGE>

The Company had no revenues from operations  during the three month period ended
June 30, 2004, and no revenues during the comparable period ended June 30, 2003.
Net loss from  continuing  operations  for the three month period ended June 30,
2004 was $90,732 as compared to $1,052 for the three month period ended June 30,
2003. Net loss from discontinued  operations during the three month period ended
June 30, 2004 was $0 offset by $15,257 in  extinguishment  of debt. The net loss
from discontinued operations as reclassed from the three month period ended June
30, 2003 was $99,177. This resulted in an aggregate net loss for the three month
period ended June 30, 2004 of $75,475  compared to a net loss for the comparable
period in fiscal year 2003 of $100,229.

The Company had no revenues  from  operations  during the six month period ended
June 30, 2004, and no revenues during the comparable period ended June 30, 2003.
Net loss from continuing operations for the six month period ended June 30, 2004
was $627,114 as compared to a net loss from continuing  operations of $2,761 for
the comparable period ended June 30, 2003. Net loss from discontinued operations
during  the six month  period  ended  June 30,  2004 was $0 offset by $46,423 in
extinguishment of debt. The net loss from  discontinued  operations as reclassed
from the six month period ended June 30, 2003 was $247,084.  This resulted in an
aggregate  net loss for the six month  period  ended June 30,  2004 of  $580,691
compared  to a net  loss  for the  comparable  period  in  fiscal  year  2003 of
$249,845.

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 June 30, 2004 of $748,423.  This
compares to a working  capital  deficit of  $1,104,774  as of December 31, 2003.
During the quarter  ended June 30, 2004 an  aggregate  of  10,333,073  shares of
common stock were issued for aggregate consideration of $131,766 (for an average
of $0.0128 per share).  In addition,  $5,562 was deducted from compensation upon
cancellation  of a stock option granted in the previous  quarter to a consultant
during the quarter ended June 30, 2004.

                                       16
<PAGE>

The Company had a  stockholder's  deficit at June 30, 2004 of $714,550.  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  June  30,  2004,  the  Company  had  no  material  commitments  for  capital
expenditures.

Due to its ongoing liquidity issues,  the Company has defaulted on several short
term obligations including for its operating overhead, trade payables, and state
and  federal  employment  taxes,  resulting  in tax liens  being  imposed on the
Company's  assets,  which  will  have to be  resolved  with an  infusion  of new
capital, of which no assurances can be made.

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

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

                                       17
<PAGE>


PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 2. Changes in Securities

None

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

None.

Item 6. Exhibits and Reports on Form 8-K

Exhibit 10.1        2004 Omnibus Stock Option And Incentive Plan

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

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


                                       18
<PAGE>



                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

ARETE INDUSTRIES, INC.


Date: August 23, 2004

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


                                       19