United
States


Securities
and Exchange Commission


Washington,
DC 20549





FORM
10-Q





QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934








For the
quarterly period ended December
31, 2008





Commission
File Number 000-28789





Falcon
Ridge Development Inc.  (Exact
name of registrant as specified in its charter)








Nevada
                  
                  84-1461919(State
      or other jurisdiction of incorporation)
                  
                  (IRS
      Employer File Number)5111
      Juan Tabo Boulevard N.E. Albuquerque, New Mexico
                  
                  87111(Address
      of principal executive offices)
                  
                  (zip
      code)




(702) 386-5379


(Registrant's
telephone number, including area code)








Check
whether the issuer: (1) 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 []








Indicate
by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act) Yes [
]       No [X]








As of
March 3, 2009 there were 78,054,805 shares of the Company’s common stock
outstanding.





Transitional
Small Business Disclosure Format (check one): Yes [ ] No [X]


- 1 -






Table
of Contents







Part
I – Financial Information




Item
      1.  Condensed Consolidated Financial Statements
                                                      3Condensed
      Consolidated Balance Sheet as of December 31, 2008 (unaudited)
      and September 30, 2008
                                                      4Condensed
      Consolidated Statements of Operations (unaudited) for the three months
      ended December 31, 2008 and 2007
                                                      5Consolidated
      Statement of Changes in Stockholders’ Deficit (unaudited) for the quarter ended
      December 31, 2008
                                                      6Consolidated  Statement
      of Cash Flow (unaudited) for
      the three months ended December 31, 2008
                                                      7Item
      2.  Management’s Discussion and analysis of Financial Condition
      and Results of Operations
                                                      21Item
      3.  Qualitative and Qualitative Disclosures about Market
      Risk
                                                      26Item
      4.  Controls and Procedures
                                                      26Item
      1.  Legal Proceedings
                                                      28Item
      1a.  Risk Factors
                                                      28Item
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds
                                                      28Item
      3.  Defaults Upon Senior Securities
                                                      28Item
      4.  Submission of Matters to a Vote of Security
      Holders
                                                      28Item
      5.  Other Information
                                                      28Item
      6.  Exhibits
                                                      29Signaturres
                                                      30










- 2 -








Part
I – FINANCIAL INFORMATION









Item
1.  Condensed Consolidated Financial Statements







FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Index
to Consolidated Financial Statements









PageCondensed
      Consolidated Balance SheetBalance Sheet at September 30, 2008 and
      December 31, 2008
                          4Condensed
      Consolidated Statements of Operations (unaudited) for the three months
      ended December 31, 2008 and 2007
                          5Consolidated
      Statement of Changes in Stockholders’ Deficit (unaudited) for the quarter ended
      December 31, 2008
                          6Consolidated  Statement
      of Cash Flow (unaudited) for
      the three months ended December 31, 2008
                          7Notes
      to Financial Statements
                          8 -
      20









- 3 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Condensed
Consolidated Balance Sheet as of December 31, 2008


(unaudited)
and September 30, 2008







December
      31
                                          
                                          
                                          September
      30,2008
                                          
                                          
                                          2008Assets
                                          
                                          (unaudited)
                                          
                                          
                                          (audited)Cash
                                          
                                          $
                                          466
                                          
                                          
                                          $
                                          1,119Fixed
      assets, net of accumulated depreciation
                                          
                                          
                                          42,417
                                          
                                          
                                          
                                          45,211Real
      estate held for development and sale
                                          
                                          
                                          1,200,000
                                          
                                          
                                          
                                          3,191,570Total
      assets
                                          
                                          $
                                          1,242,883
                                          
                                          
                                          $
                                          3,237,900Liabilities
      and Stockholders' DeficitLiabilitiesAccounts
      payable
                                          
                                          $
                                          675,040
                                          
                                          
                                          $
                                          657,428Notes
      payable related parties
                                          
                                          
                                          1,159,766
                                          
                                          
                                          
                                          1,154,766Notes
      payable
                                          
                                          
                                          1,570,423
                                          
                                          
                                          
                                          1,569,123Retainage
      payable
                                          
                                          
                                          90,000
                                          
                                          
                                          
                                          90,000Accrued
      interest
                                          
                                          
                                          456,199
                                          
                                          
                                          
                                          363,430Accrued
      expenses
                                          
                                          
                                          27,316
                                          
                                          
                                          
                                          23,209Convertible
      Preferred stock Series B , $.001 par value, 400,000 sharesauthorized,
      160,000 shares outstanding; liquidation value $485,000
                                          
                                          
                                          485,000
                                          
                                          
                                          
                                          485,000Total
      liabilities
                                          
                                          
                                          4,463,744
                                          
                                          
                                          
                                          4,342,957Stockholders'
      DeficitConvertible
      Preferred stock, $.001 par value; 1,000,000 shares
      authorized:Preferred
      stock, Series A,  $.001 par value,400,000
      shares authorized, 160,000 shares issued andoutstanding
      , aggregate liquidation preference of $400,000.
                                          
                                          
                                          400,000
                                          
                                          
                                          
                                          400,000Common
      stock, $.001 par value, 900,000,000 sharesauthorized,
      78,054,805 and 47,315,917 shares issued andoutstanding
      respectively
                                          
                                          
                                          78,054
                                          
                                          
                                          
                                          47,316Additional
      paid-in capital
                                          
                                          
                                          5,985,147
                                          
                                          
                                          
                                          5,886,152Unexpired
      warrants
                                          
                                          
                                          (78,231
                                          )
                                          
                                          
                                          (88,890
                                          )Accumulated
      deficit
                                          
                                          
                                          (9,605,832
                                          )
                                          
                                          
                                          (7,349,634
                                          )Total
      Stockholders' deficit
                                          
                                          
                                          (3,220,862
                                          )
                                          
                                          
                                          (1,105,056
                                          )Total
      Liabilities and Stockholders' Deficit
                                          
                                          $
                                          1,242,883
                                          
                                          
                                          $
                                          3,237,900




The
accompanying notes are an intergal part of these financial
statements.


- 4 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Condensed
Consolidated Statements of Operations (unaudited)


for
the three months ended December 31, 2008 and 2007







Three
      months EndedDecember
      31
                          
                          
                          December
      31,2008
                          
                          
                          2007Net
      sales
                          
                          $
                          -
                          
                          
                          $
                          47,310Expenses:Payroll
      related  expenses
                          
                          
                          63,023
                          
                          
                          
                          25,578Depreciation
                          
                          
                          1,995
                          
                          
                          
                          2,394Consulting
      and stock-based compensation
                          
                          
                          83,200
                          
                          
                          
                          379,323Selling,
      general and administrative expenses
                          
                          
                          14,048
                          
                          
                          
                          92,180Total
      expenses
                          
                          
                          162,265
                          
                          
                          
                          499,475Other
      income (expense):Interest
      expense
                          
                          
                          103,428
                          
                          
                          
                          (85,267
                          )Loss
      on impairment of asset
                          
                          
                          1,989,576Gain
      on sale of fixes asset
                          
                          
                          928
                          
                          
                          
                          -Total
      other income and (expense)
                          
                          
                          2,093,932
                          
                          
                          
                          (85,267
                          )Loss
      before provision for income taxes
                          
                          
                          (2,256,197
                          )
                          
                          
                          (537,432
                          )Income
      taxes
                          
                          
                          -
                          
                          
                          
                          -Net
      Loss
                          
                          $
                          (2,256,197
                          )
                          
                          $
                          (537,432
                          )Loss
      per share
                          
                          $
                          (0.033
                          )
                          
                          $
                          (0.029
                          )Weighted
      average number of shares outstanding
                          
                          
                          67,808,509
                          
                          
                          
                          18,459,337




The
accompanying notes are an intergal part of these financial
statements.


- 5 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Consolidated
Statement of Changes in Stockholders’ Deficit (unaudited)


Quarter
Ended December 31, 2008




AdditionalPreferred Stock
                                                                          
                                                                          
                                                                          Common
      Stock
                                                                          
                                                                          
                                                                          paid-in
                                                                          
                                                                          
                                                                          Unexpensed
                                                                          
                                                                          
                                                                          AccumulatedShares
                                                                          
                                                                          
                                                                          Par
      value
                                                                          
                                                                          
                                                                          Shares
                                                                          
                                                                          
                                                                          Par
      value
                                                                          
                                                                          
                                                                          capital
                                                                          
                                                                          
                                                                          warrants
                                                                          
                                                                          
                                                                          deficit
                                                                          
                                                                          
                                                                          TotalBalance
      December 31, 2005
                                                                          
                                                                          
                                                                          160,000
                                                                          
                                                                          
                                                                          $
                                                                          400,000
                                                                          
                                                                          
                                                                          
                                                                          3,761,312
                                                                          
                                                                          
                                                                          $
                                                                          752,262
                                                                          
                                                                          
                                                                          $
                                                                          899,420
                                                                          
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          (1,068,850
                                                                          )
                                                                          
                                                                          $
                                                                          982,832Stock issuance for Cash
                                                                          
                                                                          
                                                                          194,000
                                                                          
                                                                          
                                                                          
                                                                          485,000
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          485,000Reclassified to liabilities
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (485,000
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (485,000
                                                                          )Loss
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (417,974
                                                                          )
                                                                          
                                                                          
                                                                          (417,974
                                                                          )Balance
      September 30, 2006
                                                                          
                                                                          
                                                                          354,000
                                                                          
                                                                          
                                                                          
                                                                          400,000
                                                                          
                                                                          
                                                                          
                                                                          3,761,312
                                                                          
                                                                          
                                                                          
                                                                          752,262
                                                                          
                                                                          
                                                                          
                                                                          899,420
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (1,486,824
                                                                          )
                                                                          
                                                                          
                                                                          564,858Reclass common stock
                                                                            andAPIC
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (79
                                                                          )
                                                                          
                                                                          
                                                                          (748,501
                                                                          )
                                                                          
                                                                          
                                                                          748,501
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Issuance of
                                                                            common
      stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          14,698,104
                                                                          
                                                                          
                                                                          
                                                                          14,698
                                                                          
                                                                          
                                                                          
                                                                          365,526
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          380,224Net loss 9-30-2007
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (1,290,190
                                                                          )
                                                                          
                                                                          
                                                                          (1,290,190
                                                                          )Balance
      September 30, 2007
                                                                          
                                                                          
                                                                          354,000
                                                                          
                                                                          
                                                                          
                                                                          400,000
                                                                          
                                                                          
                                                                          
                                                                          18,459,337
                                                                          
                                                                          
                                                                          
                                                                          18,459
                                                                          
                                                                          
                                                                          
                                                                          2,013,447
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (2,777,014
                                                                          )
                                                                          
                                                                          
                                                                          (345,108
                                                                          )Stock issued for service
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          28,650,000
                                                                          
                                                                          
                                                                          
                                                                          28,650
                                                                          
                                                                          
                                                                          
                                                                          2,860,221
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          2,888,871Stock issued for debt
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          206,580
                                                                          
                                                                          
                                                                          
                                                                          207
                                                                          
                                                                          
                                                                          
                                                                          10,102
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          10,309Warrants issued with
                                                                            notespayable
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          115,090
                                                                          
                                                                          
                                                                          
                                                                          (88,890
                                                                          )
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          26,200Warrants issued for service
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          887,292
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          887,292Net loss 09-30-08
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (4,572,620
                                                                          )
                                                                          
                                                                          
                                                                          (4,572,620
                                                                          )Balance
      September 30, 2008
                                                                          
                                                                          
                                                                          354,000
                                                                          
                                                                          
                                                                          $
                                                                          400,000
                                                                          
                                                                          
                                                                          
                                                                          47,315,917
                                                                          
                                                                          
                                                                          $
                                                                          47,316
                                                                          
                                                                          
                                                                          $
                                                                          5,886,152
                                                                          
                                                                          
                                                                          $
                                                                          (88,890
                                                                          )
                                                                          
                                                                          $
                                                                          (7,349,634
                                                                          )
                                                                          
                                                                          $
                                                                          (1,105,056
                                                                          )Stock issued for services
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          24,922,222
                                                                          
                                                                          
                                                                          
                                                                          24,922
                                                                          
                                                                          
                                                                          
                                                                          58,278
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          83,200Stock issued for payroll
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          5,816,666
                                                                          
                                                                          
                                                                          
                                                                          5,816
                                                                          
                                                                          
                                                                          
                                                                          40,717
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          46,533Accreation of
                                                                            unexpiredwarrants
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          10,659
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          10,659Net loss for quarter
                                                                            ended12-31-08
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (2,256,197
                                                                          )
                                                                          
                                                                          
                                                                          (2,256,197
                                                                          )`Balance
      December 31, 2008
                                                                          
                                                                          
                                                                          354,000
                                                                          
                                                                          
                                                                          $
                                                                          400,000
                                                                          
                                                                          
                                                                          
                                                                          78,054,805
                                                                          
                                                                          
                                                                          $
                                                                          78,054
                                                                          
                                                                          
                                                                          $
                                                                          5,985,147
                                                                          
                                                                          
                                                                          $
                                                                          (78,231
                                                                          )
                                                                          
                                                                          $
                                                                          (9,605,831
                                                                          )
                                                                          
                                                                          $
                                                                          (3,220,862
                                                                          )




The
accompanying notes are an intergal part of these financial
statements.


- 6 -




Falcon
Ridge Development Inc. and Subsidiaries


Consolidated
Statement of Cash Flows




Three
      Months Ended
                                            
                                            
                                            Three
      Months EndedDecember
      31,
                                            
                                            
                                            December
      31,2008
                                            
                                            
                                            2007Operating
      activities:Net
      income (loss)
                                            
                                            $
                                            (2,256,197
                                            )
                                            
                                            $
                                            (537,432
                                            )Adjustments
      to reconcile net loss to net cashStock
      issued for services and payroll
                                            
                                            
                                            129,733
                                            
                                            
                                            
                                            157,500Warrants
      expensed
                                            
                                            
                                            10,659
                                            
                                            
                                            
                                            264,570Impairment
      of Real estate held for development and sale
                                            
                                            
                                            1,989,576Used
      by operating activities:Depreciation
                                            
                                            
                                            1,995
                                            
                                            
                                            
                                            2,394Changes
      in operating assets and liabilities,Real
      estate held for development and sale
                                            
                                            
                                            1,995
                                            
                                            
                                            
                                            (221
                                            )Accounts
      payable
                                            
                                            
                                            17,612
                                            
                                            
                                            
                                            45,083Accrued
      interest
                                            
                                            
                                            92,770
                                            
                                            
                                            
                                            42,624Accrued
      liabilities
                                            
                                            
                                            4,106
                                            
                                            
                                            
                                            6,050Net
      cash (used in) provided byoperating
      activities
                                            
                                            
                                            (7,752
                                            )
                                            
                                            
                                            (19,432
                                            )Iinvesting
      activities:Acquisition
      of fixed assets
                                            
                                            
                                            
                                            
                                            
                                            
                                            (21,783
                                            )Proceeds
      from sale of fixed asset
                                            
                                            
                                            800
                                            
                                            
                                            
                                            -Net
      cash from (used) investing activities
                                            
                                            
                                            800
                                            
                                            
                                            
                                            (21,783
                                            )Financing
      activities:Increase  in
      related parties notes payable
                                            
                                            
                                            5,000Increase  notes
      payable
                                            
                                            
                                            1,300
                                            
                                            
                                            
                                            10,000Proceeds
      for shares to be issued
                                            
                                            
                                            
                                            
                                            
                                            
                                            2,000Net
      cash from financing activities
                                            
                                            
                                            6,300
                                            
                                            
                                            
                                            12,000Net
      change in cash
                                            
                                            
                                            (652
                                            )
                                            
                                            
                                            (29,215
                                            )Cash:Beginning
      of period
                                            
                                            
                                            1,119
                                            
                                            
                                            
                                            74,521End
      of period
                                            
                                            $
                                            466
                                            
                                            
                                            $
                                            45,306Supplemental
      disclosure of cash flow information:Cash
      paid during the year for:Income
      taxes
                                            
                                            $
                                            0
                                            
                                            
                                            $
                                            0Interest
                                            
                                            $
                                            0
                                            
                                            
                                            $
                                            0
 SUPPLEMENTAL
      DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Warrants
      issued
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  899,809Issuance
      of common stock for payroll and consulting services
                                                  
                                                  
                                                  129,733
                                                  
                                                  
                                                  
                                                  157,500Total
      non-cash activities
                                                  
                                                  $
                                                  129,733
                                                  
                                                  
                                                  $
                                                  1,057,309
 The
accompanying notes are an intergal part of these financial
statements.


- 7 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Notes
to Consolidated Financial Statements






(1)
Summary of Significant Accounting Policies




Organization,
Shell Merger and Principles of Consolidation




Organization




Falcon
Ridge Development, Inc. ("FRDI" or the "Company") is engaged in the real estate
industry and acquires tracts of raw land and develops them into communities.
Including, lots for sale to homebuilders and homes for sale to the public. These
operations are predominantly located in the City of Rio Rancho, New Mexico and
Belen, New Mexico. Since inception, the Falcon Ridge Development, Inc. has
developed one property known as Sierra Norte.




Going
Concern




The
Company experienced significant operating losses during 2008 and 2007, of
$4,572,620 and $1,290,190 respectively.  For the quarter ended
December 31, 2008, the Company lost and additional $2,256,197 and had an
accumulated deficit of $9,605,832 at that date.  In addition the
Company has a stockholders’ deficit of $3,220,862 as of December 31,
2008.     The Company incurred a negative cash flow
from operating activities of $289,435 for the year ended September 30, 2008, and
a negative cash flow from operating activities of $7,752 for the quarter ended
December 31, 2008, and implementation of its business plan is dependent upon its
ability to raise additional capital.  The Company is in default on its
mortgage to Metro Loan Corp in principal amount of $1,150,000 secured by the
Spanish Trails development.   In the event the lender initiates
foreclosure proceedings and the Company is unable to  resolve the
situation  in its favor, the Company’s major revenue producing asset
will be lost.  Management will then have to locate and finance a
profitable replacement business activity.  These matters raise
substantial doubt about the Company’s ability to continue as a going concern.
Management is searching for additional business opportunities to generate
revenue sufficient to enable to Company to achieve profitable
operations.  There is no guarantee that management will be successful
in its endeavors.  The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of the
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue in
existence.




- 8 -


FALCON RIDGE DEVELOPMENT, INC. and
SUBSIDIARIES


Notes
to Consolidated Financial Statements







Shell
Merger




Falcon
Ridge Development, Inc. (the "Company" or “we” or “us”) is a Nevada corporation.
Our principal business address is 5111 Juan Tabo Boulevard N.E., Albuquerque,
New Mexico 87111. We changed the domicile of the company from Colorado to Nevada
on or about July 6, 2005 and changed our name from PocketSpec Technologies, Inc.
to Falcon Ridge Development, Inc. We have various subsidiaries, Sierra Norte,
LLC ("Sierra Norte"), Spanish Trails, LLC ("Spanish Trails"), Falcon Ridge
Financial LLC., Falcon Ridge Realty LLC., Falcon Ridge Investments LLC. We
operate in the real estate industry and services to the real estate industry. We
acquire tracts of raw land and develop them into communities. Often these
communities include residential, commercial, industrial and retail components to
them.  We plan to offer our own housing product in these and other
communities developed by other developers. In addition, in 2006 we completed the
formation of various wholly owned subsidiaries including Falcon Ridge Financial
LLC, Falcon Ridge Realty LLC and Falcon Ridge Investments LLC. Falcon Ridge
Financial places and brokers real estate mortgages of all types but primarily
concentrates on residential mortgages. Falcon Ridge Realty is our resale
division and concentrates on selling homes for the general public under listing
and sale agreements with individual clients. Falcon Ridge Investments, LLC is a
vehicle for creating and operating private placement offerings as well as other
type of investment vehicles’.




On May
20, 2005, we completed a reverse acquisition transaction. We acquired Sierra
Norte, a New Mexico limited liability company, which thereby became our
wholly-owned subsidiary. Sierra Norte is a land development company in the
Albuquerque, New Mexico area. Formerly, we were a technology company in the
business of developing and marketing color comparison devices. We acquired
Spanish Trails on July 6, 2005 as discussed below. Originally, we were
incorporated as Monument Galleries, Inc., a Colorado corporation, on May 15,
1998.




As a
result of the Sierra Norte acquisition, the former security holders of Sierra
Norte acquired a majority of our outstanding shares of common stock. For
accounting purposes, Sierra Norte has been deemed to be the acquirer in the
acquisition and, consequently, the assets, liabilities and historical operations
that are reflected in our financial statements are those of Sierra Norte, which
are recorded at the historical cost basis of Sierra Norte. The reverse
acquisition was consummated under Colorado law pursuant to an Agreement and Plan
of Reorganization dated May 20, 2005.




Principles of
Consolidation




The
consolidated financial statements include the accounts of Falcon Ridge
Development, Inc. and its wholly owned subsidiaries SNLLC and Spanish Trails LLC
(STLLC) (together, the "Company"). Intercompany transactions and balances have
been eliminated in the consolidation.




Basis
of Presentation
 
 In the opinion of management, the
accompanying balance sheets and related interim statements of income, cash
flows, and stockholder’s equity include all adjustments, consisting only of
normal recurring items, necessary for their fair presentation in conformity with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”).  Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses.  Actual results and outcomes may
differ from management’s estimates and assumptions.
 
 Interim results are not necessarily
indicative of results for a full year.  The information included in
this Form 10-Q should be read in conjunction with information included in the
10-K.


- 9 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Notes
to Consolidated Financial Statements




Use of
Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.




Reclassifications




Certain
prior-period amounts have been reclassified for comparative purposes to conform
to the current period presentation.




STLLC
decided, in the fourth quarter of 2005, that the $471,908 Falcon Ridge
Development, LLC ("FRLLC") recorded as a contribution to capital during the
third quarter of 2005 in the acquisition of the Cordova Property should be
repaid to FRLLC. Therefore, the Company reclassified the $471,908 from
additional paid in capital to indebtedness to related parties in the
accompanying consolidated financial statements.




Revenue Recognition on Sales
of Real Estate




The
profit on sales of real estate is accounted for in accordance with the
provisions of SFAS No. 66, "Accounting for Sales of Real Estate." The Company
recognizes revenue from the sale of real estate at the time the sale is closed
and the title is transferred from the Company to the buyer.




Cash and Cash
Equivalents




The
Company considers all highly liquid securities with original maturities of three
months or less when acquired to be cash equivalents. The Company had no cash
equivalents at September 30, 2008.




Real Estate Held forDevelopment andSale




The
carrying value of land and development includes the initial acquisition costs of
land, improvements thereto, and other costs incidental to the acquisition or
development of land. These costs are allocated to properties on a relative sales
value basis and are charged to costs of sales as specific properties are sold.
Due to the nature of the business, land and development costs have been
classified as an operating activity on the consolidated statement of cash
flows.




Impact
credits received from the negotiated settlement with the City of Rio Rancho are
offset against land development costs.




- 10 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Notes
to Consolidated Financial Statements






The
company reviews the fair value less costs to sell of land under development at
the end of each reporting cycle and where the carrying value of the asset is not
recoverable and exceeds its fair value an impairment loss will be
recognized.




Interest




The
Company capitalizes interest costs to real estate held for resale during
development and construction. Capitalized interest is charged to cost of sales
as the related lots are delivered to the buyer.




Fixed Assets and
Depreciation




Fixed
assets are recorded at cost. Expenditures that extend the useful lives of assets
are capitalized. Repairs, maintenance and renewals that do not extend the useful
lives of the assets are expensed as incurred. Depreciation is provided on the
straight-line method over the following estimated useful lives: software,
5 years; equipment, 5 years.




Earnings (loss) per Common
Share




Basic net
income per share is computed by dividing the net income available to common
shareholders (the numerator) for the period by the weighted average number of
common shares outstanding (the denominator) during the period. The computation
of diluted earnings is similar to basic earnings per share, except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if potentially dilutive common shares had been
issued.




At
September 30, 2008 and September 30, 2007, there was no variance between basic
and diluted loss per share as the convertible preferred stock outstanding, if
converted, would be anti-dilutive.




Impairment or Disposal of
Long-Lived Assets




The
Company evaluates real estate projects and other long-lived assets on an
individual basis for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable in
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" and SFAS 67 “Accounting for Costs and Initial Rental
Operations of Real Estate Projects.” An asset is considered impaired if its
carrying amount exceeds the future net cash flow the asset is expected to
generate or its net realizable value. If an asset is considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount of the asset exceeds its fair market value. We assess the recoverability
of our real estate projects, long-lived and intangible assets by determining
whether the unamortized balances can be recovered through undiscounted future
net cash flows of the related assets. The amount of impairment, if any, is
measured based on projected discounted future net cash flows. When impairment
exists the carrying value of the asset will be reduced by an allowance for the
amount of the impairment. There is no impairment in 2008 or 2007.




- 11 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Notes
to Consolidated Financial Statements









Stock-based
Compensation




The
Company adopted Statement of Financial Accounting Standards No. 123 (revised
2004), Share-Based Payment (SFAS 123R), effective January 1, 2007. SFAS 123R
requires the recognition of the fair value of stock-based compensation in net
income. The Company has elected the modified prospective transition method for
adopting SFAS 123R. Under this method, the provisions of SFAS 123R apply to all
awards granted or modified after the date of adoption. In addition, the
unrecognized expense of awards not yet vested at the date of adoption,
determined under the original provisions of SFAS 123, shall be recognized in net
income in the periods after the date of adoption. The Company had no unvested
awards at December 31, 2008, and no awards were granted during the year ended
September 30, 2008.




Income
Taxes




Income
taxes are accounted for using the asset and liability method. Under this method,
deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred income tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which these temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation
allowance is provided for deferred tax assets that are not expected to be
recovered from future operations.




Financial Instruments and
Concentration of Credit Risk




The
carrying amounts of the Company's financial assets and liabilities, including
cash, accounts payable, and preferred shares with mandatory redemption at
September 30, 2007, approximate fair value because of the short maturity of
these instruments. The carrying amount of the Company's notes payable
approximates fair value at December 31, 2008, since the notes are at floating
rates or fixed rates that approximate current market rates for notes with
similar risks and maturities.




Preferred Shares subject to
mandatory redemption




The
features of our Series B Preferred Stock  within SFAS 150 “Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity”. Due to redemption features of the securities, the preferred shares are
being classified as a liability in these financial statements. The securities
give the holder the option of a net cash settlement or a settlement in common
share based on a conversion rate. The settlement amount under SFAS 150 at
September 30, 2007 would have been 640,264 shares at a bid price of $ 1.01 per
share or $ 646,666.




- 12 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Notes
to Consolidated Financial Statements









New Accounting
Standards




SFAS No.
151, "Inventory Costs," is effective for fiscal years beginning after June 15,
2005. This statement amends the guidance in Accounting Research Bulletin ("ARB")
No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage). The adoption of SFAS 151 did not have a material impact on the
Company's financial statements.




SFAS No.
152, "Accounting for Real Estate Time-Sharing Transactions," is effective for
fiscal years beginning after June 15, 2005. This statement amends SFAS No. 66,
Accounting for Sales of Real Estate, to reference the financial accounting and
reporting guidance for real estate time-sharing transactions that is provided in
American Institute of Certified Public Accountants Statement of Position 04-2,
Accounting for Real Estate Time-Sharing Transactions. The adoption of SFAS No.
152 did not have a material impact on the Company's financial
statements.




SFAS No.
123(R), "Share-Based Payment," replaces SFAS No. 123, "Accounting for
Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees." This statement requires that the compensation cost
relating to share-based payment transactions be recognized in the financial
statements. The Company is required to apply this statement in the first interim
period that begins after December 15, 2005. The adoption of SFAS No. 123(R) did
not have a material impact on the Company's financial.




SFAS No.
153, "Exchanges of Non-monetary Assets" - an amendment of APB Opinion No. 29, is
effective for fiscal years beginning after June 15, 2005. This statement
addresses the measurement of exchange of non-monetary assets and eliminates the
exception from fair-value measurement for non-monetary exchanges




of
similar productive assets in paragraph 21(b) of APB Opinion No. 29, "Accounting
for Non-monetary Transactions," and replaces it with an exception for exchanges
that do not have commercial substance. The adoption of SFAS No. 153 did not have
a material impact on the Company's financial statements.




FIN No.
46(R) revised FIN No. 46, "Consolidation of Variable Interest Entities,"
requiring the consolidation by a business of variable interest entities in which
it is the primary beneficiary. The adoption of FIN No. 46 did not have an impact
on the Company's financial statements.




The EITF
reached a consensus on Issue No. 04-8, "The Effect of Contingently Convertible
Debt on Diluted Earnings Per Share" ("EITF 04-8"), which addresses when the
dilutive effect of contingently convertible debt instruments should be included
in diluted earnings (loss) per share. EITF 04-8 is effective for reporting
periods ending after December 15, 2004. The adoption of EITF 04-8 did not have
an impact on diluted earnings (loss) per share.




- 13 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Notes
to Consolidated Financial Statements









(2)
Related Party Transactions




The
Company conducts its operations in a building rented by an affiliate. During the
quarters ended December 31, 2008 and December 31, 2007, the Company
recorded rent expense of $ 0 and $16,500, respectively.   The
affiliate has suspended the lease for an indefinite period of time.




The
Company's affiliate pays certain expenses on its behalf. The Company reimburses
these expenses paid on its behalf by the affiliate at actual cost. Overhead
expenses and indirect labor incurred by the affiliate are allocated to the
Company based on management-approved estimates of time and effort. The Company
reviews the estimated rate from time-to-time.




Indebtedness
to related parties consisted of the following at December 31, 2008:




Note
payable  - to Karen Duran &/or Fred Montano, bearing interest at
Published Prime plus 3%, payable in monthly installments of $20,000.00 plus
interest commencing on October 1, 2007.  The note is secured by the
land and development costs of the Spanish Trails development.  To
December 31, 2008, no principle or interest payments have been
made.




Total
financing under the agreement is $1,136,074.




Karen
Duran and Fred Montano have advanced the Company funds for working capital
purposes during the year.  As of December 31, 2008, the amounts so
advanced total $15,692.  The advances are not interest
bearing.




On August
25, 2008, the Company borrowed $5,000 for working capital, from Troy Duran,
director of the Company and the brother of Karen Duran.  The note is
due February 5, 2009 and has an interest rate of 11%.




On
December 10, 2008, the Company borrowed $3,000 from Sebastian Ramirez, a
director of the Company.  The note bears interest at rates ranging
from 15 to 25%.  The maturity date of the note is April 1, 2009. The
note was issued with 100,000 warrants to purchase the Company’s common stock at
a price of $.05 per share.  The warrants expire 30 months subsequent
to the date of the note.  The Company computed the value of the
warrants using the Black-Scholes model.  The discount rate was $1.620
and the computed volatility was 321.32%.  The term of the warrants is
2.5 years.  The computed value of the warrants was not material and no
expense was recorded.




As of
December 31, 2008, total indebtedness to related parties was
$1,159,766.


- 14 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Notes
to Consolidated Financial Statements









(3) Fixed
Assets




Fixed
      assets consist of the following at December 31, 2008:
                    
                    Cost
                    
                    
                    Accumulated
      DepreciationComputer
      Software & Hardware
                    
                    $
                    24,495
                    
                    
                    $
                    3,867Equipment
                    
                    
                    6,319
                    
                    
                    
                    4,743Website
                    
                    
                    26,030
                    
                    
                    
                    7,812Totals
                    
                    $
                    56,844
                    
                    
                    $
                    16,422




Depreciation
expense for the three months ended December 31, 2008 and 2007 was $1,995 and
$2,394 respectively.




(4) Real
Estate Operations




The
Company completed development of Sierra Norte I and II subdivisions in Rio
Rancho, New Mexico in 2006. The Company is in the process of developing
approximately 139 acres of raw land in the Belen, New Mexico referred to as
"Spanish Trails." Spanish Trails consists of land platted into approximately 517
home sites. Home sites will be sold to different builders or developed by the
Company.




Real
estate held for resale, consists of the following at December 31,
2008:




Real
      estate held for development and sale
              
              $
              1,200,000







- 15 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Notes
to Consolidated Financial Statements









During
the quarter ended December 31, 2008, the Company became increasingly concerned
regarding the carrying value of the Spanish Trails development.  As of
September 30, 2008, consideration was given to reflecting an impairment in the
carrying value of $3,191,570.  However , due to market conditions in
the New Mexico area and the targeted market price of our product in Spanish
Trails, the Company determined that no material impairment of the asset had
occurred in the period ending September 30, 2008.  In addition, steps
taken by the US Government appeared to be stabilizing the real estate
market.  However, in the current period ending 12-30-08 the market
continued to deteriorate and the pace of deterioration increased Management has
also seen significant price reductions of real estate for sale in the
surrounding area during the quarter ended December 31, 2008.  The
company determined that the asset had in fact been impaired and an adjustment
was made to reduce that carrying value by $1,989,577 resulting in a net carrying
value of $1,200,000.




(5) Notes
Payable




Note
payable consists of the following at December 31, 2008:




Note
payable Freedom Financial Note amount $200,000.00, interest payable at 10% per
annum, conversation rights at renewal date with 2% renewal fee, Conversation
option at $0.75




Note
payable Metro Loan Corp, with interest at 12 percent interest only payments in
monthly installments of $11,100.00 collateralized by a First Mortgage due August
1, 2008.  Terms of the Loan Agreement describe an Extension
Option.  Terms of the Extension Option are for two additional six (6)
month periods at the higher of (i) eighteen percent (18%) interest or (ii) Prime
Rate plus 1,000 basis points.  Option is NOT AUTOMATIC and is
at the discretion of the Lender.  Fred Montano is a Guarantor of this
mortgage.




Total
financing under the agreement is $1,150,000.00.




The
mortgage was due August 1, 2008. Its extension is at the discretion of the
mortgage holder who has not agreed to an extension at the time of this
filing.  The Company has stopped making payments and is in the process
of evaluating its options, including surrendering the deed in lieu of
foreclosure.




During
the three month period ending June 30, 2008, the Company issued several notes
with warrants.  The notes bear interest compounded monthly at 10% for
the first sixty days, 12% for the next 12 months, and 18% interest
thereafter.  The  maturity dates and amounts are as
follows:




- 16 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Notes
to Consolidated Financial Statements









Maturity
                    Date
                  
                  Principal
                    AmountsMay,
      2009
                  
                  $
                  70,000October,
      2009
                  
                  
                  60,000July,
      2010
                  
                  
                  10,000May,
      2011
                  
                  
                  67,123Total
                  
                  $
                  207,123




In
September of 2008, the issued a note payable at an interest rate of 11% due
February 5, 2009.  The principal amount of the note is
$10,000.




(6)
Warrants




On
October 8, 2007, the Company issued 2,000,000 warrants with an estimated value
of $ 899,809 to Redwood Consulting LLC. The warrants have an exercise price of
$0.50 per share, the warrants become exercisable either twelve months after the
underlying common stock issuable in the exercise of these warrants is declared
registered and effective by the SEC in the Company’s current SEC registration
statement; or 5:30 P.M. Pacific Daylight Savings Time on October 8, 2015. The
warrants expire 5:30 PM Pacific Daylight Savings Time on October 8, 2015, or
twelve months after becoming exercisable. The Company has recorded consulting
fees relating to these options of $443,646.  As of the date of this
report, none of the warrants have vested.




The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 169%; risk-free interest rate of 4.12%; and expected life of 8
years.




During
the three month period ending June 30, 2008, the Company issued 1,344,000
warrants with an estimated value of $ 106,590 to several shareholders with notes
in the amount of $207,122. The warrants have an exercise price of $0.05 per
share, the warrants become exercisable at the effective date. The warrants
expire thirty months after becoming exercisable. The Company has recorded
interest expense relating to these options of $6,352 for the quarter ended
December 31, 2008.  As of the date of this report, all of the warrants
have vested.




The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with dividend yield of 0%; expected
volatility of 135%; risk-free interest rate of 4.12%; and expected life of 2.3
years.




A summary
of stock option and warrant activity for all plans follows:


- 17 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Notes
to Consolidated Financial Statements









Outstanding
      Options
                
                Options
                  Outstanding
                
                
                Warrants
      Outstanding
                
                
                Exercise
      PriceGranted
                
                
                -
                
                
                
                5,244,000
                
                
                $
                0.05
      - 0.50Exercised
                
                
                -
                
                
                
                -Canceled
                
                
                -
                
                
                
                -Balance,
      December 31, 2008
                
                
                -
                
                
                
                5,244,000
                
                
                $
                0.05
      - 0.50







Following
is a summary of the status of fixed options and warrants
outstanding at December 31,2008:




Outstanding
      Options and Warrants
                          Exercisable
      Options and WarrantsExercise
      Price Range
                          Number
                          Weighted
      Average
                            Remaining
      Contractual Life
                          Weighted
      Average Exercise Price
                          Number
                            Exercisable
                          Weighted
      Average Exercise Price$
      0.50
                          2,000,000
                          7.4
      years
                          $
      0.50
                          -
                          $
      0.000.05
                          3,244,000
                          2.3
      years
                          $
      0.05
                          -
                          $0.05







- 18 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES


Notes
to Consolidated Financial Statements









(7)
Income Taxes




A
reconciliation of U.S. statutory federal income tax rate to the effective rate
follows for the three month period ending June 30, 2008:




U.S.
      statutory federal rate
                    
                    
                    20.000
                    %State
      income tax rate
                    
                    
                    4.80
                    %Net
      operating loss for which no tax benefit is currently
    available
                    
                    
                    -24.800
                    %0.00
                    %







For the
three month period ending December 31, 2008the company estimated that the
company would have a loss for income taxes purposes and therefore reported no
provision.




(8)
Shareholders' Deficit




Preferred
Stock




On July
20, 2005, the Company established Series A Convertible Preferred Shares and
authorized 400,000 shares. The preferences are as follows:




l
            Shares
      are non-cumulative with a preference over common shares if and when a
      dividend is declared.l
            Shares
      are convertible into common stock at any time on the basis of 100 common
      shares for 1 share of preferred stock. This conversion rate is subject to
      adjustments for forward or reverse splits or other capitalizations. The
      option was of no intrinsic benefit, at the commitment date, to the
      preferred shareholder.l
            Shares
      have a priority over common shares and other convertible preferred
      shares upon liquidation.l
            Shares
      are callable at any time by the Company at the original purchase price.
      The Preferred Shareholders will have thirty days thereafter to convert to
      common stock.







- 19 -


FALCON
RIDGE DEVELOPMENT, INC. and SUBSIDIARIES




Notes
to Consolidated Financial Statements









On
April 15, 2006, the Company established Series B Convertible Preferred Shares
and authorized 400,000 shares. The preferences are as follows:




l
            Shares
      are non-cumulative with a preference over common shares if and when a
      dividend is declared.l
            Investor
      will receive a dividend of 12% per annum payable monthly for a period of
      eighteen months from the date of purchase.l
            Shares
      are convertible into common stock at any time on the basis of 75% of the
      average current bid price for the preceding 20 days of the Company's
      receipt of notice to convert. This conversion rate is subject to
      adjustments for forward or reverse splits or other capitalizations. The
      option was of no intrinsic benefit, at the commitment date, to the
      preferred shareholder.l
            Shares
      have a priority over common shares upon liquidation.l
            Shares
      are callable by the Company at any time after 12 months of issuance of
      Preferred B shares at the original purchase price. The Preferred
      Shareholders will have sixty days thereafter to convert to common stock.
      The shares will be repurchased after eighteen months for the original
      issue price.




Preferred
Shares subject to mandatory redemption




The
features of our Series B Preferred Stock and determined that it falls within
SFAS 150 “Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity”. Due to redemption features of the securities, the
preferred shares are being classified as a liability in these financial
statements. The securities give the holder the option of a net cash settlement
or a settlement in common share based on a conversion rate.  The value
of the liability is fixed at the stated value of $485,000.  However,
the number of common shares into which the preferred shares are convertible is
inversely related to changes in the Company’s common stock.  Although
the potential conversion could conceivably require the Company to issue a number
of shares in excess of its authorized limit, the Company does not believe that
its liability recorded at December 31 2007, associated with the Series B
preferred stock is appropriate in that such obligation would not exceed the
aggregate stated value.




- 20 -




Item
2.  Management’s Discussion and analysis of Financial Condition and
Results of Operations




OVERVIEW




In mid to
late 2008, conditions within the homebuilding industry became very challenging.
Estimates are that home sales were down 15-20% at the end of period ending
9-30-08.  The downward trend has accelerated.  Despite
current conditions, Management believes that housing market conditions will
improve.  This belief is based on many factors, not the least of which
is the Government’s stimulus plan and their continued involvement. We estimate
the improvement will occur over the long-term. In the short term, we expect that
conditions will continue to be demanding, and may deteriorate further before
recovery. Several factors contributed to the difficult environment, including:
lack of financing, continued high inventory levels for both new and existing
homes, in addition to a glut of developed building lots, The result will be seen
in continued downward pressure resulting in large price reductions and higher
sales incentives. Adding to this stress is the credit tightening of the mortgage
markets, along with increasing home foreclosures in many markets. These factors
taken with other unforeseeable occurrences will result in lower gross profits
for the industry in general.




STRATEGY




We
believe the long-term fundamentals, namely population growth and household
formation, remain solid and will continue to support housing demand. This is
especially true when put in the context of specific, targeted markets that the
Company is in a position to enter. We also believe current market conditions are
extremely challenging and demanding and will remain so for the near term.
However, it will moderate over the long term. In the interim, we are exploring
other areas related of real estate that could generate revenue for the Company.
For instance, we are currently exploring potential merger(s) and/or
acquisition(s) of related businesses and corporations.  Renegotiating
or cancelling land option purchase contracts from current levels is also under
serious consideration.  The ability to obtain financing, both for
development and home building projects, and for home mortgages, remains
extremely difficult to obtain. Any or all of these factors can predictably
lower sales volume and gross profits significantly.   Management
is also exploring how to best use its real estate and finance experience, One
area of focus is loan workouts. In this scenario the Company may create a
division to help real estate owners in financial distress avoid foreclosure
through the use of structured refinance and loan modifications. It is currently
under Letter of Intent with one such company as a potential
acquisition.  Another, viable alternative is the purchase of financial
instruments collateralized by real estate.  Falcon Ridge is in
negotiations to purchase such instruments at a discount to their fair market
value.  We believe if successful this can provide the Company a method
to enhance shareholder value during this real estate downturn.  This
would constitute a change in corporrate strategy at least for the short
term.




The
following discussion of our financial condition and results of operations should
be read in conjunction with, and is qualified in its entirety by, the
consolidated financial statements and notes thereto included in Item 1 in this
Quarterly Report on Form 10-QS. This item contains forward-looking statements
that involve risks and uncertainties. Actual results may differ materially from
those indicated in such forward-looking statements.


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Forward-Looking
Statements





This
Quarterly Report on Form 10-Q and the documents incorporated herein by reference
contain forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates, and
projections about our industry, management beliefs, and certain assumptions made
by our management. Words such as "anticipates," expects," "intends," "plans,"
"believes," "seeks," "estimates," variations of such words, and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties, and assumptions that are difficult to predict; therefore,
actual results may differ materially from those expressed or forecasted in any
such forward-looking statements. Unless required by law, we undertake no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events, or otherwise. However, readers should
carefully review the risk factors set forth in other reports and documents that
we file from time to time with the Securities and Exchange Commission,
particularly our Annual Reports on Form 10-KSB and any Current Reports on Form
8-K.




Overview and
History





We are a
Nevada corporation with two subsidiaries, Sierra Norte, LLC ("Sierra Norte") and
Spanish Trails, LLC ("Spanish Trails"). We are in the real estate industry and
acquire tracts of raw land and develop them into residential lots for sale to
homebuilders. We plan to expand our operations in 2007 into homebuilding on our
Spanish Trails lots. Our executive offices are located in the Albuquerque, New
Mexico area.





On May
20, 2005, we completed a reverse acquisition transaction. We acquired Sierra
Norte, a New Mexico limited liability company, which thereby became our
wholly-owned subsidiary. Sierra Norte is a land development company in the
Albuquerque, New Mexico area. Formerly we were a technology company which was in
the business of developing and marketing color comparison devices. We acquired
Spanish Trails on July 6, 2005 as discussed below.




As a
result of the Sierra Norte acquisition, the former security holders of Sierra
Norte acquired a majority of our outstanding shares of common stock. For
accounting purposes, Sierra Norte has been deemed to be the acquirer in the
acquisition and, consequently, the assets, liabilities and historical operations
that are reflected in our financial statements are those of Sierra Norte, which
are recorded at the historical cost basis of Sierra Norte. The reverse
acquisition was consummated under Colorado law pursuant to an Agreement and Plan
of Reorganization dated May 20, 2005.


- 22 -





On
July 6, 2005, we entered into an exchange of securities whereby we acquired 100%
of the ownership of Spanish Trails, in exchange for the issuance of a total of
614,882,069 (pre-reverse split) of our common shares. As a result of the Spanish
Trails acquisition, the former security holders of Spanish Trails acquired a
majority of our outstanding shares of common stock, but we did not have a change
of control because the owners of a majority of Spanish Trails were the executive
officers and majority shareholders of the Company. After the exchange,
752,262,441 (pre-reverse split) shares of common stock were issued and
outstanding.





Also, on
July 6, 2005 we reincorporated our company to Nevada from Colorado and changed
our name to Falcon Ridge Development Inc., after shareholder approval. In
connection with the name change, we changed to a new trading symbol,
FLRD.BB.





On
August 16, 2006 we affected a 1 for 200 reverse split of our common stock. This
reduced the outstanding shares from 752,262,441 to 3,761,312 and we changed our
trading symbol to FCNR.BB.





Our
Spanish Trails project is progressing through local real estate governmental
clearance toward final approval of our platting plan. We anticipate the process
should be completed by mid-2008. When our platting plan receives final approval,
we will be able to begin construction of the first phase of development of
approximately 517 lots for single family homes. Considerable up front costs in
any real estate platting project must first be incurred and paid for, thus in
the early stages of our real estate projects significant amounts of capital can
be required until platting occurs, and lots are improved and sold. Predictably,
greater revenues will be achieved as soon as a portion of the lots are improved
and sold. When the lot development has been completed and accepted by the
Valencia County, New Mexico, engineers and construction of the lots completed,
the sale of those lots will be funded and closed. It is also our intention to
initiate a home building division on some of the remaining developed Spanish
Trails project lots not sold to homebuilders. We expect to have initial models
open in the Spring of 2008. The sale of homes and, consequently, the pace of
construction, will be determined by the rate of market absorption.





Results of
Operations





Three Month Period Ending
December 31, 2008 Compared to Three Month Period Ending December 31,
2007





We had
revenue of no revenue for the quarter ended December 31, 2008 and $47,310 for
the quarter ended December 31, 2007. The revenue for the quarter ended December
31, 2007 consisted of application, qualification and loan processing fees
attributable to our mortgage division. The Mortgage division was incorporated in
the  State of New Mexico and its Certificate of Organization was
issued on or about August 3, 2007 under the name Falcon Ridge Investments, LLC.
It has been operating since as a wholly owned subsidiary of Falcon Ridge
Development, Inc. We are in the process of exploring how to expand personnel,
locations and licensing in other States.


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Our
selling, general and administrative expenses for the three month period ending
December 31, 2008 were $14,048, compared to selling, general and administrative
expenses of $92,180 for the three month period ending December 31, 2007. The
major components of these expenses are rent, utilities, office, and accounting
and legal fees.. The reduction in selling general and administrative expenses is
due to general down turn in the real estate industry and the Company has cut
back on expenses.  An affiliate from whom the Company rents its office
space has suspended the lease for an indefinite period of
time.   In February of 2009, the Company moved its offices to the
home of its president to further reduce overhead expenses.





Our
principal potential source of revenue in the near term is expected to be from
139 acres of land we own in the Spanish Trails project, which is being developed
as discussed above. In this development, we plan to build homes as well as
develop and construct the community. The timeframe over which developed lots and
or homes will be sold may be several years.  As noted in notes
payable, the Company on August 1, 2008 became in default on its mortgage of
$1,150,000 to Metro Loan Corp .  The mortgage company has not
initiated foreclosure proceedings to date.  The management of Falcon
Ridge is considering its options which include tendering the deed in lieu of
foreclosure. Should either of these two events occur, the Company could lose it
major revenue producing asset.





The
Spanish Trails development could be sold to another developer or to a builder
and the Company is attempting to find buyer or buyers.  However, in
the current depressed real estate market, the management to date had not located
a buyer.  Unless management is able to raise sufficient funds to
further develop this site, it future as a revenue producing asset is at
risk.





Due to
the continued economic depressed real estate market, particularly during the
quarter ended December 31, 2008, the Company recorded an impairment adjustment
to its carrying value of Spanish Trails of $1,989,576 reducing its carrying
value to $1,200,000.





Liquidity and Capital
Resources





At December 31, 2008 our cash position was $466.





Our net
cash used in operating activities for the quarter ending December 31, 2008 was
$7,752 compared to $19,432 for the three month ending December 31,
2007.  The reduction in net cash used by operating activities was due
primarily to a cut back in operations of the Company by its
management.





Our net
cash from  investing activities was $800 for the three month period
ending December 31, 2008, compared to  $21,783 of net cash used by
investing activities for the three month period ending December 31,
2007.  During the quarter ended December 31, 2008, the Company sold a
piece of construction equipment.


- 24 -




Our net
cash provided by financing activities was $6,300 for the quarter ended December
31, 2008, compared to $12,000 for the three month period ending December 31,
2007.  For the financing for the first quarter of 2008, $5,000 was
loaned by a related parties and $1,300 was from other notes
payable.





The
timing of the completion of the platting of our Spanish Trails project is not
certain, so we cannot assure the timing of cash flow from lot sales. We are
faced with a severe working capital shortage. In that event we may be required
to seek financing it may not be available or, if available, it could be on terms
which are cost prohibitive to us.  As noted above the Spanish Trails
development is in foreclosure with Metro Loan Corp.  The mortgage
amount is $1,150,000.  Unless the Company can negotiate a loan
extension on favorable terms, the future revenue from this development is at
high risk.





Management
is currently searching for a business model which it could bring into the
Company which would provide the opportunity to increase significantly its asset
base and correspondingly its revenue producing ability.  While
management is working diligently towards this goal, there is no assurance that
it will succeed.   Please see “STRATEGY”
section  above  for a more complete explanation of the
business opportunities the Company is pursuing.





Recently Issued Accounting
Pronouncements





We do not expect the adoption of any recently issued accounting pronouncements
to have a significant impact on our net results of operations, financial
position, or cash flows.





Critical Accounting
Policies





The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires us to make a number of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Such estimates and
assumptions affect the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, we evaluate estimates and assumptions
based upon historical experience and various other factors and circumstances. We
believe our estimates and assumptions are reasonable in the circumstances;
however, actual results may differ from these estimates under different future
conditions.




We believe that the estimates and assumptions that are most important to the
portrayal of our financial condition and results of operations, in that they
require our most difficult, subjective or complex judgments, form the basis for
the accounting policies deemed to be most critical to us. These critical
accounting policies relate to bad debts, impairment of intangible assets and
long lived assets, contractual adjustments to revenue, and contingencies and
litigation. We believe estimates and assumptions related to these critical
accounting policies are appropriate under the circumstances; however, should
future events or occurrences result in unanticipated consequences, there could
impact on our future financial conditions or results of
operations.


- 25 -


Item
3.  Qualitative and Qualitative Disclosures about Market
Risk







There are none to report.






Item
4.  Controls and Procedures




Evaluation
of Disclosure Controls and Procedures




Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us in
the reports that we file under the Exchange Act is accumulated and communicated
to our management, including our principal executive and financial officers, as
appropriate to allow timely decisions regarding required
disclosure.




The
Company’s management, under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial (and principal accounting)
Officer, carried out an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31,
2008.  Based upon that evaluation and the identification of the
material weakness in the Company’s internal control over financial reporting as
described below under “Management’s Report on Internal Control over Financial
Reporting,” the Chief Executive Officer and Chief Financial Officer concluded
that the Company’s disclosure controls and procedures were ineffective as of the
end of the period covered by this report.




Management's
Report on Internal Control over Financial Reporting




A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, a public company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles (“GAAP”) including those policies and procedures
that: (i) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets of
the company, (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures are being made only in
accordance with authorizations of management and directors of the company, and
(iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s assets that could
have a material effect on the financial statements.




Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. Our management, with the participation of our Chief
Executive Officer and Chief Financial Officer, has assessed the effectiveness of
our internal control over financial reporting as of December 31, 2008. In making
this assessment, our management used the criteria established inInternal
Control—Integrated
Framework  issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).




- 26 -






During
this evaluation, the Company identified a material weakness in its internal
control over financial reporting.  A material weakness is a
deficiency, or combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis.  The identified material weakness
consists of, as of the end of the period covered by this report, limited
resources and limited number of employees, namely the lack of an audit
committee, an understaffed financial and accounting function, and the need for
additional personnel to prepare and analyze financial information in a timely
manner and to allow review and on-going monitoring and enhancement of our
controls.




Based on
our assessment and the criteria discussed above, the Company has concluded that,
as of December 31, 2008, the Company’s internal control over financial reporting
was not effective as a result of the aforementioned material
weakness.




Notwithstanding
the material weakness in the Company’s internal control over financial reporting
and the Company’s consequently ineffective disclosure controls and procedures
discussed above, management believes that the financial statements included in
this Quarterly Report on Form 10-Q present fairly, in all material respects, our
financial position, results of operations, and cash flows for the periods
presented in accordance with the U. S. generally accepted accounting
principles.




This
quarterly report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only management’s report in
this annual report.




Plan
for Remediation of Material Weaknesses




In
response to the identified material weakness, the Board of Directors will form
an audit committee by the end the second fiscal quarter,  March 31,
2009. With oversight from this committee, we plan to improve our control
environment and to remedy the identified material weakness by expanding the
resources available to the financial reporting process.  These ongoing
efforts are to include: (i) evaluating and improving our existing internal
control documentation to develop clear identification of key financial and
reporting controls; (ii) a restructuring of our existing personnel in order to
achieve a full-time equivalent position in our accounting department to improve
segregation of duties.




Limitations
on Effectiveness of Controls and Procedures




Our
management, including our Chief Executive Officer and Chief Financial Officer,
do not expect that our disclosure controls and procedures or our internal
controls will prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include, but are not limited to, the realities that judgments in decision-making
can be faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.




- 27 -


Changes
in Internal Control over Financial Reporting




There
were no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Rule 13a-15 or
15d-15 under the Exchange Act that occurred during the quarter ended December
31, 2008 that have materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.









PART
II – OTHER INFORMATION






Item
1.  Legal Proceedings




There are
no current legal proceedings in which the Company is involved.






Item
1a.  Risk Factors




There
have been no material changes in risk factors subsequent to September 30,
2008.  Please see the 10-K for a  discussion of these
factors.






Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds





In
October 2008, the Company issued  21,000,000 shares of restricted
common stock to its officers and directors.  These shares were valued
at $0.003 per share.






Item
3.  Defaults Upon Senior Securities





On August
1, 2008, the Company was in default on a loan in the amount of $1,150,000 to
Metro Loan Corp.  The loan is secured by a first mortgage on its
Spanish Trails development.   The lender has not initiated
foreclosure proceedings at the date of this filing.   Please see
Management’s Discussion and Analysis of the Results of Operations for further
information.






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




During
the quarter ended December 31, 2008, no matters were submitted to a vote of
security holders.






Item
5.  Other Information





None




- 28 -




Item
6.  Exhibits







Exhibit
                Number
              Description2.1
              Agreement
      and Plan of Reorganization - Pocketspec Technologies, Inc. and Sierra
      Norte LLC (a)2.2
              Acquisition
      Agreement - Pocketspec Technologies, Inc. and Spanish Trails, LLC (b)3.1
              Articles
      of Incorporation of Falcon Ridge Development, Inc. previously
      filed.3.2
              Bylaws
      of Falcon Ridge Development, Inc. previously filed.3.3
              Articles
      of Organization of Sierra Norte, LLC previously filed.3.4
              Operating
      Agreement of Sierra Norte, LLC previously filed.3.5
              Articles
      of Organization of Spanish Trails, LLC previously
filed.3.6
              Operating
      Agreement of Spanish Trails, LLC previously filed.4.1
              Articles
      of Amendment - Establishment of Series of Preferred Stock previously
      filed.14.1
              Code of
      Ethics21.1
              List
      of Subsidiaries23.1
              Consents
      of experts31.1
              Certification
      of Chief Executive Officer pursuant to Rule
      13a-14(a)/15(d)-14(a)*31.2
              Certification
      of Chief Financial Officer pursuant to Rule
      13a-14(a)/15(d)-14(a)*32.1
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002*32.2
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002*99
              Additional
      Exhibits - None







- 29 -




Signatures







Pursuant
to the requirements of Section 13 or 15(d) 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.







FALCON RIDGE DEVELOPMENT, INC.By:
              /s/ Fred M. MontanoFred M. Montano
                Chief
      Executive Officer




By:
              /s/ Karen Y. DuranKaren Y. Duran
                Chief
      Financial OfficerDate: March 3, 2009




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.


Signature
                                            
                                            Title
                                            
                                            Date/s/ Fred M. Montano
                                            
                                            Chairman
      of the Board
                                            
                                            March
      3,  2008Fred
      M. MontanoDirectors
      and Chief Executive Officer/s/ Karen Y. Duran
                                            
                                            Chief
      Financial Officer
                                            
                                            March
      3,  2008Karen
      Y. Duran/s/ SebastianRamirez
                                            
                                            Director
                                            
                                            March
      3, 2008Sebastian
      Ramirez/s/ Troy Duran
                                            
                                            Director
                                            
                                            March
      3,  2008Troy
      Duran


- 30 -