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, 2002
                                       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 300, 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.)


<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 15, 2002,  Registrant had 32,716,248 shares of common stock, No par
value, outstanding.  This number includes 500,000 shares considered unissued for
accounting  purposes  which  are held as  collateral  for notes  payable  by the
Company to  non-affiliated  parties.  The share figures contained in this report
are adjusted to reflect a reverse stock split of twenty to one (20:1)  effective
July 15, 2002.

<PAGE>

                      ARETE INDUSTRIES, INC. AND SUBSIDIARY


                                      INDEX
                                      -----

                                                                    Page No.
                                                                    --------
Consolidated Financial Statements:

Index to Consolidated Financial Statements                              1

Consolidated Balance Sheet at June 30, 2002 and
December 31, 2001 (unaudited)                                           2

Consolidated Statements of Operations for the
Three Months Ended June 30 2002 and 2001 (unaudited)                    3

Consolidated Statements of Operations for the Six
Months Ended June 30 2002 and 2001 (unaudited)                          4

Consolidated Statement of Stockholders' Deficit
for the Six Months Ended June 30, 2002 (unaudited)                      5

Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2002 and 2001 (unaudited)                         6-7

Notes to Unaudited Consolidated Financial Statements
at June 30, 2002                                                        8-11

Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations                                    12-18

Part II - Other Information                                            18-19

Signatures                                                             20


                                        1
<PAGE>

<TABLE>
                    ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                      December 31, 2001 and June 30, 2002
                                  (Unaudited)
<CAPTION>

                                     ASSETS
                                     ------

                                                                  2001            2002
                                                              ------------    ------------
<S>                                                           <C>             <C>
Current assets:
   Cash and cash equivalents                                  $        110    $        443
   Accrued interest receivable                                      11,503          18,058
   Inventory                                                        65,029          65,029
   Prepaid expenses                                                  3,509           6,092
                                                              ------------    ------------

     Total current assets                                           80,151          89,622

Furniture and equipment, at cost net of accumulated
   depreciation of $49,547 (2001) and $65,750 (2002)               124,822         108,619
Security deposit                                                    12,598          11,982
Intellectual property                                               34,516          34,516
Investment in and advances to Applied Behavior Systems,
   LLC (Note 2)                                                       --              --
Investment in and advances to Aggression Sports
   (Note 2)                                                           --              --
                                                              ------------    ------------

                                                              $    252,087    $    244,739
                                                              ============    ============

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

Current liabilities:
   Accounts payable (Note 3)                                  $    411,849    $    415,870
   Accrued expenses                                                852,323         573,092
   Accrued payroll taxes (Note 3)                                  289,128         289,128
   Settlement due                                                   18,650          18,650
   Notes payable (Note 4)                                          100,000         100,000
   Notes payable - related parties (Note 4)                        165,568          30,678
                                                              ------------    ------------

     Total current liabilities                                   1,837,518       1,427,418

Commitments and contingencies (Notes 1, 3 and 4)

Stockholders' deficit (Notes 6 and 7):
   Convertible Class A preferred stock; $10 face value,
     1,000,000 shares authorized:
       Series 1, 30,000 shares authorized, 16,001
         shares issued and outstanding                                --           160,014
       Series 2, 25,000 shares authorized, 3,895
         shares issued and outstanding                                --            38,947
   Common stock, no par value; 499,000,000 shares
     authorized, 24,416,248 shares issued and
     outstanding                                                 9,074,130       9,418,130
   Accumulated deficit                                         (10,440,741)    (10,580,950)
   Notes receivable from sale of stock                            (218,820)       (218,820)
                                                              ------------    ------------

     Total stockholders' deficit                                (1,585,431)     (1,182,679)
                                                              ------------    ------------

                                                              $    252,087    $    244,739
                                                              ============    ============
</TABLE>

                             See accompanying notes

                                        2
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                For the three months ended June 30, 2001 and 2002
                                   (Unaudited)
<CAPTION>

                                                                2001            2002
                                                            ------------    ------------
<S>                                                         <C>             <C>
Revenues:
   Management fees - Aggression Sports                      $     10,000    $       --
   Sales                                                            --              --
   Other income                                                   30,324            --
                                                            ------------    ------------

     Total revenues                                               40,324            --

Operating expenses:
   Depreciation                                                     --             8,101
   Research and development (Note 2)                              10,324            --
   Rent                                                           19,692           6,464
   Other operating expenses                                      302,960          78,079
                                                            ------------    ------------

     Total operating expenses                                    332,976          92,644
                                                            ------------    ------------

       Total operating loss                                     (292,652)        (92,644)

Other income (expense):
   Equity in loss of Aggression Sports (Note 2)                  (10,423)           --
   Impairment of investment in Aggression Sports (Note 2)       (141,711)           --
   Interest expense                                              (27,085)           (573)
   Interest and miscellaneous income                               5,570           3,328
                                                            ------------    ------------

     Total other income (expense)                               (173,649)          2,755
                                                            ------------    ------------

Net loss (Note 5)                                           $   (466,301)   $    (89,889)
                                                            ============    ============

Basic and diluted loss per share                            $      (0.02)   $       *
                                                            ============    ============


Weighted average common shares outstanding                    21,385,000      24,416,000
                                                            ============    ============
</TABLE>

* - Less than $.01 per share

                             See accompanying notes

                                        3
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                 For the six months ended June 30, 2001 and 2002
                                   (Unaudited)
<CAPTION>

                                                                2001            2002
                                                            ------------    ------------
<S>                                                         <C>             <C>
Revenues:
   Management fees - Aggression Sports                      $     33,400    $       --
   Sales                                                            --               379
   Other income                                                   48,564            --
                                                            ------------    ------------

     Total revenues                                               81,964             379

Operating expenses:
   Depreciation                                                    3,840          16,203
   Research and development (Note 2)                             121,936            --
   Rent                                                           40,651          16,268
   Other operating expenses                                      519,401         109,804
                                                            ------------    ------------

     Total operating expenses                                    685,828         142,275
                                                            ------------    ------------

       Total operating loss                                     (603,864)       (141,896)

Other income (expense):
   Equity in loss of Aggression Sports (Note 2)                  (44,013)           --
   Impairment of investment in Aggression Sports (Note 2)       (141,711)           --
   Interest expense                                              (56,898)         (4,869)
   Interest and miscellaneous income                               8,542           6,556
                                                            ------------    ------------

     Total other income (expense)                               (234,080)          1,687
                                                            ------------    ------------

Net loss (Note 5)                                           $   (837,944)   $   (140,209)
                                                            ============    ============

Basic and diluted loss per share                            $      (0.04)   $      (0.01)
                                                            ============    ============


Weighted average common shares outstanding                    20,825,000      24,416,000
                                                            ============    ============
</TABLE>

                             See accompanying notes

                                        4
<PAGE>

<TABLE>
                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                     For the six months ended June 30, 2002
                                   (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, 2001 (Note 7)                 --     $    --         --     $   --     24,416,248   $9,074,130   $(10,440,741)

   Issuance of Series 1 preferred stock
     for conversion of note payable (Note 6)      16,001     160,014       --         --           --           --             --

   Issuance of Series 2 preferred stock
     to reimburse advances made to the
     Company (Note 6)                               --          --        3,895     38,947         --           --             --

   Cancellation of accrued wages for future
     interest in stock distributions (Note 6)       --          --         --         --           --        344,000           --

   Net loss for the six months ended
     June 30, 2002                                  --          --         --         --           --           --         (140,209)
                                                --------   ---------   --------   --------   ----------   ----------   ------------

Balance, June 30, 2002                            16,001   $ 160,014      3,895   $ 38,947   24,416,248   $9,418,130   $(10,580,950)
                                                ========   =========   ========   ========   ==========   ==========   ============
</TABLE>

                             See accompanying notes

                                       5

<PAGE>

<TABLE>

                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                 For the six months ended June 30, 2001 and 2002
                                   (Unaudited)
<CAPTION>


                                                                2001         2002
                                                              ---------    ---------
<S>                                                           <C>          <C>
Cash flows from operating activities:
    Net loss                                                  $(837,944)   $(140,209)
    Adjustments to reconcile net loss to net
      cash used in operating activities:
        Depreciation and amortization                             3,840       16,203
        Equity in loss of Aggression Sports                      44,013         --
        Impairment of investment in Aggression Sports           141,711         --
        Stock issued for services and interest on notes         146,182         --
        Changes in assets and liabilities:
          Interest receivable                                      --         (6,555)
          Prepaid expenses                                        3,526       (2,583)
          Accounts payable                                      104,109        4,021
          Accrued expenses                                      239,920       89,893
                                                              ---------    ---------

            Total adjustments                                   683,301      100,979
                                                              ---------    ---------

        Net cash used in operating activities                  (154,643)     (39,230)

Cash flows from investing activities:
    Security deposit                                                545          616
    Investments in and advances to Aggression Sports           (169,012)        --
    Maturity of certificate of deposit                           52,387         --
                                                              ---------    ---------

        Net cash provided by (used in) investing activities    (116,080)         616

Cash flows from financing activities:
    Proceeds from issuance of preferred stock                      --         38,947
    Proceeds from exercise of stock options                      88,000         --
    Proceeds from note payable - related parties                119,392         --
    Proceeds from note payable                                   50,000         --
                                                              ---------    ---------

      Net cash provided by financing activities                 257,392       38,947
                                                              ---------    ---------

Net increase (decrease) in cash and cash equivalents            (13,331)         333
Cash and cash equivalents at beginning of period                 13,376          110
                                                              ---------    ---------

Cash and cash equivalents at end of period                    $      45    $     443
                                                              =========    =========
</TABLE>


                             See accompanying notes

                                       6
<PAGE>

                     ARETE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                 For the six months ended June 30, 2001 and 2002
                                   (Unaudited)

                         (Continued from preceding page)


Supplemental disclosure of cash flow information:          2001         2002
                                                         ---------    ---------

Interest paid during the period                          $    --      $    --
                                                         =========    =========
Income taxes paid during the period                      $    --      $    --
                                                         =========    =========

During the six months ended June 30, 2001,  notes payable to two related parties
with outstanding balances of $158,912 were converted into common stock.

During the six months ended June 30,  2002,  a note  payable to a related  party
with an  outstanding  balance of $160,014 was converted  into common  stock.  In
addition,  $344,000  in  wages  payable  to two  officers  of the  Company  were
cancelled in exchange for future interests in stock distributions.

                             See accompanying notes

                                       7
<PAGE>


                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2002


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,  2001 and June 30,  2002,  and the results of
     operations and cash flows for the periods ended June 30, 2001 and 2002.

     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 June 30,
     2002,  the  Company  has a working  capital  deficit  of  $1,337,796  and a
     stockholders' deficit of $1,182,679. In addition, the Company is delinquent
     on payment of payroll taxes and creditor  liabilities  pursuant to the plan
     of  reorganization.  As  a  result,  substantial  doubt  exists  about  the
     Company's  ability to continue to fund future operations using its existing
     resources.

     On December  19,  2001,  by board  resolution  pursuant  to a  subscription
     agreement,  the board of directors  designated  25,000 of Class A Preferred
     Stock as Series 2 Convertible  Preferred Stock, in a proposed  placement of
     up to $200,000 of such preferred  stock at $10 per share face value.  As of
     June 30, 2002, the Company received proceeds of $38,947 for the purchase of
     3,895 shares of Series 2 Convertible Preferred Stock.

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

     Aggression Sports:

     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.

     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,  8,000,000 shares of common stock were issued and the Company had
     a remaining liability of $15,650. 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
                                  June 30, 2002


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 earned fees for  management  services and is entitled to receive an
     equity  interest  in this  new  application  development  company.  Through
     December  31, 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 $81,419 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 June 30,  2002,  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.   Notes payable
     -------------

     Notes payable - individuals:

     During  January  2001,  the Company  borrowed  $100,000  from two unrelated
     individuals  evidenced by a note  bearing no interest,  payable on June 15,
     2002,  but callable  initially  on January 15,  2001,  and then on July 15,
     2001.  The  Company  issued   2,000,000  shares  of  its  common  stock  as
     consideration for the loans and 10,000,000 shares of its common stock to be
     held as  collateral  for  payment of the loans.  The loans were not paid by
     June 15, 2001,  therefore,  the lenders  have the option of  retaining  the
     collateral  shares  in full  payment  of the  notes.  The  Company's  Chief
     Executive  Officer also transferred  1,500,000 shares of common stock owned
     personally  to  the  note  holders  as  additional  consideration  for  the
     transaction (see Note 7).

                                        9
<PAGE>

                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2002


4.   Notes payable (continued)
     -------------------------

     Notes payable - related parties:

     During 2000, an officer of the Company and a company owned by the Company's
     Chief  Executive  Officer  loaned  to the  Company  $17,957  and  $116,700,
     respectively,  evidenced by notes payable.  During 2001,  three officers of
     the Company and a company owned by the Company's  Chief  Executive  Officer
     loaned to the Company  $171,634  and  $40,264,  respectively,  evidenced by
     notes payable.  The notes are due upon demand, bear interest at 9.5% to 10%
     per annum and are unsecured (see Note 7).

     During 2002, an officer of the Company and a company owned by the Company's
     Chief Executive Officer loaned $16,989 to the Company.

5.   Income taxes
     ------------

     The book to tax temporary  differences resulting in deferred tax assets and
     liabilities  are primarily net operating loss  carryforwards  of $4,093,000
     which expire in years through 2022.

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

     On December  19,  2001,  by board  resolution  pursuant  to a  subscription
     agreement,  the board of directors  designated  25,000 of Class A Preferred
     Stock as Series 2 Convertible  Preferred Stock, in a proposed  placement of
     up to $200,000 of such preferred  stock at $10 per share face value.  As of
     June 30, 2002, the Company received proceeds of $38,947 for the purchase of
     3,895  shares of Series 2  Convertible  Preferred  Stock.  These  preferred
     shares are convertible into 3,894,716 shares of common stock.

     On May 31, 2002, a company owned by the Company's Chief  Executive  Officer
     converted a note payable with a principal  balance of $160,014  into 16,001
     shares of Series 1 Class A  Preferred  Stock.  These  preferred  shares are
     convertible into 8,000,700 shares of common stock.

     During  April  2002,  two  officers of the  Company  cancelled  $344,000 in
     accrued  wages owed by the Company in exchange  for the right to receive in
     the aggregate 12% of the total future stock  dividend  distribution  by the
     Company from the first four companies that it spins off to its shareholders
     in a registered stock dividend and/or a registered rights offering.

                                       10
<PAGE>

                      ARETE INDUSTRIES, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2002


7.   Subsequent Events
     -----------------

     Effective July 15, 2002, the  shareholders of the Company approved a 20 for
     1 reverse  stock split.  All common  share  references  in these  financial
     statements have been revised to reflect the reverse split.

     On May 31, 2002, the Board of Directors approved two assignment  agreements
     between third party  creditors of the Company  holding  secured  promissory
     notes  in the  aggregate  amount  of  $100,000  and a  company  owned  by a
     director.  The agreements provided for the purchase of the referenced notes
     and collateral  consisting of 500,000 common shares and a security interest
     in certain inventory of the Company's  subsidiary,  Aggression Sports, Inc.
     and the subsequent  surrender for cancellation of such notes by the related
     company  with  the  Company  for  $100,000   credit   toward  the  $200,000
     subscription price for Series 2 Convertible Preferred Stock of the Company.
     The assignments  will be finalized upon the closing of a private  placement
     by the related company.

     On August 9, 2002, the Company issued  6,000,000  shares of common stock to
     three  directors  of the Company and  1,800,000  shares of common  stock to
     three consultants for services performed and to be performed.

     On August 9, 2002,  the Company issued 1,117 shares of Series 2 Convertible
     Preferred Stock to a company owned by a director of the Company pursuant to
     the $200,000 preferred stock offering described in Note 6.

                                       11

<PAGE>


Forward Looking Statements

This Quarterly Report on Form 10-QSB includes forward-looking  statements within
the meaning of the Private  Securities  Litigation  Reform Act of 1995. This Act
provides a "safe harbor" for  forward-looking  statements to encourage companies
to provide  prospective  information  about  themselves so long as they identify
these statements as forward looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected  results.  All statements  other than  statements of historical  fact,
including   statements  regarding  industry  prospects  and  future  results  of
operations of financial  position,  made in this Quarterly Report on Form 10-QSB
are forward looking. We use words such as "anticipates,"  "believes," "expects,"
"future"  and  "intends"  and similar  expressions  to identify  forward-looking
statements. Forward-looking statements reflect management's current expectations
and are inherently  uncertain.  Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially and adversely
from  those  set forth in the  forward-looking  statements,  including,  without
limitation:  Company has been  unprofitable  since  inception  to the end of the
current  period.  This may affect the stock  price and public  float and further
reducing liquidity.  The Company's actual results may differ  significantly from
management's  expectations.  The following  discussion includes  forward-looking
statements  regarding  expectations of future  improvements,  acquisitions,  and
funding, profitability of our business, portfolio asset valuations, all of which
are inherently  difficult to predict.  Actual results could differ significantly
for a variety of reasons, including the accessibility to additional capital, the
rate  of  growth  and  consumer  acceptance  of  products  and  services  of the
businesses  that the Company  invests in and the amount that the Company invests
in  new   business   opportunities   and  the   timing  of  those   investments,
customer-spending  patterns,  the mix of products sold to customers,  the mix of
revenues  derived  from  product  sales as  compared to  services,  and risks of
fulfillment throughout and productivity.  These risks and uncertainties, as well
as other risks and  uncertainties,  could cause the Company's  actual results to
differ  significantly  from  management's   statements.   Further,   absent  the
permission of the  Securities and Exchange  Commission,  the Company is under an
administrative  restriction  preventing  it from  relying  on  this  safe-harbor
provision.

Item 6 - Management's Discussion and Analysis

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 Quarterly  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 stock,  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
measurement date is generally the date the options are fully vested.

Revenue recognition:

The Company has  provided  management  services to  companies  in the process of
developing new products with no operations.  These management fees have not been
recorded as revenue at this time since collectibility is not reasonably assured.

Research and development:

The Company has also advanced funds to these start-up companies. As the start-up
companies have used these advances for research and  development,  these amounts
have  been  recorded  as  research  and  development  expense  in the  Company's
financial statements.

                                       12
<PAGE>


Overview.

During the Quarter  ended June 30, 2002,  we  continued to make  progress in our
efforts  to  reposition  the  Company so that it could  begin to make  portfolio
investments  into  privately  owned growth  stage  businesses  with  significant
up-side  potential  that would  ultimately  be suitable  to being  taken  public
through the Company's Spin-off Dividend Distribution Program. During the quarter
and  subsequently,  we have  taken  some of the  most  critical,  expensive  and
positive steps toward  changing our capital and corporate  structure,  which has
allowed us to move forward on several business  initiatives that we believe will
set the  groundwork  for  attracting  more valuable  acquisition  and investment
opportunities to the Company in the future.

On May 31, 2002, an affiliate of our CEO that had advanced  funds to the Company
in the past converted $160,014 of cash advances into 16,001.4 shares of Series 1
Convertible  Preferred  Stock. We settled or converted  outstanding debt owed to
the CEO and the former  CFO in the amount of  $344,000.  We  continue  to pursue
settlements or conversion of debt owed to other former  management  employees in
the approximate amount of $300,000.  Also, on May 31, 2002, the Company recorded
payment  of a  subscription  for  Series 2  Convertible  Preferred  Stock of the
Company in the amount of $38,947  and issued  3,894.716  shares of such Series 2
Convertible  Preferred  Stock to Eagle  Capital  Funding  Corp.,  an  affiliated
company  ("Eagle  Capital").  As of July 31, 2002 Eagle  Capital had advanced an
additional $11,168 toward its subscription,  and on August 9, 2002 was issued an
additional  1,116.803 shares of Series 2 Convertible  Preferred Stock. Also, the
Company has  authorized a transaction  in which $100,000 in notes payable by the
Company to third  parties and 500,000  collateral  shares given the creditors by
the Company,  will be exchanged by the creditors  with Eagle Capital for Limited
Liability  Company  interests in a private  placement  being  conducted by Eagle
Capital.  Under  these  agreements  the Notes  will then be  exchanged  with the
Company for cancellation in partial  consideration  for Eagle Capital's  pending
subscription to purchase $200,000 in Series 2 Convertible Preferred Stock of the
Company. The referenced  collateral shares will be retained by Eagle Capital and
the  expense of the  collateral  shares  will be booked as  additional  interest
expense on the closing of the transaction.  The transaction is expected to close
in the third quarter,  provided that the $250,000  minimum private  placement is
completed, of which there is no assurance.

We continued our efforts to restructure the Company by announcing a shareholders
meeting in June of 2002,  that was held on July 2,  2002.  At that  meeting,  we
achieved  getting  shareholder  approval  of a 20  to 1  reverse  split  of  our
outstanding  Common Shares,  appointing a new board of directors,  instituting a
new stock option and incentive  plan,  and obtaining  shareholder  permission to
redomesticate the Company to be a Nevada  Corporation.  The Company continued to
pursue  development and acquisition of minor league sports franchises through an
initiative  contributed  by one of  its  officers  and  directors,  Mr.  William
Stewart. Also, through Mr. Stewart and the other current director, Mr. Gerald J.
Brandimarte,  the Company  continued  to develop a program  with its  affiliated
company,  Eagle Capital Funding Corp. ("Eagle  Capital"),  which was formed as a
privately  held  company to raise  private  capital to assist the Company in its
turn-around  and  restructuring  programs and to develop its own capital funding
sources and opportunities.

                                       13
<PAGE>


Through  Eagle  Capital,  we plan to have  access  to new  capital  for  ongoing
operations  including  costs of securities  law  compliance,  and to finance our
initial search and  transaction  expenses for investment and  acquisitions.  Our
management  team has agreed to take an  issuance  of 2 million  shares of common
stock  each in lieu  of  2002  salary  and  consulting  fees,  and has  accepted
incentive stock options as compensation  for their efforts to successfully  turn
the company around and launch the  acquisition/investment  and dividend spin-off
program.  With this relationship with Eagle Capital as a source of potential new
opportunities and private capital for our future ventures, we plan to reduce the
Company's  operational  activity  and its  overhead to the  simplest  level as a
corporate  finance vehicle with a goal to register under the Investment  Company
Act of 1940 as a Business Development Company.

The three officers and directors have an understanding that, they will own Eagle
Capital in equal shares of one-third each upon funding its private placement and
commencement  of  its  operations.   Eagle  is  currently  raising  funding  for
operations  and to fund  its  $200,000  subscription  to  Series  2  Convertible
Preferred of the Company  through a private  offering  into a Limited  Liability
Company (the "LLC") that will be managed by Eagle  Capital,  and if this private
placement and funding is successful,  the Series 2 Convertible  Preferred Shares
purchased  from the Company by Eagle  Capital will be  transferred  to this LLC.
Pursuant  to the terms of the  private  offering  of Limited  Liability  Company
interests,  Eagle will  participate as an owner of the Economic  Interest of the
LLC and therefore will be deemed a beneficial  owner of the Series 2 Convertible
Preferred  stock  owned by the LLC, if the  private  offering is closed.  Should
Eagle Capital successfully fund all or a significant portion of its subscription
to purchase  $200,000  worth of Series 2 Convertible  Preferred  Stock,  it will
directly or indirectly own a controlling interest in the Company and thereby our
current  management  team  will be  attributed  ownership  of  this  controlling
interest in the Company through their joint ownership of Eagle Capital.

The Company  held its annual  stockholders'  meeting on July 2, 2002 in which it
elected a three person board of  directors,  appointed  its current  auditors to
audit the  financial  statements  for the year end of the current  fiscal  year,
approved and enacted its new 2002 Omnibus  Stock  Option and  Compensation  Plan
(the  "2002  Stock  Incentive  Plan") in which  compensatory  grants of up to 20
million  common  shares  could  be  issued,   enacted  a  consolidation  of  its
outstanding  common  shares  by  effecting  a  20  to 1  reverse  split  of  its
outstanding  common shares  without  effecting the total  authorized  capital of
500,000,000 capital shares; authorized the redomestication of the corporation to
the  jurisdiction of the state of Nevada,  and approved a general  revision,  if
necessary of the Registrant's  Amended Articles of Incorporation  and By-laws to
conform to future  requirements  for listing on the proposed BBX  Exchange.  The
reverse  split was effected  effective  July 15, 2002,  in which the  Registrant
obtained a new CUSIP Number and trading  symbol of "OTCBB:  ARET."  Contained in
the referenced  2002 Stock  Incentive  Plan, as approved by  stockholders,  were
pre-designated  grants of 2,000,000 options each or a total of 6,000,000  common

                                       14
<PAGE>


shares to the current  officers and directors,  and stock options to purchase up
to  2,000,000  common  shares to a former  officer and  director  for a total of
8,000,000  common stock options  exercisable  at $0.02 per common  share.  These
grants had been previously  made, but subject to the enactment of the 2002 Stock
Incentive  Plan pursuant to  shareholder  approval and subject to enactment of a
20:1  reverse  split of  outstanding  common  shares,  which was approved by the
shareholders  and enacted  effective  on July 15, 2002.  On August 9, 2002,  the
Registrant  filed  a  Registration  Statement  under  Form  S-8  covering  up to
20,000,000  common shares  issuable  under the referenced  2002 Stock  Incentive
Plan,  including the referenced  pre-designated  grants.  On August 9, 2002, the
board of directors  authorized  issuance of 6,000,000  common shares pursuant to
pre-designated   grants  and  1,800,000  common  shares  to  professionals   and
consultants.  The  current  officers  and  directors  have  agreed  to take  the
referenced  grants and  options in lieu of salary and  consulting  compensation.
SEE: Notes to Financial Statements - Subsequent Events.

During 2001, the Company  continued its efforts to develop a revenue stream from
management  services  and  building  equity  ownership  in its  portfolio of new
entrepreneurial  opportunities  while initiating the process of reduction of its
overhead and initiating a search for investment  opportunities  in more advanced
stages of development and with better business  fundamentals.  In prior periods,
revenue and equity was created from opportunities that were developed  in-house,
but the Company's  in-house  projects ran out of money and the Company could not
secure the next round of financing for itself and its incubated  companies,  nor
due to deteriorating  economic conditions experienced in the second half of 2001
carrying over to 2002, was it able to close  acquisition  and funding of certain
new  opportunities,  in particular a new capital funding  subsidiary  created to
conduct  construction  and bond financing for Company  projects and  independent
funding  opportunities.  Due to  the  termination  or  postponement  of  certain
projects scheduled for closing after the terrorist attacks of September 11, 2001
on the World Trade Center,  the individual  sponsoring this  opportunity took on
employment for a Wall Street  investment bank and the initiative was put on hold
by the Company, hoping to find a new opportunity for this subsidiary. During the
first  quarter of 2002,  the Company  restructured  its program to develop Eagle
Capital Funding Corp. as an independent  company,  to be funded and owned by our
present  management  team, but dedicated in part to developing  capital  funding
sources for Company initiated projects, as described above.

During the first  quarter  of 2002,  the  Company  ended its lease on its office
space in Boulder, Colorado running at approximately $4,800 per month, and signed
a new,  short  term  lease  for the  smaller  suite  in the  same  building  for
approximately  1,200  square  feet at a monthly  rental of $1,986 for six months
from March 1, 2002,  with options to negotiate a longer term thereafter or go on
a month to month basis. The Company has only one salaried employee, its CEO, who
has  deferred  his  salary  for the first two  quarters  of 2002 and has taken a
2,000,000  common  share stock grant and a 2,000,000  common  share stock option
exercisable  at $0.02 per share in lieu of salary  for the  balance  of the 2002
fiscal year, as have the other two officers and directors.

                                       15
<PAGE>


In December of 2001,  the  Company  entered  into a letter of intent to create a
subsidiary  to acquire  the  interests  of William W.  Stewart in certain  minor
league sports  franchise  development  projects.  This  agreement  also included
retaining  Mr.  Stewart as a consultant  and his  appointment  onto the board of
directors  of the Company.  The  agreement  also  included the transfer of Eagle
Capital (prior to initiation of operations) to Mr. Stewart and the granting of a
subscription agreement to Eagle Capital to purchase up to $200,000 in face value
of a new series of the Company's Class A Convertible Preferred Stock. During the
period  ended June 30, 2002,  the  Company's  operations  continued to be funded
principally  by  cash  infusions  from  insiders  including  Eagle  Capital,  by
management  deferring its salaries,  and issuances of common stock for services.
Management  anticipates that ongoing expenses for the short term will be covered
by proceeds of its current private placement to Eagle Capital and by exercise of
stock  options,  to be replaced by revenues  from  operations as it executes its
business plan as a Business Development Company.

Financial Condition

As of June 30, 2002,  the Company had $244,739 in total assets and $1,427,418 in
total  liabilities,  as compared to $252,087 and $1,837,518 at the end of fiscal
year ended  December  31,  2001,  respectively.  Accounts  payable  and  accrued
expenses at June 30, 2002 were  $1,278,090 as compared to $1,553,300 at December
31, 2001.  The decrease from December 31, 2001, of $275,210 is  attributable  to
increases in accrued  salaries of $60,000 and  settlement  of other  outstanding
accrued  salaries to insiders of $344,000.  Losses were partially funded through
increased accounts payable by accruing or deferring salaries,  and advances from
officers and affiliates and issuance of Preferred Stock.

The Company's subsidiary,  Global Direct Marketing Services,  Inc., which is now
inactive,  has left an obligation  of trade  payables of $87,625 and unpaid 1999
payroll taxes of $46,897 remaining from its printing and direct mail advertising
business. The Company owes approximately $79,000 in unpaid Federal payroll taxes
for calendar  years 1995 through 1997  including  penalties  and  interest.  The
Company owes approximately $65,858 in 2000 and $97,373 in 2001, respectively, in
accrued payroll taxes, including penalties and interest.

During the six months  ended June 30, 2002,  the Company  continued to rely upon
infusions of cash from loans and cash advances by executives  and  affiliates of
the  Company.  The  proceeds  were  used  for  overhead,  payment  of  corporate
obligations and business development activities. As of June 30, 2002, additional
executive salaries of $59,900 and cash advances of $25,124 have been accrued and
salaries  and bonuses of  $477,232,  which were accrued as of December 31, 2001,
remain unpaid.

Results of operations

The company's operations during the second quarter of 2002 have been confined to
business development activities of its officers,  directors and consultants, and
administrative  bookkeeping tasks related to creditor and investor relations and
securities act compliance.  The Company is not providing new venture  management
or advisory  activities and therefore not generating  revenue from executive and
management services.

                                       16
<PAGE>


For the quarter ended June 30, 2002, the Company  incurred  $92,664 in operating
expenses. This included accruals of deferred executive salaries of $29,900, rent
of  $6,464  and  other  operating  expenses  of  $56,300  including  consulting,
bookkeeping,  shareholder  communication,  transfer  agent fees,  accounting and
auditing  expenses and costs associated with the annual  shareholder's  meeting.
During the first  quarter,  the Company was  successful  in reducing  its rental
expense by negotiating  out of its larger space and moving to a smaller suite in
the same building, reducing its monthly rental to $1,968 for office. The Company
continues  to rent  storage  space for its files,  inventory  and excess  office
equipment.  We envision operating the Company as a holding company in the future
for other going concerns and revenue generating  businesses,  which will require
minimal staff for accounting and administrative  matters. 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 entities.

Total  other  income  (expense)  of  $2,755  included  $3,328  in  interest  and
miscellaneous  income,  an interest expense of $573 resulting in a net loss from
operations of $89,889.

Liquidity and Capital Resources

The Company  has a working  capital  deficit as of June 30, 2002 of  $1,337,796.
This  compares to a working  capital  deficit of  $1,757,367  as of December 31,
2001.  The $419,571  decrease in working  capital  deficit for the quarter ended
June 30,  2002 is  primarily  attributable  to a decrease of $279,231 in accrued
expense  from  $852,323  for the fiscal  year ended  December  31,  2001,  and a
decrease  of  $134,890  in notes  payable - related  parties  from  $165,568  at
December 31, 2001.  During the quarter  ended June 30, 2002, no shares of common
stock were issued but the Company  issued  16,001 shares of Series 1 Convertible
Preferred  Stock  valued at face value of $160,014  and 3,895 shares of Series 2
Convertible Preferred stock valued at face value of $38,947.

The Company had a stockholder's deficit at June 30, 2002 of $1,182,679.  This is
compared to  stockholder's  deficit at  December  31,  2001 of  $1,585,431.  The
stockholder's deficit decreased due to the Company's operating at a loss, offset
by the  issuance  of  preferred  stock  for  cash  and the  conversion  of notes
payable-related parties and the cancellation of $344,000 in accrued salaries and
bonuses.

Due to its recent 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.

At  June  30,  2002,  the  Company  had  no  material  commitments  for  capital
expenditures.

                                       17
<PAGE>


The Company finds itself in a highly  illiquid  situation with few assets and no
revenue  to fund  ongoing  operations.  The  Company  has  relied on loans  from
insiders and deferral of salary and  compensation  by its employees,  as well as
issuance of Convertible  Preferred  Stock to affiliates.  The Company's  current
business plan will require  minimal funds for overhead and for  maintaining  its
financial reporting obligations.  Due to the illiquidity in the Company's public
trading market and the investment  environment in general, the Company's ability
to raise additional capital publicly or privately to launch its current business
plan in the near term is severely  limited.  The Company  continues  because its
principal officers and affiliates  continue to support the Company on a deferred
compensation basis.

The Company has  recently  reduced the number of  outstanding  common  shares to
allow it to raise  equity  capital  and to effect  conversion  and  exercise  of
outstanding  common stock options and conversion rights of preferred stock which
has been  reserved for  issuance to insiders in exchange for their  accrued cash
advances,  and for issuance in a private placement of up to $200,000 in Series 2
Convertible  Preferred  stock,  which the Company is currently  conducting to an
affiliated entity. As of August 9, 2002, the Company had raised $50,115 in gross
proceeds of this private placement and had 5,012 outstanding  shares of Series 2
Convertible  Preferred.  The Company  has agreed to a specific  use of the first
proceeds of this  offering  including  paying its auditing  costs and to pay the
costs of its annual meeting and other specified  expenses.  Management  believes
that the Company will  experience  significant  difficulty  raising  significant
additional  equity capital or attracting  viable  acquisition  candidates  until
these  matters have been  resolved and the Company has  eliminated a substantial
amount of its outstanding debt.

Due to the current financial  condition of the Company and the volatility in the
market for its common  stock,  no assurance can be made that the Company will be
successful  in raising  any  substantial  amount of capital  through the sale of
equity or debt  securities,  or with bank  debt on  favorable  terms in the near
future.  Due to such conditions 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  will  most  likely  impair  the  ability  of the  company  to meet  its
obligations in the near term.

Subsidiaries/Employees:

Arete  Industries,  Inc.  has  one  full  time  employee,  and  its  subsidiary,
Aggression  Sports,  Inc.  presently  has no  employees  other  than its  acting
president, the Company's current CEO. Seventh Generation Technologies,  Inc. has
no operations  and has no  employees.  Eagle  Capital  Funding Corp.  has had no
operations  since inception other than efforts to raise capital and to compile a
book of  business  for  private  debt  funding  for  construction  projects  and
commercial  real  estate  refinancings.   In  December,  2001,  the  entity  was
transferred  in total to Mr.  Stewart,  and the  Company  owns no equity in this
entity. The CEO remains on a deferred salary basis for the first two quarters of
2002 and has  accepted a  2,000,000  share stock  grant and an  Incentive  stock
option to purchase  2,000,000  shares of common stock at $0.02 per share in lieu
of salary for the balance of 2002, as have Mr. Stewart and Mr. Brandimarte.

                                       18
<PAGE>


Additionally,  we are continuing to seek revenue generating activities for Arete
Outdoors  including  finding  manufacturing  and/or  marketing  partners for our
developed  products,  and are  hoping  to  recruit  a new  management  team  and
investors  focused on growing this company through  acquisition of young outdoor
sports companies, neither of which is currently in place nor can be assured with
any degree of certainty.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

During the Period ended June 30, 2002, there were no material legal  proceedings
initiated  by or  against  the  Company  or any of its  officers,  directors  or
subsidiaries.

During the third  quarter of 2001,  the Company  concluded its defense of an SEC
enforcement  action  brought in the Federal  District  Court for the District of
Colorado,  for  violations  under  Section  15d of the '33 Act and  Section  10b
including  Rule 10b-5 of the '34 Act  against  the  Company,  one of its current
officers and two former officers and directors through  settlement of the action
by consenting to the entry of an  administrative  Cease and Desist Order without
admitting or denying the findings and conclusions  made by the SEC. No financial
sanctions  or  professional  bars were  imposed on the  Company  or the  current
officer in the  settlement.  The SEC  previously  settled  this  matter with the
former officers and directors through the imposition of financial  sanctions and
an injunction from future violations of the anti-fraud provisions of the federal
securities laws.

Item 2. Changes in Securities

     (a)  Changes in Instruments Defining Rights of Security Holders.

          Previously Reported.

     (b)  Not Applicable

     (c)  Item 701 Reg.  SB. - The  following  were the  unregistered  shares of
          common stock sold by the registrant  during the period covered by this
          report.

          None

Item 3. Defaults Upon Senior Securities.

          None.

                                       19
<PAGE>


Item 5. Other Information.

          None.

Item 6. Exhibits and Reports on Form 8-K

          Exhibit 99.1 Certification of CEO Pursuant to 18 U.S.C.  Section 1350,
          as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

          Exhibit 99.2 Certification of CFO Pursuant to 18 U.S.C.  Section 1350,
          as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

     During the  period  covered  by this  report,  there was one Form 8-K filed
     dated May 31, 2002.


                                   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 19, 2002

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

                                       20