FORM 10-QSB - Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

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

    For the period ended:   September 30, 2001
                            ------------------
or

[ ]  Transition  Report  Pursuance  to Section 13 or 15(d) of the  Securities
     Exchange act of 1934.
For the transition period from ___________________ to _______________________


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


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


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


    2955 Valmont Road, Suite 310, Boulder, CO                80301
    ------------------------------------------            -------------
    (Address of principal executive offices)               (Zip Code)


                                 (303) 247-1313
                -------------------------------------------------
              (Registrant's telephone number, including area code)


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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.    [X] Yes     [ ] No


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

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

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

As of November 19, 2001, Registrant had 486,825,562 shares of common stock,
No par value, outstanding.



<PAGE>

                      ARETE INDUSTRIES, INC. AND SUBSIDIARY


                                      INDEX


                                                                     Page No.

Consolidated Financial Statements:

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

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

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

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

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

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

<PAGE>


<TABLE>

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


                                     ASSETS
                                     ------

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

      Total current assets                                                           21,115          91,794

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

Security deposit                                                                      5,409           5,954

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

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

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

                                       LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Accounts payable (Note 3)                                                  $    319,261    $    201,979
    Accrued expenses                                                                786,983         508,462
    Accrued payroll taxes (Note 3)                                                  198,445         191,755
    Settlement due                                                                   30,000            --
    Notes payable (Note 4)                                                          100,000          50,000
    Notes payable - related parties (Note 4)                                        175,767         201,561
                                                                               ------------    ------------

      Total current liabilities                                                   1,610,456       1,153,757

Commitments and contingencies (Notes 1, 3 and 6)

Stockholders' deficit (Note 4):
    Convertible Class A preferred stock; $10 face value, 100,000 shares
      authorized, no shares issued and
      outstanding                                                                      --              --
    Common stock, no par value; 499,900,000 shares
      authorized, 470,825,562 (2001) and 372,422,912 (2000)
      shares issued and outstanding                                               9,053,780       8,515,871
    Accumulated deficit                                                         (10,310,415)     (9,346,413)
    Notes receivable from sale of stock                                            (217,615)       (117,250)
                                                                               ------------    ------------

      Total stockholders' deficit                                                (1,474,250)       (947,792)
                                                                               ------------    ------------

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

                             See accompanying notes.

                                        2
<PAGE>

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

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

      Total revenues                                                  --            108,000

Operating expenses:
    Depreciation                                                     1,696            1,972
    Research and development (Note 2)                                 --               --
    Rent                                                            15,285           19,947
    Salaries (Note 4)                                                 --            162,023
    Other operating expenses                                       102,428          162,201
                                                             -------------    -------------

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

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

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

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

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

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

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


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

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

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

* - Less than $.01 per share

                             See accompanying notes.

                                        3
<PAGE>

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

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

     Total revenues                                                81,964          138,000

Operating expenses:
   Depreciation                                                     5,536            2,821
   Research and development (Note 2)                              121,936           26,878
   Rent                                                            55,936          274,254
   Salaries (Note 4)                                                 --            175,000
   Other operating expenses                                       621,829          148,904
                                                            -------------    -------------

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

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

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

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

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

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

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


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

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

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

* - Less than $.01 per share

                            See accompanying notes.

                                        4
<PAGE>

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

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

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

    Issuance of common stock in payment of
      interest on notes payable (Note 4)            2,000,000         30,000

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

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

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

Balance, September 30, 2001                       470,825,562   $  9,053,780   $(10,310,415)
                                                 ============   ============   ============
</TABLE>
                            See accompanying notes.

                                        5
<PAGE>
<TABLE>

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


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

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

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

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

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

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

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

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

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

                            See accompanying notes.

                                        6
<PAGE>

<TABLE>

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

                         (Continued from preceding page)
<CAPTION>



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

<S>                                                          <C>          <C>
    Interest paid during the period                          $       -    $   8,604
                                                             =========    =========
    Income taxes paid during the period                      $       -    $       -
                                                             =========    =========
</TABLE>

Supplemental disclosure of non-cash investing and financing activities:

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

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


                            See accompanying notes.

                                        7
<PAGE>

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


1.   Summary of significant accounting policies
     ------------------------------------------

     Basis of presentation:

     The  accompanying  financial  statements have been prepared by the Company,
     without audit.  In the opinion of management,  the  accompanying  unaudited
     financial  statements  contain all  adjustments  (consisting of only normal
     recurring  accruals)  necessary  for a fair  presentation  of the financial
     position as of December 31, 2000 and September 30, 2001, and the results of
     operations  and cash flows for the  periods  ended  September  30, 2000 and
     2001.

     Discontinued operations:

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

     Basis of presentation:

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

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

     In prior years, the Company acquired a 31% ownership interest in Aggression
     Sports in exchange  for  30,000,000  shares of the  Company's  common stock
     valued at  $150,000.  During the three  months  ended June 30 and March 31,
     2001, Aggression Sports sold 550,000 and 5,690,000 shares,  respectively of
     Arete for gross  proceeds of $82,362.  Arete's 31% interest in the proceeds
     of $34,490 has been recorded as additional paid-in capital.

     During May 2001,  the Company agreed to buy out the 30% share of Aggression
     Sports owned by the creator of  Aggression's  products for $40,000 worth of
     the Company's stock to be issued over a four-month  period. As of September
     30, 2001,  2,000,000  shares of common stock were issued and an  additional
     6,000,000 shares of common stock are being held in escrow.  The Company has
     recorded an impairment in the value of this investment.

                                        8
<PAGE>

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


2.   Investment in and advances to affiliates (continued)
     ----------------------------------------------------

     Applied Behavior Systems, LLC:
     The Company has an agreement to provide new venture management  services to
     assist in the  formation of a new company and product  development  process
     concerning  several unique  applications  of a patented  neural-networking,
     intelligent  agent  software  engine in conjunction  with Applied  Behavior
     Systems,  LLC (ABS),  an  unaffiliated  company.  Under the agreement,  the
     Company was entitled to fees for management  services and was to receive an
     equity  interest  in this  new  application  development  company.  Through
     September 30, 2001,  the Company has advanced  $260,672 as a bridge loan to
     finance  operations.  As these  advances  have been used for  research  and
     development  by ABS,  these  amounts  have been  recorded as  research  and
     development expenses in the accompanying financial statements. During 2001,
     the Company  charged  management  fees of $80,000 to ABS. These  management
     fees have not been recorded as revenue at this time since collectibility is
     not reasonably  assured.  During May 2001, the Company ceased funding ABS's
     operations.

3.   Delinquent amounts payable
     --------------------------

     As of September 30, 2001,  the Company is delinquent on payments of various
     amounts to  creditors  including  payroll  taxes and  $62,316 to  creditors
     required to be paid under the terms of its plan of reorganization.  Failure
     to pay these liabilities could result in liens being filed on the Company's
     assets and may result in assets being  attached by  creditors  resulting in
     the Company's inability to continue operations.

4.   Stockholders' equity
     --------------------

     During the nine months ended  September  30, 2001,  (1) two officers of the
     Company  converted  $178,912 of notes payable into 46,649,367 shares of the
     Company's common stock, (2) the Company issued  31,253,283 shares of common
     stock for services  valued at $126,507,  (3) the Company  issued  2,000,000
     shares of common stock in exchange  for a $30,000 of accrued  interest on a
     note payable (4) the Company issued  11,500,000 shares of common stock upon
     the exercise of stock options and (5) the Company issued  2,000,000  shares
     of  common  stock as part of the  settlement  price for an  additional  30%
     investment in Aggression  Sports. The Company also issued 10,000,000 shares
     of its common stock to be held as  collateral  for the payment of two notes
     payable with a principal balance of $100,000 in the aggregate and 6,000,000
     shares of its common  stock held in escrow to be issued for the  settlement
     price for an additional 30% investment in Aggression  Sports.  These shares
     have not been  reflected as  outstanding  as they are  considered  Treasury
     shares.  As of September 30, 2001, the 10,000,000 shares of common stock as
     collateral  for the  payment of two notes  payable  may be kept by the note
     holders  upon  conversion  of the  notes  into  stock at the note  holders'
     option.

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

                                        9
<PAGE>



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


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

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

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

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

     Securities and Exchange Commission investigation:

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

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

     The Company and the current CEO are presently defending this action through
     separate  counsel,  have filed  responsive  pleadings  and have  engaged in
     serious  settlement  discussions  independently  with the  Commission.  The
     Company has executed a settlement offer and the regional  enforcement staff
     has  transmitted it to the Commission in Washington for approval,  of which
     there are no guarantees it will do so. The CEO and the regional enforcement
     staff have had serious  settlement  discussions and a verbal offer has been
     tendered  for referral to and approval by the  Commission,  also,  of which
     there is no assurance that the offer will be accepted. Case preparation and
     discovery  have been put on hold pending a response from the  Commission in
     Washington D.C.

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

                                       10