Castleguard Energy 10QSB 2001 Q3 Quarterly report (small business)

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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, 2001
	OR
[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from          to
COMMISSION FILE NUMBER: 0-5525
CASTLEGUARD ENERGY, INC.
(Exact name of Registrant as specified in its charter)
Florida (State or other jurisdiction of of incorporation or organization)		75-2615565 (I.R.S. Employer Identification No.)
4625 Greenville Avenue, Suite 203, Dallas, TX (Address of principal executive offices)		75206 (Zip Code)
(214) 361-1755
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Without Par Value
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 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 [   ]
At September 30, 2001, there were 17,151,626 Common shares outstanding.
______________________________
Transitional Small Business Disclosure Format (check one): Yes [   ] No [X]

CASTLEGUARD ENERGY, INC.
INDEX
Part 1.	Financial Information:
Item 1.	Financial Statements
	Accountant's Review Report
	Balance Sheets - September 30, 2001 (Unaudited) and December 31, 2000 (Audited)
	Statements of Operations - For the Three Months and Nine Months Ended September 30,  2001 and   2000 (Unaudited)
	Statements of Cash Flows - For the Nine Months Ended September 30, 2001 and 2000 (Unaudited)
	Statements of Stockholders' Equity - For the year 2000 (Audited) and the Nine Months Ended September 30,   2001 (Unaudited)
	Notes to Financial Statements
Item 2.	Management's Discussion and Analysis of Financial Condition   and Results of Operations
Part II.	Other Information:
Item 1.	Legal Proceedings
Item 2.	Changes in Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
Signatures

Item 1. FINANCIAL STATEMENTS

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Board of Directors

Castleguard Energy, Inc.

We have reviewed the accompanying balance sheets of Castleguard Energy, Inc. as of September 30, 2001, and the related statements of income, stockholders' equity and cash flows for the nine month period then ended. These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of analytical procedures applied to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles.

                                                                  Jackson & Rhodes P.C.

Dallas, Texas

November 8, 2001

CASTLEGUARD ENERGY INC.
BALANCE SHEETS
				September 30, 2001 (Unaudited)		December 31,      2000
Assets
Current assets:
	Cash and cash equivalents		$	181,313	$	795
	Accounts receivable			152,413		232,787
		Total current assets		333,726		233,582
Petroleum and natural gas interests, net				1,428,088		1,319,262
Debt issue costs, net				2,807		42,644
TOTAL ASSETS			$	1,764,621	$	1,595,488
Liabilities & Stockholders' Equity
Current liabilities:
	Accounts payable		$	79,657	$	73,130
	Notes payable - current			360,000		360,000
		Total current liabilities		439,657		433,130
Notes Payable, less current maturities				305,415		575,415
Deferred income taxes payable				58,000		-
Accrued stock to be issued				-		133,000
Stockholders' equity:
	Common stock, $0.001 par value,      50,000,000 shares authorized; 19,013,626      and 17,353,626 issued			19,014		17,354
	Paid-in capital			958,643		805,332
	Accumulated earnings (deficit)			39,892		(312,743)
	Less: Treasury stock, 1,862,000 shares at cost			(56,000)		(56,000)
		Total stockholders' equity		961,549		453,943
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY			$	1,764,621	$	1,595,488

CASTLEGUARD ENERGY INC.
STATEMENTS OF OPERATIONS
(Unaudited)
		Three months ended  Sept. 30, 2001	Three months ended  Sept. 30, 2000	Nine months ended  Sept. 30, 2001	Nine months ended  Sept. 30, 2000
Oil and gas Revenues		$      109,739	$       144,532	$       894,483	$   259,957
Expenses:
	Lease operating expense and taxes	17,432	10,472	59,222	19,715
	Depreciation, depletion and    amortization	21,807	7,165	117,605	25,577
	General and administrative	31,519	16,045	216,985	83,360
		70,758	33,682	393,812	128,652
Income from operations		36,981	110,850	500,671	131,305
Interest and financing costs		(25,131)	(14,886)	(90,036)	(14,886)
Income before income taxes		13,850	95,964	410,635	116,419
Provision for income taxes		10,000	-	58,000	-
Net income		$          3,850	$         95,964	$      352,635	$       116,419
Basic earnings per common share		$             .00	$               .01	$            .02	$              .01
Weighted average number of common              shares outstanding (Millions)		17,152	17,133	17,087	15,761

CASTLEGUARD ENERGY INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
					Nine Months Ended                  September 30,
					2001		2000
Cash Flows from Operating Activities:
	Net income (loss)			$	352,635	$	116,419
	Adjustments to reconcile net loss to net cash
			provided by operating activities:
	Depreciation, depletion and amortization				117,605		25,577
	Amortization of financing costs				39,837		-
	Stock issued to consultants				21,971		-
	Change in assets and liabilities:
	Decrease (Increase) in receivables and payables				144,901		(111,770)
Net cash provided by (used in) operating activities					676,949		(30,226)
Cash Flows from Investing Activities:
	Additions to petroleum and natural gas interests				(226,431)		(7,509)
Net cash (used in) investing activities					(226,431)		(7,509)
Cash Flows from Financing Activities:
	Subscriptions received				-		170,000
	Repayment of loan from related parties				-		(56,000)
	Payments on long-term debt				(270,000)		-
Net cash provided by financing activities					(270,000)		114,000
Net increase in cash and cash equivalents					180,518		136,717
Cash and cash equivalents, beginning of period					795		65,957
Cash and cash equivalents, end of period				$	181,313	$	202,674
		Supplemental information:
		Interest paid		$	52,424	$	-

CASTLEGUARD ENERGY INC.
statements of stockholders' equity
(Unaudited for year 2001)
			Additional		Accumulated	Total
	Common Stock		Paid-in	Treasury	Earnings	Stockholders'
	Shares	Amount	Capital	Stock	(deficit)	Equity
Balance, December 31, 1999	14,750,626	$      14,751	$   1,287,035	$    -	$   (398,965)	$   902,821
Issuance of stock for cash	4,103,000	4,103	266,797	-	-	270,900
Reverse property acquisition	(1,500,000)	(1,500)	(748,500)	-	-	(750,000)
Purchase of treasury stock	-	-	-	(56,000)	-	(56,000)
Net income	-	-	-	-	86,222	86,222
Balance, December 31, 2000	17,353,626	$    17,354	$   805,332	$   (56,000)	$   (312,743)	$   453,943
Issuance of stock for
compensation and
services payable	1,660,000	1,660	153,311	-	-	154,971
Net income for the nine months	-	-	-	-	352,635	352,635
Balance, September 30, 2001	19,013,626	$    19,014	$   958,643	$   (56,000)	$    39,892	$   961,549

CASTLEGUARD ENERGY, INC
NOTES TO FINANCIAL STATEMENTS
Note 1 - Future Operations
The Company's financial statements are prepared using generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company is in the process of growing through the acquisition of oil and gas interests. The Company intends to finance this growth through future cash flow, the issuance of common stock and debt. Future growth may be limited by the extent of internally generated cash flow, the Company's ability to obtain financing from share issuances and debt to finance future expansion of working interests.
Note 2 - Summary of Significant Accounting Policies and Practices
(a)	Description of Business
	Castleguard Energy, Inc. is an independent energy company engaged in the exploration for and the acquisition, development and exploitation of crude oil and natural gas properties, and in the production of crude oil and natural gas in North America through working interests operated by other parties. The Company's activities are conducted in the states of Louisiana, Texas and Alabama.
(b)	Net Income (Loss) per Weighted Average Share
	Basic net income (loss) per weighted average share is calculated using the weighted average number of shares of common stock outstanding.
(c)	Oil and Gas Sales
	Petroleum and natural gas sales are recognized upon delivery to the metered point upstream of the pipeline connection.
(d)	Basis of Presentation
	The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB of Regulation S-B. They do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the year ended December 31, 2000 included in the Company's Annual Report on Form 10-KSB filed with the Securities and Exchange Commission. The interim unaudited financial statements should be read in

CASTLEGUARD ENERGY, INC
NOTES TO FINANCIAL STATEMENTS
	conjunction with those financial statements included in the Form 10-KSB. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the nine months ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001.
Note 3 - Long-Term Debt
Long-term debt is a secured note payable to a commercial bank, payable at $30,000 per month plus interest at the bank's prime rate plus one percent. The note is collateralized by the company's interest in the Minden, Louisiana, field and is also guaranteed by two directors of the Company. Maturities of the debt are as follows:
		2001	$  90,000
		2002	360,000
		2003	215,415
Note 4 - Related Party Transactions
In January, 2001, the Company's directors entered into an agreement with H & S Production, Inc. (a company wholly-owned by the Company's Chairman, Scott Heape) to participate in a farmout agreement covering leasehold interests in the Mings Chapel Field in East Texas whereby the Company has the opportunity to participate in up to three development wells. The first of these wells was drilled in the first quarter of 2001 and commenced production in April 2001, the second was drilled in the third quarter of 2001 and is expected to commence production in the fourth quarter of 2001.

Item 2.

CASTLEGUARD ENERGY, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-QSB includes "forward-looking" statements within the meaning of Section 27a of the Securities Act of 1933, as amended (the "Securities Act"), and section 21e of the Securities Exchange Act of 1934, as amended (the "exchange act"). Specifically, all statements other than statements of historical facts included in this report regarding the Company's financial position, business strategy and plans and objectives of management of the Company for future operations are forward- looking statements. These forward-looking statements are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect" and "intend" and words or phrases of similar import, as they relate to the Company or Company management, are intended to identify forward-looking statements. Such statements reflect the curr ent view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions related to certain factors including, without limitation, price levels for oil and natural gas, concentration of oil and natural gas reserves and production, drilling risks, uncertainty of oil and gas reserves, risks associated with the development of additional revenues and with the acquisition of oil and gas properties and other energy assets, operating hazards and uninsured risks, general economic conditions, governmental regulation, changes in industry practices, marketing risks, one time events and other factors described herein ("cautionary statements"). Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove i ncorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward- looking statements. All subsequent written and oral forward- looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the applicable cautionary statements. Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Information - Cautionary Statements" included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000, which is incorporated herein by reference.

The Company is an independent oil and gas exploration company whose strategic focus is the application of advanced seismic imaging and computer-aided exploration technologies in the systematic search for commercial hydrocarbon reserves, primarily in the states of Texas and Louisiana. The Company attempts to leverage its technical experience and expertise with seismic to identify exploration and exploitation projects with significant potential economic return. The company intends to participate in selected exploration projects as a non-operating, working interest owner, sharing both risk and rewards with its partners. The Company has and will continue to pursue exploration opportunities in regions where the Company believes significant opportunity for discovery of oil and gas exists. By reducing drilling risk through seismic technology, the Company seeks to improve the expected return on investment in its oil and gas exploration projects. The Company attempts to limit ca pital requirements by forming industry alliances and exchanges a portion of its interest for cash and/or a carried interest in its exploration projects.

RESULTS OF OPERATIONS

Three Months September 2001 vs. 2000

     This year's third quarter declined from last year's third quarter as the result of lower commodity prices with slightly improved sales volumes, combined with higher operating costs, depreciation, depletion and amortization, general and administrative expense and interest.

     Gas prices this year were 30% lower that those of the same quarter last year and overwhelmed an 11 1/2% increase in volume resulting in revenues that were also 24% lower than last year. Operating, depreciation, depletion and amortization, and general and administrative costs were higher, reflecting increased levels of activity by the Company in 2001 compared to 2000. Additionally, this year's third quarter had a full quarter's interest charge for the debt incurred in last year's third quarter to increase the Company's interest in the Minden dome area of Louisiana.

Nine Months September 2001 vs. 2000

     Nine months net income this year improved 203% over last year as the result of higher volumes (up 152% for gas and 27.7% for oil) and higher prices (55.9% for gas and 4.3% for oil) compared with last year. The higher commodity volumes and prices drove a 244% increase in revenue for the nine months this year compared with last year. Operating expenses and general and administrative expenses increased to reflect the higher activity level and depreciation, depletion and amortization increased 360% reflecting higher production and greater investment in producing properties. An income tax provision this year is required because the Company's tax loss carry forward was exhausted during the earlier part of the year.

*          *          *

   Comparisons of operating results for the three and nine months 2000 with corresponding periods of 1999 are not meaningful.

CAPITAL PROJECTS

     Production volume is a big factor to operating results as are commodity prices. The Company cannot influence price levels for its hydrocarbon production, but it can influence its production level.

    Natural gas production peaked in the first quarter of this year when the Company's Minden interest experienced maximum production from two new wells drilled in the last half of last year. While the Company has more than recovered its costs of drilling and a share of the property acquisition cost, production has declined rapidly from highest levels which is characteristic of Minden dome gas wells. Several potential producing intervals were identified during the original drilling but the wells were completed in only one interval originally. The wells' operator commenced new completion efforts in the fourth quarter to complete both wells in new intervals while continuing production from the existing intervals. The operator expects completion in the fourth quarter with full effect of additional volumes in the first quarter of next year.

     In addition to the recompletions, review of additional potential drilling locations at Minden continues, and the Company is participating in a unit adjacent to its primary Minden interest where a new gas well has recently been drilled and is in process of being completed by another operator.

     The operator of the Company's interest in Texas Mings Chapel field has recently drilled a second well which the operator believes will commence production in December 2001.

     Capital expenditures during the third quarter were principally in Minden and Mings Chapel.

LIQUIDITY AND CAPITAL RESOURCES

     Cash flow in the nine months ended September 30, 2001 was substantially improved over the same period last year, as well as, improved compared to the last half of last year. Although slowing in the third quarter from the first half of the year, cash flow has been adequate to fund operating costs, debt service and new projects. Additional funding will be required to fully exploit all the opportunities available to the Company and must be arranged in the future. Inability to secure additional funding will limit the Company's deal flow in the future.

Part II. Other Information

Item 1. Legal Proceedings

            Not Applicable

Item 2. Changes in Securities and Use of Proceeds

            Not Applicable

Item 3. Defaults Upon Senior Securities

            Not Applicable

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

            Not Applicable

Item 5. Other Information

            Not Applicable

Item 6. Exhibits and Reports on Form 8-K

(a)	Exhibits -
(b)	Reports on Form 8-K - No Reports on Form 8-K were filed during the last quarter of the period covered by this report.

SIGNATURES

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

	CASTLEGUARD ENERGY, INC.
November 12, 2001
	BY: Bob G. Honea, Director/President