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 quarterly period ended September 30, 2005



| |   
| | --
| | 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)







| |                                                                |  |                                     
| | -------------------------------------------------------------- |  | ------------------------------------
| | California                                                     |  | 20-1077312                          
| | (State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
| |                                                                |  |                                     
| | 9595 Wilshire, PH 1000, Beverly Hills, CA                      |  | 90212                               
| | (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 [ X ]



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 [ X ]  No [   ]



As of September 30, 2005, the Registrant had 27,554,049 membership units, consisting of 20,275,260 common units, 7,278,789 preferred units.

_____________________________________________________________________________________





1









INDEX



Castle Arch Real Estate Investment Company, LLC

For The Quarter Ending September 30, 2005





|                                                                                           |                                                                                                                                                                                                                                                                                                                |     
|------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                           |                                                                                                                                                                                                                                                                                                                | Page
|Part I.  Financial Information                                                             | 3                                                                                                                                                                                                                                                                                                             
|                                                                                           |                                                                                                                                                                                                                                                                                                                |     
|Item
1.  Financial Statements                                                              | 3                                                                                                                                                                                                                                                                                                             
|                                                                                           |                                                                                                                                                                                                                                                                                                                |     
|                                                                                           | Statement of Financial Condition  September 30, 2005 (Unaudited).                                                                                                                                                                                                                                             | 4   
|                                                                                           |                                                                                                                                                                                                                                                                                                                |     
|                                                                                           | Statements of Operations (Unaudited)  For the nine months ended September 30, 2005; and for the period from April 15, 2004 (inception) to September 30, 2004; and for the three months ended September 30, 2005 and September 30, 2004; and cumulative from April 15, 2004 (inception) to September 30, 2005. | 5   
|                                                                                           |                                                                                                                                                                                                                                                                                                                |     
|                                                                                           | Statements of Cash Flows (Unaudited)  For the nine months ended September 30, 2005, and for the period from April 15, 2004 (inception) to September 30, 2004 and cumulative from April 15, 2004 (inception) to September 30, 2005.                                                                            | 6   
|                                                                                           |                                                                                                                                                                                                                                                                                                                |     
|                                                                                           | Notes to Financial Statements (Unaudited)  September 30, 2005.                                                                                                                                                                                                                                                | 7   
|                                                                                           |                                                                                                                                                                                                                                                                                                                |     
|Item
2.  Managements Discussion and Analysis of Financial Condition or Plan of Operation. | 12                                                                                                                                                                                                                                                                                                            
|                                                                                           |                                                                                                                                                                                                                                                                                                                |     
|                                                                                           | Controls and Procedures                                                                                                                                                                                                                                                                                        | 15  
|                                                                                           |                                                                                                                                                                                                                                                                                                                |     
|Part II.  Other Information                                                                | 16                                                                                                                                                                                                                                                                                                            
|                                                                                           |                                                                                                                                                                                                                                                                                                                |     
|Item
5.  Other Matters                                                                     | 16                                                                                                                                                                                                                                                                                                            
|                                                                                           |                                                                                                                                                                                                                                                                                                                |     
|Item
6.  Exhibits and Reports on Form 8-K                                                  | 16                                                                                                                                                                                                                                                                                                            
|                                                                                           |                                                                                                                                                                                                                                                                                                                |     
|Signatures                                                                                 | 17                                                                                                                                                                                                                                                                                                            
|                                                                                           |                                                                                                                                                                                                                                                                                                                |     
|Certifications                                                                             |                                                                                                                                                                                                                                                                                                               



2







Part I  Financial Information



Item 1. Financial Statements



Castle Arch Real Estate Investment Company, LLC

(a development stage company)

Statement of Financial Condition (Unaudited)





|                                                       |              
|------------------------------------------------------ | -------------
|                                                       | September 30,
|ASSETS                                                 | 2005         
|Current assets:                                        |              
|Cash and cash equivalents                              | $2,792,141   
|Notes receivable                                       | 50,000       
|Prepaid expenses                                       | 2,500        
|Total current assets                                   | 2,844,641    
|                                                       |              
|Property and equipment:                                |              
|Office equipment                                       | 16,532       
|Less: Accumulated Depreciation                         | (6,114)      
|Net property and equipment                             | 10,418       
|                                                       |              
|Other assets:                                          |              
|Properties held for sale                               | 3,806,516    
|Options, earnest money deposits, and entitlement costs | 530,430      
|                                                       |              
|Total assets                                           | $7,192,005   
|                                                       |              
|LIABILITIES AND MEMBERS CAPITAL                       |              
|Current liabilities:                                   |              
|Accounts payable and accrued expenses                  | $297,615     
|Preferred unit distributions payable                   | 390,168      
|                                                       |              
|Total current liabilities                              | 687,783      
|                                                       |              
|Members Capital:                                      |              
|Common units, 20,275,260, issued and outstanding,      |              
|ranging from $.00 to $2.50 per unit                    | 284,010      
|Non-managing members units, series A preferred,       |              
|1,000,000 units, $1.00 per unit                        | 747,981      
|Non-managing members units, series B preferred,       |              
|2,000,000 units, $1.00 per unit                        | 1,580,817    
|Non-managing members units, series C preferred,       |              
|3,300,000 units, $1.00 per unit                        | 2,793,004    
|Non-managing members units, series D preferred,       |              
|978,798 units, $5.00 per unit                          | 3,177,014    
|Accumulated deficit                                    | (2,078,604)  
|                                                       |              
|Total members capital                                 | 6,504,222    
|                                                       |              
|Total liabilities and members capital                 | $7,192,005   



See accompanying notes.



3









Castle Arch Real Estate Investment Company, LLC

(a development stage company)

Statement of Operations (Unaudited)



|                                                             |                    |  |                    |  |                    |  |                    |  |                     
|------------------------------------------------------------ | ------------------ |  | ------------------ |  | ------------------ |  | ------------------ |  | --------------------
|                                                             |                    |  | Period from        |  |                    |  |                    |  | Cumulative          
|                                                             | Nine Months        |  | April 15, 2004     |  | Three Months       |  | Three Months       |  | from April 15,      
|                                                             | Ended              |  | (inception) to     |  | Ended              |  | Ended              |  | 2004 to             
|                                                             | September 30, 2005 |  | September 30, 2004 |  | September 30, 2005 |  | September 30, 2004 |  | September 30, 2005  
|Revenues                                                     |                    |  |                    |  |                    |  |                    |  |                     
|                                                             |                    |  |                    |  |                    |  |                    |  |                     
|Proceeds from sale of property, net
of cost of property sold | $                - |  | $              -   |  | $             -    |  | $              -   |  | $                  -
|Total revenues                                               | -                  |  | -                  |  | -                  |  | -                  |  | -                   
|                                                             |                    |  |                    |  |                    |  |                    |  |                     
|Expenses                                                     |                    |  |                    |  |                    |  |                    |  |                     
|                                                             |                    |  |                    |  |                    |  |                    |  |                     
|Salaries, wages and other compensation                       | 710,794            |  | 13,350             |  | 294,123            |  | 12,000             |  | 829,878             
|Marketing and advertising expenses                           | 140,982            |  | 163,990            |  | 45,001             |  | 123,804            |  | 140,982             
|Start-up and organizational costs                            | -                  |  | 55,696             |  | -                  |  | -                  |  | 55,696              
|Office supplies and expenses                                 | 246,364            |  | 3,591              |  | 149,063            |  | 2,514              |  | 285,582             
|Legal and outside services                                   | 297,430            |  | 28,421             |  | 151,779            |  | 23,410             |  | 415,935             
|Costs of terminated purchase agreements                      | 258,363            |  | -                  |  | 258,363            |  | -                  |  | 258,363             
|Travel, meals and lodging                                    | 97,708             |  | 21,887             |  | 48,846             |  | 9,796              |  | 116,852             
|Taxes and licenses                                           | -                  |  | 800                |  | -                  |  | -                  |  | 800                 
|Depreciation                                                 | 5,621              |  | -                  |  | 1,873              |  | -                  |  | 6,114               
|                                                             |                    |  |                    |  |                    |  |                    |  |                     
|Total operating expenses                                     | 1,757,262          |  | 287,735            |  | 949,048            |  | 171,524            |  | 2,110,202           
|                                                             |                    |  |                    |  |                    |  |                    |  |                     
|Net operating loss                                           | (1,757,262)        |  | (287,735)          |  | (949,048)          |  | (171,524)          |  | (2,110,202)         
|                                                             |                    |  |                    |  |                    |  |                    |  |                     
|Other income (expense)                                       |                    |  |                    |  |                    |  |                    |  |                     
|Interest income                                              | 29,957             |  | -                  |  | 11,553             |  | -                  |  | 31,829              
|Interest expense                                             | (231)              |  |                    |  |                    |  |                    |  | (231)               
|                                                             |                    |  |                    |  |                    |  |                    |  |                     
|Net loss                                                     | $(1,727,536)       |  | $(287,735)         |  | $(937,495)         |  | $(171,524)         |  | $(2,078,604)        
|                                                             |                    |  |                    |  |                    |  |                    |  |                     
|Loss per common unit                                         | $           (.09)  |  | $        (.02)     |  | $        (.05)     |  | $        (.01)     |  |                     
|                                                             |                    |  |                    |  |                    |  |                    |  |                     
|Weighted average common                                      |                    |  |                    |  |                    |  |                    |  |                     
|units outstanding                                            | 19,461,821         |  | 16,718,200         |  | 19,727,086         |  | 16,799,000         |  |                     







See accompanying notes.





















4





Castle Arch Real Estate Investment Company, LLC

(a development stage company)

Statements of Cash Flows (Unaudited)



|                                             |                    |  |                    |  |                   
|-------------------------------------------- | ------------------ |  | ------------------ |  | ------------------
|                                             |                    |  | Period from        |  | Cumulative        
|                                             | Nine Months        |  | April 15, 2004     |  | from April 15,    
|                                             | Ended              |  | (inception) to     |  | 2004 to           
|                                             | September 30, 2005 |  | September 30, 2004 |  | September 30, 2005
|Cash Flows From Operating Activities:        |                    |  |                    |  |                   
|Net loss                                     | $ (1,727,536)      |  | $     (287,735)    |  | $ (2,078,604)     
|Adjustments to reconcile net loss to         |                    |  |                    |  |                   
|net cash used in operating activities:       |                    |  |                    |  |                   
|Depreciation                                 | 5,621              |  | -                  |  | 6,114             
|Professional outside services paid in        |                    |  |                    |  |                   
|the form of common units                     | 41,250             |  | -                  |  | 41,250            
|Changes in operating assets and liabilities: |                    |  |                    |  |                   
|Prepaid expenses                             | (2,500)            |  | -                  |  | (2,500)           
|Accounts payable and accrued expenses        | 115,843            |  | 11,771             |  | 264,614           
|Due to related party                         | (20,000)           |  | -                  |  | -                 
|Properties held for sale                     | (3,806,516)        |  | -                  |  | (3,806,516)       
|Net cash used in operating activities        | (5,393,838)        |  | (275,964)          |  | (5,575,642)       
|                                             |                    |  |                    |  |                   
|Investing Activities                         |                    |  |                    |  |                   
|Option, earnest money, and                   |                    |  |                    |  |                   
|entitlement deposits                         | (430,430)          |  | -                  |  | (530,430)         
|Note receivable                              | (50,000)           |  | -                  |  | (50,000)          
|Purchase of property and equipment           | -                  |  | (2,188)            |  | (16,532)          
|Net cash used in investing activities        | (480,430)          |  | (2,188)            |  | (596,962)         
|                                             |                    |  |                    |  |                   
|Financing Activities                         |                    |  |                    |  |                   
|Proceeds from issuance of member units       |                    |  |                    |  |                   
|for cash (net of offering costs)             | 6,035,786          |  | 1,299,750          |  | 8,964,745         
|Proceeds from subscriptions receivable       | 301,134            |  | -                  |  | -                 
|Proceeds (payments) from issuance            |                    |  |                    |  |                   
|of notes payable                             | (11,843)           |  | -                  |  | -                 
|Net cash provided by financing activities    | 6,325,077          |  | 1,299,667          |  | 8,964,745         
|                                             |                    |  |                    |  |                   
|Net increase in cash and cash equivalents    | 450,809            |  | 1,021,598          |  | 2,792,141         
|Cash at beginning of period                  | 2,341,332          |  | -                  |  | -                 
|Cash at end of period                        | $  2,792,141       |  | $  1,021,598       |  | $  2,792,141      
|                                             |                    |  |                    |  |                   
|Non-Cash Investing and Financing Activities: |                    |  |                    |  |                   
|Issuance of members units for subscriptions |                    |  |                    |  |                   
|receivable                                   | $  1,582,389       |  | $               -  |  | $  1,582,389      
|Distributions payable                        | $    324,058       |  | $               -  |  | $    390,168      
|Deposit paid by related party                | $              -   |  | $               -  |  | $      20,000     
|Accrued finders fees (offering costs)        | $      33,001      |  | $               -  |  | $      33,001     
|Accrued finders fees paid with common units  | $    226,760       |  | $               -  |  | $    226,760      
|                                             |                    |  |                    |  |                   
|Supplemental Disclosures                     |                    |  |                    |  |                   
|Cash paid for interest                       | $          231     |  | $               -  |  | $          231    



See accompanying notes.



5





Castle Arch Real Estate Investment Company, LLC

(a development stage company)

Notes to Financial Statements

September 30, 2005 (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 four private placements of membership units in the Company 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 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 membership units, consisting of one common and one preferred unit each at $5.00 per membership unit.



As of September 30, 2005, the Company had completed the Series A, B, and C private placement offerings, and had raised $4,893,990 of the Series D private placement.  Of this amount, $1,582,389 represents Series D subscribed units outstanding for which funds had not been received at September 30, 2005.



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 number of membership units each member holds 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:

























6





Castle Arch Real Estate Investment Company, LLC

(a development stage company)

Notes to Financial Statements (continued)

September, 2005 (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, 2005 in accordance with its business plan.  Accordingly, the Company is considered to be in the development stage until it obtains such revenues from its planned principle operations.



d)    Presentation



The Company prepared the financial statements as of September 30, 2005 and 2004 and for the periods ended September 30, 2005 and 2004, 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 SB-2, which included audited financial statements for the period ending December 31, 2004.  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 SB-2 filing.



7







Castle Arch Real Estate Investment Company, LLC

(a development stage company)

Notes to Financial Statements (continued)

September 30, 2005 (Unaudited)



1.

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



B.

Reclassifications



Certain amounts in the accompanying financial statements have been reclassified to conform to current quarter presentation.



C.

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.



D.

Accounting Method



The Companys financial statements are prepared using the accrual method of accounting.   The Company has elected a December 31 year end.



E.

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 and interest on associated debt 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.























8













Castle Arch Real Estate Investment Company, LLC

(a development stage company)

Notes to Financial Statements (continued)

September 30, 2005 (Unaudited)



1.

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





F.

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.



G.

Cash and Cash Equivalents



The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents.



H.

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.



I.

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.



J.

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.

























9









Castle Arch Real Estate Investment Company, LLC

(a development stage company)

Notes to Financial Statements (continued)

September 30, 2005 (Unaudited)



1.

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



K.

Stock Options



The Company has elected to follow Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee stock options rather than adopting the alternative fair value accounting provided for under SFAS No. 123, Accounting for Stock-based Compensation.  Under APB 25, because the exercise price of the Companys stock options equals or exceeds the estimated fair market value of the underlying stock on the date of grant, no compensation expense is recognized.



The Company currently has no stock option plan for employees.  However, the Companys board of directors may adopt, with member approval, an option plan where up to 20% of the authorized common units of the Company may be purchased by employees.  The option plan may provide for the grant of nonstatutory unit options and the grant of unit purchase rights both to the Companys employees, non-employee directors, consultants and advisors, and to the employees, non-employee directors, consultants and advisors of subsidiary corporations.  Under the option plan, the exercise price or purchase price may, at the discretion of the Companys board of directors or the committee appointed by the board to administer the option plan, be paid in cash, cash equivalents, promissory notes, surrender of stock, a cashless exercise, past services, cancellation of indebtedness owed to the grantee or any form of payment that is consistent with applicable laws, regulations and rules.



L.

Options and Deposits on Land and Entitlement Costs



The Company has placed earnest money deposits or deposits to acquire options for the purchase of two properties totaling $100,000 at December 31, 2004. In 2005, the Company has placed additional earnest money on parcels and has incurred costs totaling $1,439,251 at September 30, 2005 to entitle such parcels for which existing deposits have been placed. 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 other assets until such time as the properties are purchased. As of September 30, 2005, the Company had purchased one property totaling $3,446,961. This amount includes capitalized costs, including associated water rights, entitlement costs and applicable deposits. The purchased property is recorded as Properties Held for Sale.  In addition, at September 30, 2005 an agreement was entered into wherein the Company reassigned rights for two separate properties in return for future proceeds to be realized in December, 2005 and January, 2006, respectively. Land deposits and associated entitlement costs total $359,555 at September 30, 2005 and are included in Properties Held for Sale.











10





Castle Arch Real Estate Investment Company, LLC

(a development stage company)

Notes to Financial Statements (continued)

September 30, 2005 (Unaudited)





1.

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



M.    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.  Options and warrants are considered to be common unit equivalents.



Basic net loss per common unit is the amount of net loss for the period available to each unit outstanding during the reporting period.  Diluted net loss per common unit is the amount of net loss for the period available to each share of common units outstanding during the reporting period and to each unit that would have been outstanding assuming the issuance of units for all dilutive potential common units outstanding during the period.



No changes in the computation of diluted earnings per unit amounts are presented since no potentially dilutive securities have been granted or issued.



11





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 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 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, 2004 or September 30, 2005. 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 capital funding.



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 ended |          
|                       |  | September 30,      |          
|                       |  | 2005               |           | 2004 |  
|Revenue, net           |  | $                  | - 0 -     |      | $ | - 0 -    |  
|                       |  |                    |           |      |   |          |  
|Gross profit (loss)    |  |                    | (949,048) |      |   | (171,524 | )
|                       |  |                    |           |      |   |          |  
|Operating loss         |  |                    | (949,048) |      |   | (171,524 | )
|                       |  |                    |           |      |   |          |  
|Other income (expense) |  |                    | 11,553    |      |   | - 0 -    |  
|                       |  |                    |           |      |   |          |  
|Net income (loss)      |  |                    | (937,495) |      |   | (171,524 | )



__________________________________________________________________________________________________





|                           |  |                    |           |                   |   |           | 
|-------------------------- |  | ------------------ | --------- | ----------------- | - | --------- | 
|                           |  | September 30,
2005 |           | December 31,
2004 |  
|Balance Sheet Data:        |  |                    |           |                   |  
|                           |  |                    |           |                   |  
|Cash and Cash Equivalents  |  | $                  | 2,792,141 |                   | $ | 2,341,332 | 
|                           |  |                    |           |                   |   |           | 
|Total Current Assets       |  |                    | 2,844,641 |                   |   | 2,341,332 | 
|                           |  |                    |           |                   |   |           | 
|Total Assets               |  |                    | 7,192,005 |                   |   | 2,457,372 | 
|                           |  |                    |           |                   |   |           | 
|Total Current Liabilities  |  |                    | 687,783   |                   |   | 333,875   | 
|                           |  |                    |           |                   |   |           | 
|Total stockholders equity |  | $                  | 6,504,222 |                   | $ | 2,457,372 | 



__________________________________________________________________________________________________





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Discussion



During the three month period ended September 30, 2005 our revenues from operations were limited 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 period, we terminated our efforts to acquire and entitle properties located in Tennessee and Mesquite, Nevada. Our unrecoverable deposit and entitlement costs incurred on those properties equals $215,121 and $43,241.52, respectively. Also during the period, we paid the entire purchase price one of the three properties that we have under contract in Tooele County Utah. The purchase price due for the 109 acre parcel was $2,952,960, plus $478,550 for a pro rata share of the water rights for that property. The Tooele property is located approximately 30 miles west of downtown Salt Lake City, Utah. We are assessing the entitlement steps and/or are working through the entitlement process each of the properties upon which we have placed deposits.  If we elect to complete the purchases, we will fund the purchase price with a combination of existing cash on hand, new investment money and/or the proceeds of a sale of our interests to a third party. During the three month period ended September 30, 2005, we continued to incur entitlement costs on properties under contract. None of these activities have produced revenues. We expect that revenues from the reassignment of the Fresno California properties will commence in the fourth quarter of 2005 or in the first quarter of 2006.



Our general and administrative expenses totaled $690,685 during the third quarter of 2005, compared to $171,524 during the comparable three month period ended September 30, 2004. 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 anticipate that our total revenues during such period will increase.



Liquidity and Capital Resources



At September 30, 2005, we had cash and cash equivalents of $2,792,141, compared to $1,021,598 on the same date one year earlier, and $2,341,332 at December 31, 2004. Our increased cash balance during the third quarter of 2005 is largely attributable to the offering and sale of our member units in a series of private offerings. In private offerings through September 30, 2005, we have raised gross proceeds of $9,932,296.



Proceeds from the private offering will be sufficient to for us to survive as a going concern for the next 12 months. However, additional funding will be and to finance growth and to achieve our strategic objectives. Management is actively pursuing additional sources of funding. In addition, management is expecting an increase in cash flows through anticipated increases in revenue.



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.





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All forward-looking statements contained herein are deemed by the Company to be covered by and to qualify for the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995. 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



(A) Evaluation of disclosure controls and procedures



Controls and Procedures on the Form 10-QSB filed August 16, 2005 discussed an evaluation performed under the supervision of our Chief Executive Officer and Chief Financial Officer of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act).  As a result of the evaluation deficiencies were identified.  These deficiencies included separation of incompatible duties and restricted access relating to cash and equity.  Also, existent deficiencies in controls over cash and equity recording activities were discovered.  As of October 6, 2005, internal controls have been implemented to address these and other deficiencies identified, the most notable of which is the Companys hiring of a controller in August, 2005.  Other internal controls implemented are discussed in the following paragraphs.



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(B) Changes in internal controls



Internal controls implemented and relating to the separation of incompatible duties and restricted access of cash include the following activities (most of these controls were implemented prior to the evaluation of internal controls):



1)

Checks are signed when needed, and not in advance,

2)

Checks are signed by authorized signers, currently Mr. Douglas Child, Chief Financial Officer,

3)

Checks are not returned to the preparer after signing is complete (this procedure was implemented in response to a deficiency identified in managements evaluation of internal controls),

4)

Passwords exist for individuals authorized to make debit memos and wire transfers,

5)

Bank accounts are reconciled by a person independent of the cash receipts and disbursements function,

6)

Upon receipt of mail, daily cash receipts are recorded independent of the cash and bookkeeping functions,

7)

Cash receipts are deposited intact and on the same day,

8)

All bank accounts and check signers are authorized by the board of directors or owner/manager, currently Mr. Kirby Cochran, Chief Executive Officer,

9)

Checks payable to cash or bearer are prohibited, and

10)

Employees with cash disbursement and bank reconciliation duties are required to take vacations, and other employees are required to perform those functions when the employee is absent



Also, internal controls relating to the recording of cash have been implemented.  They include the following activities:



1)

Checks are prenumbered, their sequence is regularly accounted for, and unissued checks are controlled and kept in a secure location,

2)

Bank accounts are reconciled by a person independent of the cash receipts and disbursements function,

3)

Bank accounts are reconciled regularly and reconciliations are reviewed by an owner/manager,

4)

Stale checks are followed up on periodically by an individual independent of the cash disbursement function,

5)

A list of daily cash receipts are compared to the days recordings by an individual independent of the cash receipts function,

6)

Owner/manager and other appropriate individuals daily compare cash receipts and disbursements to budgeted (forecasted) cash receipts and disbursements and follows up on significant variances,

7)

Checks are prepared only after matching supporting documentation,

8)

The check signer reviews all supporting documentation,

9)

Cash receipts and checks are recorded upon issuance, and

10)

Cash receipts and disbursements are periodically reviewed by the owner/manager or other appropriate person



Internal controls implemented and relating to the separation of incompatible duties and restricted access of equity include the following:



1)

Segregation of the following duties exist:

a.

Approving membership units and other equity transactions

b.

Issuing, transferring, and canceling stock certificates

c.

Maintaining detailed stockholder records

d.

Processing cash receipts and disbursements (dividends)

2)

Computerized equity records are limited to those with a logical need for such access



Also, internal controls relating to the recording of equity have been implemented.  They include the following activities:



1)

Stock certificates are numbered and sequentially issued, and unissued certificates are safeguarded,

2)

Stock records are monitored and periodically reconciled to the general ledger,

3)

Reconciliations are reviewed by the owner/manager or other appropriate person,



15





4)

All shares issued are appropriately authorized, and

5)

All dividends and other equity transactions are approved by the board of directors



These procedures have been implemented in response to managements identification of deficiencies in internal controls relating to equity transactions.  The utilization of an independent transfer agent was also added as a control procedure at managements request.



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, 2005, we received $3,602,296 from the sale of securities. We commenced a private placement of our securities in July. We sold 720,459 investment units, each investment unit consisting of one common unit and one series D preferred unit at a total per investment unit price of $5.00. 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 the Company's counsel that registration is not required under the Securities Act of 1933.



Item 3.  Defaults Upon Senior Securities.



None.



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





16





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, 2005.





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 11, 2005





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)







17