UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-QSB  SQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2006  or  £Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.   000-51230(Commission File No.)  CASTLE ARCH REAL ESTATE INVESTMENT COMPANY, L.L.C. __________________________________________________________________________________________ (name of small business issuer in its charter)    California20-1077312(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)9595 Wilshire, PH 1000, Beverly Hills, CA90212(Address of principal executive offices)(Zip Code)  Issuers telephone number: (310) 385-5970  Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes £   No S  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 (the "Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S   No £  As of November 7, 2006, we had 33,794,246 units, consisting of 23,540,295 common units, 10,253,951 preferred units. _________________________________________________________________________________________      INDEX  Castle Arch Real Estate Investment Company, LLC For The Quarter Ending September 30, 2006   Part I.  Financial InformationPageItem 1.  Financial Statements3Consolidated Statement of Financial Condition  September 30, 2006 (Unaudited).3Consolidated Statements of Operations (Unaudited)  For the nine months ended September 30, 2006; and for the nine months ended September 30, 2005; and for the three months ended September 30, 2006; and for the three months ended September 30, 2005; and cumulative from April 15, 2004 (inception) to September 30, 2006.4Consolidated Statements of Cash Flows (Unaudited)  For the nine months ended September 30, 2006, and for the nine months ended September 30, 2005, and cumulative from April 15, 2004 (inception) to September 30, 2006.5Notes to Consolidated Financial Statements (Unaudited)  September 30, 2006.7Item 2.   Managements Discussion and Analysis of Financial Condition or Plan of Operation.14Item 3.   Controls and Procedures19Part II.  Other Information19Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds19Item 6.  Exhibits and Reports on Form 8-K20Signatures20   2   Part I  Financial Information  Item 1. Financial Statements  Financial Information Castle Arch Real Estate Investment Company, LLC (A Development Stage Company) Consolidated Statement of Financial Condition (Unaudited) September 30,ASSETS2006Current assets:Cash and cash equivalents$1,685,598Interest receivable39,301Other receivables (Note 4)200,000Notes receivable  current500,000Prepaid expenses51,525Total current assets2,476,424Property and equipment:Office equipment38,700Less: accumulated depreciation(9,155)Net property and equipment29,545Other assets:Notes receivable - noncurrent255,000Properties held for sale125,145Other properties held for investment24,089,619Options, earnest money deposits, and entitlement costs472,170Total other assets24,941,934Total assets$27,447,903LIABILITIES AND MEMBERS CAPITALCurrent liabilities:Accounts payable and accrued expenses$1,567,751Preferred unit distributions payable2,045,440Notes payable6,800,944Total current liabilities10,414,135Notes payable  noncurrent865,037Total liabilities11,279,172Minority interest in consolidated LLC (see Note 2)1,126,846Members capital:Common units, 23,476,591, issued and outstanding,ranging from $.001 to $2.50 per unit883,412Non-managing members units, series A preferred,1,000,000 units issued and outstanding, $1.00 per unit673,105Non-managing members units, series B preferred,2,000,000 units issued and outstanding, $2.00 per unit1,411,485Non-managing members units, series C preferred,3,300,000 units issued and outstanding, $3.00 per unit2,517,406Non-managing members units, series D preferred,3,667,526 units issued and outstanding, $5.00 per unit17,143,905Deficit accumulated during the development stage(7,587,428)Total members capital15,041,885Total liabilities, minority interest, and members capital$27,447,903  See accompanying notes.  3   Castle Arch Real Estate Investment Company, LLC (A Development Stage Company) Consolidated Statements of Operations (Unaudited)   CumulativeFromFor the NineFor the ThreeApril 15, 2004Months EndedMonths Ended(inception) toSeptember 30,September 30,September 30,20062005200620052006Revenues
:Proceeds from sale of property,net of cost of property sold$-$-$-$-$-Total revenues-----Operating expenses:Salaries, wages and othercompensation1,178,506710,794576,139294,1232,289,743Selling and marketing341,586140,981124,18245,001623,195Start-up and organizational costs----55,696Office supplies and expenses365,972246,364123,712149,063758,708Legal and outside services2,076,556297,4301,495,966151,7792,613,858Costs of terminated purchaseagreements157,429258,363156,626258,363402,792Travel, meals and lodging155,62697,70968,99848,846336,660Depreciation5,0595,6211,8891,8739,155Amortization of loanissuance costs115,005-18,774-115,005Taxes and licenses180---95,158Total operating expense4,395,9191,757,2622,566,286949,0487,299,970Operating income/(loss)(4,395,919)(1,757,262)(2,566,286)(949,048)(7,299,970)Other revenues/(expenses):Interest income58,21029,95724,56711,553109,073Interest expense(382,170)(231)(207,427)-(382,401)Income
/(loss) from continuingoperations before minorityinterest(4,719,879)(1,727,536)(2,749,146)(937,495)(7,573,298)Minority interest in losses ofconsolidated subsidiary(14,130)-(14,063)-(14,130)Net loss and deficit accumulatedduring the development stage$(4,734,009)$(1,727,536)$(2,763,209)$(937,495)$(7,587,428)Accumulated preferred dividends$(1,361,998)$(324,059)$(507,432)$(146,553)Net loss available to commonunitholders$(6,096,007)$(2,051,595)$(3,270,641)$(1,084,048)Net loss per common unit (Note 1)$(.27)$(.11)$(.14)$(.06)Weighted average units outstanding22,963,74319,075,83223,331,71619,655,352  See accompanying notes.  4      Castle Arch Real Estate Investment Company, LLC (A Development Stage Company) Consolidated Statements of Cash Flows (Unaudited)    Cumulative FromFor the NineFor the NineApril 15,Months EndedMonths Ended2004 (inception) toSeptember  30, 2006September 30, 2005September 30, 2006Cash Flows From Operating Activities:Net loss$(4,734,009)$(1,727,536)$(7,587,428)Adjustments to reconcile net loss tonet cash used in operating activities:Depreciation5,0595,6219,155Amortization of debt issuance costs115,005-115,005Amortization of discount on note payable26,996-26,996Professional outside services paid inthe form of common units118,75041,250197,500Changes in operating assets and liabilities:Interest receivable(34,906)-(39,301)Other receivables(200,000)-(200,000)Prepaid expenses(27,741)(2,500)(51,525)Accounts payable and accrued expenses1,270,384(115,843)1,486,354Due to related party-(20,000)-Properties held for sale--(125,145)Properties held for investment(7,889,150)(3,806,516)(17,311,543)Net cash used in operating activities(11,349,612)(5,393,838)(23,479,932)Cash Flows From Investing ActivitiesOption, earnest money,entitlement deposits(116,317)(430,430)(537,106)Issuances of promissory notes receivable(400,000)-(500,000)Proceeds from payments on promissorynotes receivable583,041(50,000)583,041Purchase of property and equipment(13,016)-(38,700)Net cash provided (used) in investing activities53,708(480,430)(492,765)Cash Flows From Financing ActivitiesProceeds from issuance of member unitsfor cash (net of offering costs)6,988,2206,035,78625,681,060Proceeds from subscriptions receivable1,985,135301,134-Proceeds (payments) from issuanceof notes payable-(11,843)-Payments for debt issuance costs(22,765)-(22,765)Net cash provided by financing activities8,950,5906,325,07725,658,295Net increase (decrease) in cash and cashequivalents(2,345,314)450,8091,685,598Cash at beginning of period4,030,9122,341,332-Cash at end of period$1,685,598$2,792,141$1,685,598  See accompanying notes.  5     Castle Arch Real Estate Investment Company, LLC (A Development Stage Company) Consolidated Statements of Cash Flows (Unaudited)     CumulativeFor The NineFor the NineFrom April 15,Months EndedMonths Ended2004 (inception) toSeptember  30, 2006September 30, 2005September 30, 2006Non-Cash Investing and Financing ActivitiesIssuance of members units for subscriptionsreceivable$527,438$1,582,389$527,438Distributions payable$1,361,998$324,058$2,045,440Accrued finders fees (offering costs)$85,022$33,001$85,022Accrued finders fees paid with common units$81,688$226,760$669,912Issuance of notes payable (net of debt offeringcosts and accrued interest) in exchange forother properties held for investment$6,708,707$-$6,708,707Issuance of promissory note receivablepursuant to financing arrangement (Note1, Item O)$838,041$-$838,041Accrued interest receivable applied towardsthe purchase of other property held forinvestment$2,438$-$2,438Accrued costs related to options, earnestmoney deposits, and entitlement costs$-$$1,995  Changes Attributable to Reclassifications  During the nine month period ended September 30, 2006, the Company reclassified $901,056 in options, earnest money deposits and entitlement costs to other property held for investment.  During the nine month period ended September 30, 2006, the Company reclassified $24,000 in properties held for sale to other properties held for investment.  In addition, the Company reclassified $350 in properties held for sale to costs of terminated purchase agreements.  Supplemental Disclosures  Cash paid for interest$366,219$231$366,450   See accompanying notes.    6   Castle Arch Real Estate Investment Company, LLC (A Development Stage Company) Notes to Consolidated Financial Statements September 30, 2006 (Unaudited)   1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  A. General Description of the Company and Presentation  Castle Arch Real Estate Investment Company, LLC, a California limited liability company, was organized on April 15, 2004 as a residential and commercial land development company with target properties located primarily in the Western United States.  The principal activities of the Company include securing acquisition rights to the property, obtaining zoning and other entitlements for the property, securing financing for the purchase of the property, improving the propertys infrastructure and amenities, and selling the property.  Property targeted by the Company may have end uses that range from residential, multifamily, retail and office, to industrial.  The Company may also consider other strategic and joint venture opportunities.  The Company has completed or commenced five private placements of membership units in the Company, and its subsidiaries as follows:  Effective May 1, 2004, the placement of 1,000,000 Series A membership units consisting of one common and one preferred unit each at $1.00 per membership unit.  Effective July 20, 2004, the placement of 1,000,000 Series B membership units, consisting of one common and two preferred units each at $2.00 per membership unit.  Effective November 5, 2004, the placement of 1,100,000 Series C membership units, consisting of one common and three preferred units each at $3.00 per membership unit.  Effective June 30, 2005, the placement of 3,000,000 Series D membership units, consisting of one common and one preferred unit each at $5.00 per membership unit.  Effective April 14, 2006, the Company elected to increase the Series D private placement; resulting in an additional 940,000 Series D membership units, consisting of one common and one preferred unit each at $5.00 per membership unit.  As of September 30, 2006, the Company has successfully placed 3,929,200 membership units.  Effective May 22, 2006, the placement of 1,200,000 membership units in Castle Arch Kingman, LLC (CAK), a variable interest entity, of which the Company is considered the primary beneficiary (see Note 2).  Each membership unit consists of five common and one preferred unit at $25.00 per membership unit.  As of September 30, 2006, CAK has successfully placed 62,660 membership units.  At September 30, 2006, the Company had completed the Series A, B, and C private placement offerings, and had raised $19,646,000 of the Series D private placement, resulting in the placement of 7,029,200 membership units.  Of this amount, $120,650 represents Series D subscribed units outstanding for which funds had not been received at September 30, 2006.  In addition, the Company had raised $1,566,482 of the CAK private placement, of which amount $406,788 had not been received at September 30, 2006.  The Members share in the profits and losses of the Company in proportion to their respective interests in the Company based on the weighted average dollar amount invested during the period.  A non-Managing Members loss is limited to the amount of his or her investment.  Consistent with the Companys policy and its private placement memorandums, profits and losses have been allocated to the various members interests as follows:   7   Castle Arch Real Estate Investment Company, LLC (A Development Stage Company) Notes to Consolidated Financial Statements September 30, 2006 (Unaudited)   1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  A. General Description of the Company (continued)  a) Allocation of profits shall be made:  (i) First, to the members, up to the aggregate of, and in proportion to, any losses previously allocated to each member, to the extent not previously offset by allocations of profits; (ii) Second, to preferred members, subject to the Managers election to redeem the membership units and to the extent of the cumulative preferred unit return; (iii) Third, to the common members, in proportion to their percentage interests.  b) Allocation of losses shall be made as follows:  (i) First, to the members, up to the aggregate of, and in proportion to, any profits previously allocated to each member and not previously offset by losses until their capital account balances have been reduced to zero; (ii) Second, to the preferred members until their capital account balances have been reduced to zero; (iii) Third, to the common members, in proportion to their percentage interest.  c) At no time shall the sum of all historical net profit distributions to common unit holders exceed the total amounts paid toward redeeming any outstanding preferred units, until all preferred units have been redeemed.  The Company has not received revenues from the sale or development of property as of September 30, 2006 in accordance with its business plan.  Accordingly, the Companys activities have been accounted for as those of a development stage enterprise as defined in Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises.  All losses since inception have been considered as part of the Companys development stage activities.  d) Presentation  The Company prepared the financial statements as of September 30, 2006 and for the periods ended September 30, 2005 and 2006, without audit pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, all necessary adjustments, which consist primarily of normal recurring adjustments, to the financial statements have been made to present fairly the financial position and results of operations and cash flows.  The results of operations for the respective periods presented are not necessarily indicative of the results for the respective complete years.  The Company has previously filed with the SEC an annual report on Form 10-KSB, which included audited financial statements for the period ending December 31, 2005.  It is suggested that the financial statements contained in this filing be read in conjunction with the statements and notes thereto contained in the Companys 10-KSB filing.  8    Castle Arch Real Estate Investment Company, LLC (A Development Stage Company) Notes to Consolidated Financial Statements September 30, 2006 (Unaudited)   1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  B. Principles of Consolidation  The accompanying consolidated financial statements include the accounts of Castle Arch Real Estate Investment Company, LLC and, effective April 2006, the accounts of Castle Arch Kingman, LLC (CAK).  CAK is considered a variable interest entity of which the Company is the primary beneficiary (see Note 2).  All intercompany accounts and transactions have been eliminated in the consolidated financial statements.  C. Reclassifications  Certain amounts in the accompanying financial statements have been reclassified to conform to current quarter presentation.  D. Method of Reporting and Use of Estimates  The Companys financial statements are presented in accordance with U.S. generally accepted accounting principles (GAAP).  Such principles require the use of certain estimates and assumptions made by the Companys management in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  E.   Accounting Method  The Companys financial statements are prepared using the accrual method of accounting.  The Company has elected a December 31 year end.  F.   Income and Expense Recognition  Gains or losses associated with real estate are realized in full when the property is sold by the full accrual method in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 66 Accounting for Sales of Real Estate.  Costs associated with real estate are accounted for in accordance with the provisions of Statement of Financial Accounting Standard (SFAS) No. 67 Accounting for Cost and Initial Rental Operations of Real Estate Projects.Accordingly, acquisition, development and construction costs, including property taxes, insurance and selling costs, are capitalized.  Such costs are specifically allocated to the related components or, if relating to multiple components, allocated on a pro rata basis as appropriate.  Estimates are reviewed periodically and revised as needed.  The respective real estate projects are also periodically reviewed to determine that the carrying amount does not exceed the net realizable value.  To date, no allowance has had to be provided for estimated impairments of value based on evaluation of the projects.  G. Income Taxes  No provision for income taxes has been made in these financial statements because each member is individually responsible for reporting income or loss based on its respective share of the Companys income and expenses as reported for income tax purposes.  The Company prepares calendar year federal and state information tax returns and reports to the members their allocable shares of the Companys income, expenses, and gains or losses.  9     Castle Arch Real Estate Investment Company, LLC (A Development Stage Company) Notes to Consolidated Financial Statements September 30, 2006 (Unaudited)  1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  H.   Cash and Cash Equivalents  The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents.  I. Offering Costs  Costs incurred in the successful raising of capital under the Companys private placement memorandums such as finders fees and attorneys costs have been offset against various components of members equity as a reduction of the proceeds received from the sale of membership units.   J. Property and Equipment  Property, plant and equipment are stated at cost.  Depreciation is computed primarily using the straight-line method based on estimated useful lives of 5 years.  K. Advertising Costs  The Company may incur costs of advertising which it will expense as incurred.  Advertising costs do not include commissions for the sale of property or finders fees incurred for the successful raising of capital.  L.    Net Loss Per Common Unit  Net loss per common unit is computed based on the weighted-average number of common units and, as appropriate, dilutive common unit equivalents outstanding during the period.  Basic net loss per common unit is the amount of net loss for the period available to each common unit outstanding during the reporting period.  Diluted net loss per common unit is the amount of net loss for the period available to each common unit outstanding during the reporting period and to each unit that would have been outstanding assuming the issuance of common units for all dilutive potential common units outstanding during the period.  At September 30, 2006, the basic and diluted net loss per common unit is the same as there are no common unit equivalents outstanding.  Accumulated preferred unit dividends, totaling $1,361,998 for the nine month period ended September 30, 2006, have been included in the computation of net loss per common unit, resulting in an incremental increase in loss per unit of $.06.  M. Options and Deposits on Land and Entitlement Costs  As of September 30, 2006, the Company has successfully placed earnest money deposits, or deposits to acquire options, as well as increased deposits, for the purchase of fifteen properties totaling $2,143,000.  The terms of the purchase agreements provide for property review periods during which the deposits may be refunded upon written notice of unsuitability.  Upon expiration of the review periods, the deposits become non-refundable as liquidated damages to the seller if the purchase does not close.  The Companys policy is to capitalize entitlement costs and applicable deposits incurred as options, earnest money deposits and entitlement costs until such time as the properties are purchased.  Upon purchase, the Company classifies the property as held for sale only when certain requirements are met, such as the completion of the respective entitlements and the preparation of the property for immediate sale in its existing condition, an active program to identify potential buyers has been initiated, and when the Company believes the sale is probable and expected to occur within the following twelve months.  Those properties that do not meet these criteria are classified as other properties held for investment.    10    Castle Arch Real Estate Investment Company, LLC (A Development Stage Company) Notes to Consolidated Financial Statements September 30, 2006 (Unaudited)  1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  M. Options and Deposits on Land and Entitlement Costs (continued)  Of the successful deposits placed by the Company at September 30, 2006, $1,477,000 has been applied towards the purchase of eight separate properties, with purchase prices totaling $19,830,742.  The Company has also incurred $364,754 in entitlement costs and project costs, and $1,139,406 in water rights associated with these purchased properties at September 30, 2006.  These costs are included in other properties held for investment at September 30, 2006, totaling $24,089,619.  In addition, at September 30, 2006, $336,000 in earnest and increased deposits, combined with entitlement costs of $203,102, is related to four properties the Company has entered into purchase agreements to acquire and, accordingly, these amounts have been recorded as options, earnest money deposits, and entitlement costs.  Of the remaining $130,000 in successful deposits placed at September 30, 2006, $65,000, combined with $1,145,785 in entitlement costs is related to one property recorded as other properties held for investment.  The remaining $65,000 in earnest and increased deposits at September 30, 2006 is related to properties held for sale (see Note 1, Item N).  During the nine months ended September 30, 2006, the Company acquired five separate properties, totaling $13,322,851.  Of this amount, $6,708,707 reflects debt proceeds, net of debt issue costs, incurred to fund the purchase price of three of these properties.  In addition, associated entitlement costs and other related project costs were incurred during the same period, totaling $68,630 and $200,000, respectively.  Also, during the nine months ended September 30, 2006, the Company incurred $472,943 in options, earnest money deposits, and entitlement costs, and $1,006,376 in entitlement costs related to a separate property held for investment.  N. Properties Held for Sale  During 2005, the Company placed land deposits of $65,000 and incurred associated entitlement costs totaling $60,145 to purchase the rights to one property.  These rights were subsequently reassigned by the Company in 2005.  As the reassignment of the rights meet the appropriate criteria for classification of held for sale (see Note 1, Item M), the associated costs, totaling $125,145 have been recorded as properties held for sale at September 30, 2006.  To date, the proceeds to be paid to the Company have not been realized.  O. Notes Receivable  At September 30, 2006, the Company had entered into three promissory notes receivable with a nonrelated entity, totaling $500,000.  One of the three notes has a principal balance of $400,000, and, pursuant with the original terms, bears interest at 8 percent per annum.  Accrued interest along with principal is to be paid in full on or before January 17, 2007.  The two remaining notes have principal balances of $50,000 each.  These promissory notes bore interest at 8 percent per annum, and accrued interest along with principal was to be paid in full on or before March 14, and April 20, 2006, respectively.  In January, 2006, the Company extended the maturity date of the two notes to December 31, 2006, and all accrued interest to date became due in full.  At September 30, 2006, the Company had not received payment for the required interest payments, but did not record any impairment for the interest receivable as it expects to extend by mutual agreement, the due date for the interest.  At September 30, 2006, the Company had entered into a fourth promissory note receivable totaling $838,041 pursuant to a financing arrangement effected in June, 2006 (see Note 3).   Of this amount, $255,000 bears interest at 12 percent per annum.  Accrued interest along with principal is to be paid in full on or before May 15, 2010.  The remaining $583,041 was received during the three months ended September 30, 2006.  P. Accounts Payable and Accrued Expenses  At September 30, 2006, the Company accrued for expenses incurred and payable to certain nonrelated parties, totaling $112,729.  The Company also accrued for compensation incurred and payable to a related party, totaling $175,000.  In addition, $85,022 and $1,195,000 was accrued for finder fees and compensation incurred, respectively, which amounts are payable in the form of common units.   11     Castle Arch Real Estate Investment Company, LLC (A Development Stage Company) Notes to Consolidated Financial Statements September 30, 2006 (Unaudited)  1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  Q. Notes Payable  In March and June, 2006, the Company entered into two promissory notes payable with a third-party lender totaling $5,380,293 and $1,479,339, respectively.  The Company incurred combined debt issue costs totaling $97,548, of which amount $22,765 was paid from the Companys cash accounts during the nine months ended September 30, 2006.  Accordingly, these debt issue costs will be amortized over the 12-month terms of the notes.  The Company collateralized the notes with four properties and associated water rights purchased during 2005 and 2006, respectively.  The notes bear annual interest rates of 10.5 and 10.25 percent, respectively, with interest only payments due on a monthly basis over the terms of the notes.  At the date of maturity, all principal and accrued interest is due in full.  In addition to using the proceeds for the acquisition of property held for investment, the Company also used $1,565,010 and $11,045 to repay an existing note payable and associated accrued interest, respectively.  Debt issue costs related to this note payable totaled $65,097.  2. CONSOLIDATION OF VARIABLE INTEREST ENTITY  Effective April 2006, the Company adopted FIN 46(R), resulting in the consolidation of Castle Arch Kingman, LLC (CAK).  In accordance with the pronouncement, CAK is considered a variable interest entity and the Company its primary beneficiary.  Accordingly, the Company has consolidated CAK and eliminated all intercompany transactions.  CAK was founded in April, 2006 by members and managers of the Company to develop over 2,000 acres of land in the Kingman, Arizona area into commercial and residential properties (the Project).  At the date of CAKs formation, the Company entered into an Option Contract for Sale and Purchase (the Contract) and, accordingly, agreed to sell, at cost, all of the land it has or will acquire in the Kingman, Arizona area.  At September 30, 2006, the Company has purchased approximately 453 acres, totaling $12,008,373.  In addition, at September 30, 2006, the transfer has not yet been consummated.  In exchange for $6,000 in capital contributed to CAK at the date of its formation, the Company was issued 6,000,000 common units, representing approximately 95 percent of all outstanding common units of CAK at September 30, 2006.  Members of the Companys management team effectively control CAK pursuant to its operating agreement, wherein the Company and its managing members have been appointed as the managing member of CAK and, therefore, shall direct, manage and control and have complete authority, power, and discretion in decisions to accomplish the intended business and objectives of CAK.  The Company intends on funding CAKs working capital requirements and future operating expenses through a private placement offering, consisting of the placement of 1,200,000 membership units, comprising one preferred and five common units each at $25.00 per membership unit.  At the close of the offering, the investors of CAK will collectively own all 1,200,000 outstanding preferred units and 50 percent of all outstanding common units, or 6,000,000 units.  The Company will own the other 50 percent of CAKs common units.  In addition, the Company will receive a management fee of 2 percent of all funds raised on CAKs behalf.  At September 30, 2006, CAK had raised $1,566,482.  Of this amount, $406,788 represents subscribed units outstanding for which funds had not been received at September 30, 2006.  The minority interest in the Companys earnings during the nine month period ended September 30, 2006 totals $14,130.  The total equity investment at risk in CAK will be insufficient to accomplish, in its entirety, the scope of the Project and, therefore, will require additional subordinated support.  In addition, the Company is anticipated to absorb a majority of CAKs expected losses.  Therefore, upon close of the private placement offering, resulting in the Company owning 6,000,000 common units issued and outstanding, or 50 percent in CAK, the Company will continue to be considered the primary beneficiary and, accordingly, will continue to consolidate the entity.       12     Castle Arch Real Estate Investment Company, LLC (A Development Stage Company) Notes to Consolidated Financial Statements September 30, 2006 (Unaudited)   3. FINANCING ARRANGMENT (continued)  In June, 2006, the Company entered into a purchase agreement to exchange 33 acres, comprising a portion of other properties held for investment, in return for $840,000 to facilitate an IRS code section 1031 exchange.  Pursuant to the terms of the purchase agreement, the Company exchanged the 33 acres for a $255,000 promissory note receivable (see Item O, Note 1) and $585,000 in cash proceeds, net of closing costs.  Also included in the terms of the purchase agreement is an option to repurchase, whereby the Company is entitled to purchase back the exchanged property at appreciated values at specified dates in the future.  In addition, the buyer is limited in its rights to the property under the purchase agreement, and may not assign or otherwise transfer its rights without the Companys written consent.  Given these factors, the Company exhibits substantial continuing involvement in the acreage exchanged and, therefore, the Company has treated the transaction as a financing arrangement.  Accordingly, at September 30, 2006, the Company has recorded a note receivable totaling $255,000, and a corresponding note payable totaling $1,053,696, net of closing costs and imputed interest totaling $212,966.  The offering costs and imputed interest will continue to be amortized over the two year life of the option.  4. SUBSEQUENT EVENTS  Subsequent to quarters end, the Company was reimbursed $200,000 in earnest and increased deposits on a property the Company previously had an option to purchase.  As the event that triggered the reimbursement occurred during the period ended September 30, 2006, the Company recorded a land deposit receivable, totaling $200,000 at September 30, 2006.  In addition, the Company expensed associated entitlement costs in excess of the reimbursement, totaling $156,626, as costs of terminated purchase agreements during the period.  Subsequent to quarters end, the Company placed a $250,000 earnest money deposit to acquire an option for the purchase of 76 acres.  This amount will be applied towards the purchase price of the property contingent upon the Companys determination of suitability during the property review periods, the terms of which are disclosed in the respective purchase agreements.  Subsequent to quarters end, the Company issued three unsecured promissory notes receivable, each totaling $25,000.  The notes bear an annual interest rate of 8 percent and principal is to be paid together with all accrued interest on or before December 31, 2006.  Subsequent to quarters end, the Company has raised additional capital totaling $250,000 and has received $155,000 of outstanding subscriptions receivable at September 30, 2006.  13     Item 2. Management's Discussion and Analysis or Plan of Operation.  We are in the business of developing residential and commercial land with target properties located primarily in the Western United States.  Our principal activities include securing acquisition rights to properties, obtaining zoning and other entitlements for the properties, securing financing for the purchase of the properties, improving the properties infrastructure and amenities, and selling the properties.  Properties targeted by us may have end uses that range from residential, multifamily, retail and office, to industrial.  We may also consider other strategic and joint venture opportunities.  We have received no revenues from the sale or development of property as of December 31, 2005 or September 30, 2006. However, we are continuing to work several properties through the entitlement process and expect to generate revenues from those activities in the coming 12 months.  Our operations are currently funded by equity sales and loans.  Results of Operations  The following discussion should be read in conjunction with selected financial data and the financial statements and notes to financial statements.  Selected Financial Information Three months endedSeptember 30,20062005Revenue, net$- 0 -$- 0 -Gross profit (loss)(2,566,286)(949,048)Operating loss(2,749,146)(937,495)Other income (expense)(182,860)11,553Net income (loss)(3,270,641)(1,084,048) __________________________________________________________________________________________  14     September 30,
2006December 31,
2005Balance Sheet Data:Cash and Cash Equivalents$1,685,598$4,030,912Total Current Assets2,476,4244,159,091Total Assets27,447,90314,148,656Total Current Liabilities10,414,1351,050,680Total stockholders equity$15,041,885$13,097,976  __________________________________________________________________________________________  Discussion  During the three month period ended September 30, 2006 our revenues were limited to interest income due to the fact that we received no funds from the sale of any property. During the three month period we continued to focus on locating, acquiring rights to, and entitling target properties. During the three month period ended September 30, 2006, we continued to incur entitlement costs on both properties under contract and those properties which we own. None of these activities have produced revenues.  Our general and administrative expenses totaled $2,545,623 during the three month period ended September 30, 2006, compared to $947,175 during the comparable three month period ended September 30, 2005. The increase in general and administrative expenses is primarily attributable to increased salaries of our executive officers and additional employees, office costs and professional services. We anticipate that our general and administrative expenses will remain fairly constant during the next several quarters, while we do not currently anticipate that we will commence revenues during such period.  We currently have purchased or placed deposits on a total of fourteen parcels. Three parcels totaling 600 acres are located in California, seven parcels totaling 529 acres are located in Utah and four parcels totaling 493.28 acres are located in Arizona. The parcels to which we have rights are described in more detail below.  Fresno County California Properties  In September, 2004, we entered into two agreements entitled Assignment and Assumption of Purchase and Sale Agreement (collectively the Assignment) wherein we were assigned the rights to purchase two properties to which Brett Baillio had previously acquired purchase rights. The properties consist of 158 and 181 acres of raw land in the cities of Coalinga and Firebaugh, California, respectively. The purchase price for the properties was $3,838,250 and $7,890,900, respectively.  Our benefit for entering into the Assignment is that we were in a position to acquire land that we believed would appreciate in value due to general appreciation trends in the area and as a result of our entitlement efforts. Mr. Baillios benefit for assigning his purchase rights to us stemmed from eliminating the requirement that he finance the collective $10.5 million purchase price, but kept him in a position to profit from the resell of the properties once they had been worked through the entitlement process and parceled up or otherwise improved by us. Section 2 of the Assignment required us to pay Mr. Baillio 10% of the proceeds from any resale of the property by us within three years of the closing date of the property purchase. In addition, Section 2 of the Assignment also required us to pay Mr. Baillio 30% of our net profits from the resale of the properties. Prior to cancellation of the original assignment we paid costs totaling $180,409 and $149,145 for the Coalinga and Firebaugh properties, respectively. The costs include all deposits and costs paid to Mr. Baillio in connection with the purchase of the properties between the period from the Assignment to the Reassignment.  15    In June, 2005, we entered into two agreements entitled Reassignment and Assumption of Purchase and Sale Agreement (collectively the Reassignment) wherein we reassigned our rights to the two properties back to Mr. Baillio and eliminated our duties under the Assignment. We entered into the Reassignment due to the fact that we had other investment opportunities in which we preferred to deploy capital. In addition to preserving capital, we are in a position to benefit from the Reassignment because Mr. Baillio agreed to pay to us $10.5 million as consideration for the Reassignment. Mr. Baillio has agreed to pay an additional $10.5 million to us while continuing to be responsible for the $11.7 million purchase price to the seller. Mr. Baillio closed on the purchase of Coalinga in September 2005 and Firebaugh in February 2006. Mr. Baillio is in a position to benefit from the resale value of the properties if they exceed the sum of the aggregate $11.7 million purchase price and the $10.5 consideration for the Reassignment to be paid to us. We believe that the property has appreciated due to market conditions and entitlement improvements made by us. We estimate the current value of the properties to total approximately $30 million. However, neither property has been resold by Mr. Baillio.  During the period between the Assignment and the Reassignment, we reimbursed Mr. Barillio for all deposits and costs incurred by him in connection with the purchase of the properties. In addition, we have paid other deposit and entitlement costs totaling $1,210,785 for Firebaugh and $125,145 for Coalinga through November 13, 2006. In 2006, we paid an additional $1,000,000 to the original sellers of the properties to maintain Mr. Baillios purchase rights. The Reassignment did not require us to pay the additional $1,000,000. However, our management believed it prudent to pay the amounts due by Mr. Baillio in order to maintain the rights under the purchase and increase the likelihood of recovering the consideration owed to us by Mr. Baillio. We will seek recovery of the $1,000,000 in addition to the $10.5 million owed us under the Reassignment. We also interpret language of the Reassignment to allow us to recover the $329,554 in deposit and entitlement costs paid by us in connection with the properties; however, there is ambiguity in the Reassignment and potential for dispute between the parties on this point.  The Reassignments require Mr. Baillio to pay the consideration in December, 2005 and February 2006, respectively.  To date, Mr. Baillio has failed to pay us and is in default of the Reassignment. There are no termination rights for Mr. Baillio. Mr. Baillio has indicated to members of our management that he intends to pay us immediately upon his resale of the properties. The properties are for sale. However, due to recent downturns in the real estate market in the area, our management assesses that demand for raw land has softened. In response to the market shift, our management is currently reviewing the benefits of advancing the physical development of the properties through excavation, curb and gutter, sewage and possibly building construction. We currently do not have any other partnership agreements with Mr. Baillio. However, we may partner with him in the physical development of the properties.  Alternative to facilitating further development of the properties, we are entitled under the terms of the Reassignments to bring a court action against Mr. Baillio for failure to pay. Currently have not commenced any actions against Mr. Baillio for breach of contract. We believe that is we obtain a judgment against Mr. Baillio, we could foreclosure on the land. However, as there are lien positions ahead of us held by those who financed Mr. Baillios purchase of the properties and our management believes that the market for distressed land sales in the area to be soft, forcing a fire sale of the land does not currently appear to be a prudent avenue to maximize profits. However, opportunities in the real estate market and opportunities presented to us may improve the attractiveness of attempting foreclosure against the properties. Our management recognizes that our president, Robert Geringers relationship with Mr. Baillio creates a potential conflict of interest. However, Mr. Geringer has disclosed the scope of and nature of his relationship with Mr. Baillio to our board. Our board deems Mr. Geringers interactions with Mr. Baillio to be fair to us. Notwithstanding his influence within our management team, Mr. Geringer does not have unilateral authority, nor veto power, with regards to how we move forward with the Fresno, or any other properties to which we have rights.  We do not intend for reassignment of purchase rights to be our primary model. However, our lack of liquidity caused us to in effect flip the property to retain the value that we had created from working the properties through the entitlement process.  16    Tooele County Utah Properties  We have purchased 264 acres of raw land in Tooele, Utah for $7,172,453, plus water rights for $1,139,406. We intend for the property to be a family residential development. We are working through entitlements for 900 to 1,000 single-family homes on the properties, including multi-family residences. As of November 13, 2006, we have incurred $89,179 in entitlement costs in the form of government filing fees, engineering fees and legal fees in connection with planning and approvals, Tooele zoning entitlements, conceptual and master land use plan, noise assessment study, and annexation requests. We are currently working through water rights and annexation issues affecting the properties. We believe that there may be additional entitlement costs in connection with the Tooele properties between $100 and $300 thousand. We are selling the lots in three phases. We believe that we will be able to sell approximately 30% of the lots during 2007. We anticipate selling the lots to home builders.  We targeted the Tooele area because of its sustained growth. According to the most recent US Census, Tooeles population is growing. Members of our management who live and work in northern Utah observe that much of the growth is attributable to young families who find the cost of new homes in Tooele attractive in comparison to those in Salt Lake City.  Our management believes that almost half of Tooeles workforce commutes 20 to 30 miles on Interstate 80 to jobs in neighboring Salt Lake valley. Tooeles local economy is starting to keep pace, led by retail and other services to support the growing population. A major boost to the employment base came from the Utah Industrial Depot, a converted military base, now home to some 60 private employers including a 195,000 square-foot Freightliner truck refurbishing facility. The Depot is about four miles from Castle Archs properties.  Other major employment sectors in Tooele County are government, military, manufacturing, environmental services and distribution, including a Wal-Mart regional distribution center in nearby Grantsville. The recently completed Miller Motor Sports Park will be a major motor sports venue and is scheduled to begin hosting national circuit events in June 2006. Just ten minutes from the Castle Arch property, the Park is expected to spur additional recreational, lodging and hospitality development in the area.  The Castle Arch project lies at the northern end of the Tooele municipality, seven miles from Interstate 80 and close to schools, community amenities and shopping, including a Wal-Mart SuperCenter, two grocery supermarkets, and a Home Depot store scheduled for completion in spring of 2006.  Kingman Arizona Properties  We have purchased three parcels of raw land in the Kingman Arizona area.  In one transaction, we paid $5,626,397 for a 216 acre parcel. In a second transaction, we paid $454,611 for a 21.26 acre parcel. In a third transaction, we paid $5,686,325 for an additional 216 acre parcel. We intend to acquire an additional raw land in the Kingman area. As discussed in the section entitled Business, we intend, in connection with Castle Arch Kingman, LLC to develop a community with up to 10,000 dwelling units, two golf courses, a club house and other recreational amenities. We plan to sell fully entitled building lots to production builders over a period of seven to ten years, with the first lot sales anticipated to begin in 2008. We have paid $75,575 in entitlement costs for legal and engineering, including a topographical survey of the properties.  We are interested in developing land in the Kingman Area because it is located 95 miles southeast of Las Vegas, Nevada in Mohave County, Arizona. Mohave County is one of Arizonas fastest growing counties, registering 65% population growth in the last ten-year U.S. census report. Our management believes that Mohave County has potential for new job creation in manufacturing, distribution, recreation and tourism as well as from services to an influx of retirees, mostly from California.  The Kingman area has good transportation access. With the completion of the Hoover Dam Bypass in 2008, U.S. Highway 93 will be a four-lane divided highway over the 95 miles between Kingman and Las Vegas. Interstate 40 links Kingman with Southern California. The Kingman airports 6,000-foot runway handles large commercial aircraft. Kingman is served by three commercial flights daily to and from Phoenix, as well as numerous charter services.  17     We believe that Kingmans climate will attract property buyers. Kingmans elevation at 3,400 feet above sea level gives it a moderate climate with highs averaging 96oF in the hottest month (July) and 54oF in the coldest month (January). This pleasant, sunny climate makes Kingman a very attractive destination for retirees and compares favorably against the average 104o summer highs of Phoenix and Las Vegas. Kingmans proximity to Las Vegas, Henderson, Boulder City, Laughlin and Lake Mead make it a feasible location for commuters. We anticipate that local and regional growth, combined with good transportation infrastructure, will fuel the demand for high-quality housing and recreation facilities in the Kingman area.  Other Properties  We originally placed deposits on two properties totaling 320 acres in Imperial County, California. However, we received a full refund for one of the properties due to the fact that we were unable to remove encumbrances on the land in connection with the California Land Conservation Act of 1965, commonly referred to as the Williamson Act. The Williamson Act enables local governments to enter into contracts with private landowners for the purpose of restricting specific parcels of land to agricultural or related open space use.  We now have a deposit on 160 acres. The total purchase price of the property is $7.5 million. As of November 13, 2006 we have incurred $156,626 in entitlement costs in the form of government filing fees, engineering fees and legal fees in connection with planning and civil engineering services, environmental site assessment, biological study, burrowing owl survey, tentative subdivision map, engineering services, site assessment, preparation of conceptual layout, biological assessment, research and reporting, environmental consulting services.  Liquidity and Capital Resources  At September 30, 2006, we had cash and cash equivalents of $1,685,598, compared to $2,792,141 on the same date one year earlier, and $4,030,912 at December 31, 2005. Our decreased cash balance at September 30, 2006 is largely attributable to general and administrative expenses and land acquisition costs.  We believe that proceeds from sales of our securities will be sufficient for us to survive as a going concern for the next 12 months. Our management is actively pursuing additional sources of funding. In addition, our management is expecting an increase in cash flows through anticipated commencement of revenues from operations.  If we do not raise sufficient funds in the future, we may not be able to fund expansion, take advantage of future opportunities, meet our existing debt obligations or respond to competitive pressures or unanticipated requirements. Financing transactions in the future may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. We may also sell unimproved land or land purchase contracts that we own. However, we currently do not have plans in the coming several months to sell unimproved land.    18    Prospective shareholders should understand that several factors govern whether any forward-looking statement contained herein will be or can be achieved. Any one of those factors could cause actual results to differ materially from those projected herein. These forward-looking statements include plans and objectives of management for future operations, including plans and objectives relating to the products and the future economic performance of the Company. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development projects, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of those assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in any of the forward-looking statements contained herein will be realized. Based on actual experience and business development, the company may alter its marketing, capital expenditure plans or other budgets, which may in turn affect the companys results of operations. In light of the significant uncertainties inherent in the forward-looking statements included therein, the inclusion of any such statement should not be regarded as a representation by the Company or any other person that the objectives or plans of the company will be achieved.  Item 3.  Controls and Procedures  We carried out an evaluation as of September 30, 2006, under the supervision and with participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. Subsequent to September 30, 2006, there have been no significant changes in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  PART II - OTHER INFORMATION  Item 1.  Legal Proceedings  The Company currently is not party to any material legal proceedings.  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds  During the three month period ended September 30, 2006, we received $1,258,369 from the sale of 251,674 member units to a total of 15 persons. We believe the transactions to be exempt under Section 4(2) of the Securities Act of 1933, as amended, because they do not involve a public offering. We believe that this sale of securities did not involve a public offering on the basis that each investor is an accredited investor as defined in Rule 501 of Regulation D and because we provided each of our investors with a private placement memorandum disclosing items set out in Rule 501 and 506 of Regulation D.  The shares sold were restricted securities as defined in Rule 144(a)(3). Further, each common stock certificate issued in connection with this private offering bears a legend providing, in substance, that the securities have been acquired for investment only and may not be sold, transferred or assigned in the absence of an effective registration statement or opinion of legal counsel that registration is not required under the Securities Act of 1933.  Item 3.  Defaults Upon Senior Securities.  None.   19    Item 4.  Submission of Matters to a Vote of Security Holders.  None.  Item 5.  Other Information.  None.  Item 6.  Exhibits and Reports on Form 8-K.  (a) Exhibits (filed with this report unless indicated below)  Exhibit 31.1 Certification of principal executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  Exhibit 31.2 Certification of principal financial officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  Exhibit 32.1 Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  Exhibit 32.2 Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002     (b) Reports on Form 8-K.  No reports on Form 8-K were filed by the Company during the three months ended September 30, 2006.   SIGNATURES  In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.  CASTLE ARCH REAL ESTATE INVESTMENT COMPANY, L.L.C.  Dated:  November 13, 2006   By:/s/ Kirby D. Cochran Kirby D. Cochran, Chief Executive Officer (Principal Executive Officer)  By: /s/Douglas W. Child Douglas W. Child, Chief Financial Officer (Principal Financial Officer)     20