ADSERO CORP. AND SUBSIDIARIES
              (A DEVELOPMENT STAGE COMPANY COMMENCING JANUARY 1, 2004)
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 SEPTEMBER 30, 2005

===============================================================================

                                   UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549

                                    FORM 10-QSB

      |X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
            EXCHANGE ACT OF 1934

                 For the quarterly period ended September 30, 2005

                                         OR

      |_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
            EXCHANGE ACT OF 1934

            For the Transition Period from ___________ to ___________

                         Commission File Number: 000-50229

                            FALCON NATURAL GAS CORP.
             (Exact name of Registrant as specified in its charter)

               Nevada                                  98-0403897
   (State or other jurisdiction of         (I.R.S. Employer Identification No.)
   incorporation or organization)

                     Westchase Center, 2500 City West Boulevard
                                     Suite 300
                                Houston, Texas 77042
            (Address of principal executive offices, including zip code)

                                   (713) 267-2240
              (Registrant's telephone number, including area code)

      Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]

     The number of shares of the Registrant's common stock outstanding at
November 17, 2005, was 63,262,000.

     Transitional Small Business Disclosure Format:   Yes |_| No |X|

================================================================================

<PAGE>

                              FALCON NATURAL GAS CORP.
                 September 30, 2005 QUARTERLY REPORT ON FORM 10-QSB
                                 TABLE OF CONTENTS


                                                                           PAGE

            Special Note Regarding Forward Looking Statements ................3

                           PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements..............................................4
Item 2.     Plan of Operation................................................19
Item 3.     Controls and Procedures..........................................21

                          PART II - OTHER INFORMATION

Item 1.     Legal Proceedings................................................21
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds......22
Item 3.     Defaults Upon Senior Securities..................................23
Item 4.     Submission of Matters to a Vote of Security Holders..............23
Item 5.     Other Information................................................24
Item 6.     Exhibits.........................................................25


                                       2
<PAGE>

                 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

To the extent that the information presented in this Quarterly Report on Form
10-QSB for the quarter ended September 30, 2005, discusses financial
expectations, information or expectations about our sales and marketing
activities, financing and operating strategies, or otherwise makes statements
about future events, such statements are forward-looking. We are making these
forward-looking statements in reliance on the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Although we believe that the
expectations reflected in these forward-looking statements are based on
reasonable assumptions, there are a number of risks and uncertainties that could
cause our actual results to differ materially from such forward-looking
statements. These risks and uncertainties are described, among other places in
this Quarterly Report, in "Plan of Operation".

In addition, we disclaim any obligations to update any forward-looking
statements to reflect events or circumstances after the date of this Quarterly
Report. When considering such forward-looking statements, you should keep in
mind the risks referenced above and the other cautionary statements in this
Quarterly Report.


                                       3
<PAGE>

                           PART I - FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                                   PAGE
ITEM 1.     FINANCIAL STATEMENTS                                                   ----
<S>         <C>                                                                    <C>


            Consolidated Balance Sheets as at September 30, 2005 (unaudited) and    5
            December 31, 2004

            Consolidated Statements of Operations for the three and nine months     6
            ended September 30, 2005 (unaudited) and September 30, 2004
            (unaudited) and for the period from inception (March 1, 2004) to
            September 30, 2005(unaudited)

            Consolidated Statements of Stockholders' Equity (Deficit)
            (unaudited)                                                             7

            Consolidated Statement of Cash Flows for the nine months ended
            September 30, 2005 (unaudited) and September 30, 2004 (unaudited)
            and for the period from inception (March 1, 2004) to September 30,      8
            2005(unaudited)

            Notes to Consolidated Financial Statements (unaudited)                  9
</TABLE>


                                       4
<PAGE>

FALCON NATURAL GAS CORP.
(Formerly Countryside Review Inc.)
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                        September 30
                                                                            2005        December 31,
                                                                         (Unaudited)       2004
                                                                         -----------    -----------
<S>                                                                      <C>            <C>
ASSETS

   CURRENT ASSETS
      Cash and cash equivalents                                          $ 5,262,254    $   162,227
      Accounts receivable                                                      2,000          2,000
                                                                         -----------    -----------
        Total Current Assets                                               5,264,254        164,227
                                                                         -----------    -----------

   PROPERTY & EQUIPMENT
      Equipment                                                                4,505          4,088
      Less accumulated depreciation                                           (1,656)          (618)
      Software                                                                15,000             --
      Less accumulated amortization                                           (3,584)            --
                                                                         -----------    -----------
        Total Property & Equipment                                            14,265          3,470
                                                                         -----------    -----------

   OTHER ASSETS
      Proved properties oil & gas properties                               1,237,159             --
      Unproved oil & gas properties                                          649,773      1,582,541
      Prepaid expenses                                                        48,183         50,000
      Rent deposit                                                             1,243          1,243
                                                                         -----------    -----------
        Total Other Assets                                                 1,936,358      1,633,784
                                                                         -----------    -----------

   TOTAL ASSETS                                                          $ 7,214,877    $ 1,801,481
                                                                         ===========    ===========


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

   CURRENT LIABILITIES
      Accounts payable                                                   $    65,288    $     7,349
      Accrued liabilities                                                         --          6,959
      Advance from shareholder                                                    --            100
      Note payable - related party                                                --          3,216
      Note payable                                                         6,340,000        140,000
      Interest payable                                                       210,298          4,854
                                                                         -----------    -----------
        Total Current Liabilities                                          6,615,586        162,478
                                                                         -----------    -----------

   LONG-TERM LIABILITIES
      Convertible debt                                                     1,000,000        500,000
      Discount on convertible debt                                          (220,634)      (126,979)
                                                                         -----------    -----------
        Total Long-Term Liabilities                                          779,366        373,021
                                                                         -----------    -----------

   COMMITMENTS AND CONTINGENCIES                                                  --             --

   STOCKHOLDERS' EQUITY (DEFICIT)
      Common stock, $0.00001 par value; 200,000,000 shares authorized,
        62,262,000 and 62,182,000 shares issued and outstanding                  622            621
      Additional paid-in capital                                           6,923,540      6,776,430
      Stock warrants                                                          98,960             --
      Deficit accumulated during exploration stage                        (7,203,197)    (5,511,069)
                                                                         -----------    -----------
        Total Stockholders' Equity (Deficit)                                (180,075)     1,265,982
                                                                         -----------    -----------

   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                  $ 7,214,877    $ 1,801,481
                                                                         ===========    ===========
</TABLE>


                                       5
<PAGE>

FALCON NATURAL GAS CORP.
(Formerly Countryside Review Inc.)
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                            Three Months Ending             Nine Months Endging           From
                                       ----------------------------    ----------------------------    March 1, 2004
                                       September 30    September 30,   September 30,   September 30,  (Inception) to
                                           2005            2004            2005            2004      September 30, 2005
                                        (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)
                                       ------------    ------------    ------------    ------------    ------------
<S>                                    <C>             <C>             <C>             <C>             <C>
REVENUES                               $         --    $         --    $         --    $         --    $         --
                                       ------------    ------------    ------------    ------------    ------------


GENERAL AND ADMINISTRATIVE EXPENSES
    Depreciation and amortization             1,862             207           4,622             207          10,761
    Investor relations                       36,451          22,914         140,560          91,045         256,310
    Advisory services                        17,779              --         139,533              --       3,973,323
    Lease exploration                            --         225,395          13,636         299,195         585,140
    Internet/webhosting                         108              36             773          20,120          21,000
    Officers & directors fees                55,500          67,500         180,936          82,500         317,913
    Office and general expenses               6,674           6,508          57,034           7,761          72,971
    Professional fees                        62,962          20,209         210,391          75,225         345,777
    Travel and entertainment                 11,411          16,083          35,675          16,083          58,454
    Rent and related expenses                 7,919           7,438          24,612          16,924          48,358
                                       ------------    ------------    ------------    ------------    ------------
       Total Expenses                       200,666         366,290         807,772         609,060       5,690,007
                                       ------------    ------------    ------------    ------------    ------------

LOSS FROM OPERATIONS                       (200,666)       (366,290)       (807,772)       (609,060)     (5,690,007)
                                       ------------    ------------    ------------    ------------    ------------

OTHER INCOME (EXPENSES)
    Other income                                 --             248              --             500             500
    Financing fees                         (529,783)             --        (595,182)             --      (1,095,182)
    Interest expense                       (170,836)             --        (316,556)             --        (446,410)
    Interest income                          23,790              --          24,066             520          24,586
    Forgiveness of debt                          --              --           3,316              --           3,316
                                       ------------    ------------    ------------    ------------    ------------
       Total Other Income (Expenses)       (676,829)            248        (884,356)          1,020      (1,513,190)
                                       ------------    ------------    ------------    ------------    ------------

LOSS BEFORE INCOME TAXES                   (877,495)       (366,042)     (1,692,128)       (608,040)     (7,203,197)

PROVISION FOR TAXES                              --              --              --              --              --
                                       ------------    ------------    ------------    ------------    ------------

NET LOSS                               $   (877,495)   $   (366,042)   $ (1,692,128)       (608,040)     (7,203,197)
                                       ============    ============    ============    ============    ============

NET LOSS PER COMMON SHARE,
    BASIC AND DILUTED                  $      (0.01)   $      (0.01)   $      (0.03)          (0.01)
                                       ============    ============    ============    ============

WEIGHTED AVERAGE NUMBER
    OF COMMON SHARES OUTSTANDING,
    BASIC AND DILUTED                    62,262,000      66,832,000      62,244,222      56,338,028
                                       ============    ============    ============    ============
</TABLE>


                                       6
<PAGE>

FALCON NATURAL GAS CORP.
(Formerly Countryside Review Inc.)
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                     Common Stock
                                                             --------------------------    Additional
                                                               Number of                     Paid-in        Stock
                                                                Shares        Amount         Capital       Warrants
                                                             -----------    -----------    -----------    -----------
<S>                                                          <C>            <C>            <C>            <C>
Stock issued for $0.001 per share for services
     on March 1, 2004                                         20,000,000    $       200    $    19,800    $        --

Shares issued for acquisition of leases at $0.25 per share       900,000              9        224,991             --

Reverse merger acquisition and recapitalization               45,000,000            450         (4,671)            --

Shares issued  for cash at $1.00 per share
     net of expenses of $60                                      632,000              6        631,934             --

Shares issued for cash at approximately $0.93 per                     --
     share net of expenses of $12                              1,500,000             15      1,399,973             --

Shares issued for services at $1.25 per share                     50,000             --         62,500             --

Shares issued for services at $1.42 per share                  2,500,000             25      3,549,975             --

Shares issued for services at $1.34 per share                    100,000              1        133,999             --

Shares issued for services at $1.32 per share                    100,000              1        131,999             --

Rescission of shares from officer received at merger          (9,000,000)           (90)           934             --

Shares issued for financing costs and charges related
     to services provided                                        400,000              4        499,996             --

Beneficial conversion feature of convertible debt                     --             --        125,000             --

Net loss for period ending December 31, 2004                          --             --             --             --

                                                             -----------    -----------    -----------    -----------
BALANCE, December 31, 2004                                    62,182,000            621      6,776,430             --

Shares issued for services at $0.45 per share                     80,000              1         35,999             --

Beneficial conversion feature of convertible debt                     --             --        111,111             --

Warrants issued for fees                                              --             --             --         98,960

Net loss for period ending Sept 30, 2005                              --             --             --             --

                                                             -----------    -----------    -----------    -----------
BALANCE, September 30, 2005 (unaudited)                       62,262,000    $       622    $ 6,923,540    $    98,960
                                                             ===========    ===========    ===========    ===========
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                               Deficit
                                                              Accumulated
                                                                 During         Total
                                                               Exploration   Stockholders'
                                                                 Stage         Equity
                                                              -----------    -----------
<S>                                                           <C>            <C>
Stock issued for $0.001 per share for services
     on March 1, 2004                                         $        --    $    20,000

Shares issued for acquisition of leases at $0.25 per share             --        225,000

Reverse merger acquisition and recapitalization                        --         (4,221)

Shares issued  for cash at $1.00 per share
     net of expenses of $60                                            --        631,940
                                                                             -----------
Shares issued for cash at approximately $0.93 per
     share net of expenses of $12                                      --      1,399,988
                                                                             -----------
Shares issued for services at $1.25 per share                          --         62,500

Shares issued for services at $1.42 per share                          --      3,550,000

Shares issued for services at $1.34 per share                          --        134,000

Shares issued for services at $1.32 per share                          --        132,000

Rescission of shares from officer received at merger                   --            844

Shares issued for financing costs and charges related
     to services provided                                              --        500,000

Beneficial conversion feature of convertible debt                      --        125,000

Net loss for period ending December 31, 2004                   (5,511,069)    (5,511,069)

                                                              -----------    -----------
BALANCE, December 31, 2004                                     (5,511,069)     1,265,982

Shares issued for services at $0.45 per share                          --         36,000

Beneficial conversion feature of convertible debt                      --        111,111

Warrants issued for fees                                               --         98,960

Net loss for period ending Sept 30, 2005                       (1,692,128)    (1,692,128)

                                                              -----------    -----------
BALANCE, September 30, 2005 (unaudited)                        (7,203,197)   $  (180,075)
                                                              ===========    ===========
</TABLE>


                                       7
<PAGE>

FALCON NATURAL GAS CORP.
(Formerly Countryside Review Inc.)
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                 Nine Months Ending             From
                                                                            ----------------------------   March 1, 2004
                                                                            September 30    September 30   (Inception) to
                                                                                2005            2004     September 30, 2005
                                                                            (Unaudited)     (Unaudited)     (Unaudited)
                                                                            ------------    ------------    ------------
<S>                                                                         <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
        Net loss                                                            $ (1,692,128)   $   (608,040)   $ (7,203,197)

        Adjustments to reconcile net loss to net cash (used) by operating
           activities:
        Depreciation and amortization                                              4,622             207          10,761
        Common stock issued for services                                          36,000          82,500       3,935,332
        Interest expense attibutable to beneficial conversion feature            111,111              --         236,111
        Issuance of warrants for fees                                             98,960              --          98,960
        Common stock issued for financing costs and charges                           --              --         500,000
        Net effect of recapitalization                                                --          (4,221)             --

        Changes in assets and liabilities:
               Decrease (increase) in rent deposit                                    --          (1,243)         (1,243)
               Decrease (increase) in accounts receivable                             --              --          (2,000)
               Decrease (increase) in prepaid expenses                             1,818              --         (48,182)
               Increase (decrease) in accounts payable                            57,938         450,425          61,613
               Increase (decrease) in accrued liabilities                         (6,959)             --              --
               Increase (decrease) in interest payable                           205,444              --         210,298
               Increase (decrease) in advance from shareholder                      (100)            100              --
                                                                            ------------    ------------    ------------
                     Net cash used by operating activities                    (1,183,294)        (80,272)     (2,201,547)
                                                                            ------------    ------------    ------------

CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
               Purchase of equipment                                             (15,417)         (4,088)        (19,505)
               Oil and gas lease                                                (304,391)     (1,070,514)     (1,661,932)
               Cash received through recapitalization and acquisition                 --              --           2,681
                                                                            ------------    ------------    ------------
                    Net cash used by investing activities                       (319,808)     (1,074,602)     (1,678,756)
                                                                            ------------    ------------    ------------

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
               Proceeds from notes payable                                     6,200,000           3,217       6,340,000
               Proceeds from convertible debt                                    406,345              --         773,845
               Issuance of common stock for cash                                      --       1,631,941       2,031,928
               Forgiveness of debt                                                (3,216)             --          (3,216)
                                                                            ------------    ------------    ------------
                  Net cash provided by financing activities                    6,603,129       1,635,158       9,142,557
                                                                            ------------    ------------    ------------

        Net increase (decrease) in cash and cash equivalents                   5,100,027         480,284       5,262,254

Cash and cash equivalents beginning of period                                    162,227              --              --
                                                                            ------------    ------------    ------------

Cash and cash equivalents end of period                                     $  5,262,254    $    480,284    $  5,262,254
                                                                            ============    ============    ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
        Income taxes paid                                                   $         --    $         --    $         --
                                                                            ============    ============    ============
        Interest paid                                                       $         --    $         --    $         --
                                                                            ============    ============    ============

NON-CASH INVESTING AND FINANCING TRANSACTIONS:
        Common stock issued for services                                    $     36,000    $    225,000    $  3,935,332
        Interest expense attibutable to beneficial conversion feature       $    111,111    $         --    $    236,111
        Common stock issued for financing costs and charges                 $         --    $         --    $    500,000
        Issuance of warrants for fees                                       $     98,960    $         --    $     98,960
</TABLE>


                                       8
<PAGE>

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Falcon Natural Gas Corporation was incorporated on March 1, 2004. On April 16,
2004, Countryside Review, Inc. entered into a reverse merger transaction
agreement with Falcon Natural Gas Corporation, which transaction was completed
on May 6, 2004. In contemplation of this transaction and a change in business
focus, Countryside Review, Inc. changed its name to Falcon Natural Gas Corp.
("the Company") effective April 12, 2004. As a result of this transaction,
Falcon Natural Gas Corporation became a wholly-owned subsidiary. The Company's
operations are conducted through this wholly-owned subsidiary. The Company's
year-end is December 31.

The Company is in the exploration stage as a natural gas exploration company
and, as such, has not realized any revenues from its planned operations. The
Company's principal office is located in Houston, Texas.

Basis of Presentation
The foregoing unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Regulation S-B as
promulgated by the Securities and Exchange Commission ("SEC"). Accordingly,
these financial statements do not include all of the disclosures required by
generally accepted accounting principles in the United States of America for
complete financial statements. These unaudited interim financial statements
should be read in conjunction with the Company's audited financial statements
for the year ended December 31, 2004. In the opinion of management, the
unaudited interim financial statements furnished herein include all adjustments,
all of which are of a normal recurring nature, necessary for a fair statement of
the results for the interim period presented. Operating results for the period
ended September 30, 2005 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2005.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies is presented to assist in
understanding the financial statements. The financial statements and notes are
representations of the Company's management, which is responsible for their
integrity and objectivity. These accounting policies conform to accounting
principles generally accepted in the U.S. and have been consistently applied in
the preparation of the financial statements.

Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 153. This statement addresses the measurement
of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29,
"Accounting for Nonmonetary Transactions," is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that opinion, however, included certain
exceptions to that principle. This statement amends Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. This statement is effective for financial statements for fiscal
years beginning after June 15, 2005. Earlier application is permitted for
nonmonetary asset exchanges incurred during fiscal years beginning after the
date of this statement is issued. Management believes the adoption of this
statement will have no impact on the financial statements of the Company.


                                       9
<PAGE>

In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 152, which amends FASB statement 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
AICPA Statement of Position (SOP) 04-2, "Accounting for Real Estate Time-Sharing
Transactions." This statement also amends FASB Statement No. 67, "Accounting for
Costs and Initial Rental Operations of Real Estate Projects," to state that the
guidance for (a) incidental operations and (b) costs incurred to sell real
estate projects does not apply to real estate time-sharing transactions. The
accounting for those operations and costs is subject to the guidance in SOP
04-2. This statement is effective for financial statements for fiscal years
beginning after June 15, 2005. Management believes the adoption of this
statement will have no impact on the financial statements of the Company.

In December 2004, the Financial Accounting Standards Board issued a revision to
Statement of Financial Accounting Standards No. 123R, "Accounting for Stock
Based Compensation." This statement supersedes APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and its related implementation guidance. This
statement establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments. This statement
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. This statement does not
change the accounting guidance for share based payment transactions with parties
other than employees provided in Statement of Financial Accounting Standards No.
123. This statement does not address the accounting for employee share ownership
plans, which are subject to AICPA Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans." The Company has not yet
determined the impact to its financial statements from the adoption of this
statement.

In November 2004, the Financial Accounting Standards Board (FASB) issued
statement of financial accounting standards No. 151, "Inventory Costs-- an
amendment of ARB No. 43, Chapter 4." This statement amends the guidance in 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). Paragraph 5 of ARB 43, Chapter 4, previously stated that ". under
some circumstances, items such as idle facility expense, excessive spoilage,
double freight, and rehandling costs may be so abnormal as to require treatment
as current period charges" This statement requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal." In addition, this statement requires that allocation
of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. This statement is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. As of
September 30, 2005, the Company does not have inventory and believes the
adoption of this statement will not have any immediate material impact on the
Company.


                                       10
<PAGE>

Concentration of Credit Risk
The Company maintains its cash in two commercial accounts at a major financial
institution.

Exploration Costs
In accordance with accounting principles generally accepted in the United States
of America, the Company expenses lease exploration costs as incurred. As of
September 30, 2005, the exploration costs expensed during the Company's
exploration stage have been approximately $585,140.

Going Concern
As shown in the accompanying financial statements, the Company has generated no
revenues since inception. From inception to September 30, 2005, the Company
recorded losses of approximately $7,200,000 and had no revenues. The Company,
being an exploration stage enterprise, is currently implementing a revised
business plan that will, if successful, mitigate these factors that raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue in
existence.

Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated useful
lives of the assets, which is three years.

Stock Split
In April, 2004, the Company entered into a 5 for 1 forward stock split. The
number of shares of the registrant company outstanding at the time of the
adoption of the 5 for 1 forward stock split was 9,000,000 shares which were
restated to 45,000,000 shares. All references in the accompanying financial
statements have been restated to reflect this stock split. (See Note 3.)

Use of Estimates
The process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.


NOTE 3 - SHARE EXCHANGE

On May 6, 2004, the Company, Falcon Natural Gas Corporation (the "Corporation")
and shareholders of the Corporation completed a share exchange whereby the
Corporation became a wholly owned subsidiary of Falcon Natural Gas Corp. when
the Company issued 20,000,000 shares of its common stock to the Corporation's
shareholders in exchange for services received. The Company computed the number
of shares issued in this transaction based on the par value of the Corporation's
common stock on the date of issuance and recognized an expense of $20,000 for
services. In addition, 900,000 shares of common stock were issued in partial
payment of an oil and gas lease valued at $0.25 per share, or $225,000. Pursuant
to the share exchange, the Company issued 20,900,000 shares of its common stock
in exchange for 20,900,000 shares of common stock, which represented 100% of the
Corporation's issued and outstanding common stock. This acquisition was
accounted for as a reverse merger and recapitalization whereby the operating
company, Falcon Natural Gas Corporation, is the continuing entity for all
accounting purposes.


                                       11
<PAGE>

The recapitalization of the Company required the following accounting adjustment
in order to properly reflect the accumulated deficit in the financial
statements:

<TABLE>
<CAPTION>
                                                                             Additional
                                               Number of                       Paid-in        Deficit       Shareholders'
                                                 Shares         Amount         Capital      Accumulated        Equity
                                              ------------   ------------   ------------    ------------    ------------
<S>                                             <C>          <C>            <C>             <C>             <C>
Prior to recapitalization                       45,000,000   $        450   $     99,550    $   (104,221)   $     (4,221)
Recapitalization adjustment
               to close deficit accumulated             --             --       (104,221)        104,221              --
                                              ------------   ------------   ------------    ------------    ------------
Total                                           45,000,000   $        450   $     (4,671)   $         --    $     (4,221)
                                              ============   ============   ============    ============    ============
</TABLE>

The net liabilities assumed consisted of the following items:

    Cash and cash equivalents                            $       2,681
    Less:            Accounts payable                           (3,686)
                     Accounts payable shareholders              (3,216)
                                                         -------------

    Net liabilities assumed                              $      (4,221)
                                                         =============

The following transactions involved the majority shareholder of the Company
prior to the share exchange with Falcon Natural Gas Corporation:

On March 22, 2004, an investor acquired an aggregate of 20,000,000 shares of
common stock of Countryside Review, Inc. in exchange for $500,000 pursuant to
three stock purchase agreements with three shareholders. On March 23, 2004, the
investor returned 5,000,000 shares of common stock to Countryside Review, Inc.,
which shares were subsequently cancelled, returned to treasury, and then retired
and restored to the status of authorized and unissued. As a result of these
transactions, control of Countryside Review, Inc. shifted to the investor who
owned 15,000,000 shares of the common stock of Countryside Review, Inc. prior to
the share exchange agreement with Falcon Natural Gas Corporation.

Effective April 12, 2004, Countryside Review, Inc. changed its name to Falcon
Natural Gas Corp. and authorized a 5 to1 forward stock split of the originally
issued and outstanding Countryside Review Inc. shares. All references in the
accompanying financial statements and notes to the common shares and per share
amounts have been restated to reflect the forward stock split. The Company also
reauthorized two hundred million (200,000,000) shares of common stock with a par
value of $0.00001 per share.


                                       12
<PAGE>

NOTE 4 - CONVERTIBLE DEBT

In November, 2004, the Company entered into a loan agreement with Cornell
Capital Partners, LP ("the Investor") in which the Company received a $1,000,000
loan less related expenses of $230,000, which has been allocated as discount on
debt and will be amortized over a two year period. The convertible securities
are guaranteed by the assets of the Company. The convertible debt instrument
underlying this loan agreement will automatically convert into common stock at
either 120% of the closing bid price by the second anniversary date of issuance
or 80% of the average of the three lowest daily volume weighted average price of
the common stock for the 30 trading days immediately preceding the conversion
date. Under the agreement, the Company is required to keep available common
stock duly authorized for issuance in satisfaction of the convertible. The
conversion amount will be the face amount of the convertible plus interest at
the rate of 5% per annum from the closing date of November, 2004 to the
conversion date, which is the date on which the Company receives a notice of
conversion from the investor exercising the right to convert the convertible
into common shares of the Company. The convertible debt is scheduled to
automatically convert into common stock on the second anniversary date of
issuance. The terms of the debt do not require regular monthly payments.
Interest is accrued at 5%.

The convertible debentures contained a beneficial conversion feature computed at
its intrinsic value, which was the difference between the conversion price and
the fair value on the debenture issuance date of the common stock into which the
debt was convertible, multiplied by the number of shares into which the debt was
convertible at the commitment date. Since the beneficial conversion feature was
to be settled by issuing equity, the amount attributed to the beneficial
conversion feature, or $111,111 was recorded as an interest expense and a
component of equity on the issuance date.

Standby Equity Distribution Agreement
In November, 2004, the Company entered into a standby equity distribution
agreement with Cornell Capital Partners, LP ("Cornell"). Pursuant to this
agreement, Cornell will purchase up to $10,000,000 of the Company's common stock
through a placement agent over a two-year period after the effective
registration of the shares. In addition, the Company issued 400,000 shares of
its common stock to Cornell and the placement agent upon the inception of the
standby equity distribution agreement. The $500,000 value of these shares was
based on the fair market value of the shares on the date of the contract is
recognized as a period expense due to the fact that the 400,000 shares have been
deemed to be fully earned as of the date of the agreement.

On April 19, 2005, Falcon Natural Gas Corporation (the "Company") entered into a
termination agreement with Cornell Capital Partners, LP ("Cornell"), whereby the
standby equity distribution agreement, dated November 19, 2004, and the related
registration rights agreement, placement agent agreement and escrow agreement
were terminated. Upon execution of the termination agreement, the Company
entered into a new standby equity distribution agreement with Cornell on April
19, 2005. Pursuant to the standby equity distribution agreement, the Company
may, at its discretion, periodically sell to Cornell shares of common stock for
a total purchase price of up to $20.0 million. For each share of common stock
purchased under the standby equity distribution agreement, Cornell will pay the
Company 100% of the lowest volume weighted average price of the Company's common
stock as quoted by Bloomberg, LP on the Over-the-Counter Bulletin Board or other
principal market on which the Company's common stock is traded for the 5 days
immediately following the notice date. Cornell will also retain 5% of each
advance under the standby equity distribution agreement. Cornell's obligation to
purchase shares of the Company's common stock under the standby equity
distribution agreement is subject to certain conditions, including the Company
obtaining an effective registration statement for shares of common stock sold
under the standby equity distribution agreement and is limited to $750,000 per
weekly advance.


                                       13
<PAGE>

On April 19, 2005, the Company and Cornell terminated the securities purchase
agreement entered into on November 19, 2004, and the related convertible
debentures, security agreement, escrow agreement, investor registration rights
agreement and irrevocable transfer agent instructions. Upon execution of the
termination agreement, the Company entered into a new securities purchase
agreement with Cornell on April 19, 2005. Pursuant to the securities purchase
agreement, Cornell issued convertible debentures to the Company in the original
principal amount of $1,000,000. The debentures are convertible at Cornell's
option any time up to maturity at a fixed conversion price equal to $0.60 (the
"Fixed Price"). The debentures are secured by the assets of the Company. The
debentures have a two-year term and accrue interest at 5% per year. After the
earlier to occur of a) the date a registration statement related to the shares
issuable upon conversion of the debentures is declared effective by the United
States Securities and Exchange Commission or b) August 1, 2005, if the closing
bid price of the Company's Common Stock, as quoted by Bloomberg, LP, is less
than $0.60, Cornell at its sole option can elect cash repayment of the
debentures by requiring the Company to make 5 payments of $200,000, plus
outstanding and accrued interest. At maturity, the debentures will automatically
convert into shares of common stock at a conversion price equal to the Fixed
Price.
On April 19, 2005, in connection with the Termination Agreement and the
execution of the new Securities Purchase Agreement, the Company issued a warrant
to Cornell to purchase 1,000,000 shares of the Company's common stock. The
warrants have an exercise price equal to $0.60 per share. The warrants expire on
April 19, 2007. They have been recorded on the balance sheet at $98,960.

NOTE 5 - LOAN AGREEMENT

The Company borrowed $140,000 from Blue Mint Exploration on November 24, 2004.
The loan is unsecured, matures on May 25, 2005 on which date the entire loan
becomes payable with interest. The loan bears interest at 12% per annum. The
repayment of this loan has been extended to May 24th 2006 with an additional
facility fee of $5,000.

The Company borrowed $200,000 from Blue Mint Exploration on May 13, 2005. The
loan is unsecured, matures on May 11, 2006 on which date the entire loan becomes
payable with interest. The loan bears interest at 12% per annum.

On July 15, 2005, The Company entered into a Promissory Note $6,000,000 from
Cornell Capital Partners, LP and Highgate House Funds, Ltd. The loan bears
interest at 12% per annum. The face value of the note plus 12% interest shall be
payable to the Holders in twenty four (24) weekly installments of an aggregate
of two hundred fifty thousand dollars ($250,000). The first of which shall be
due the first Friday after such as the Company's Registration Statement is
declared effective, and shall be payable in full on the earlier of one hundred
eighty (180) days from the date of the Promissory Note or within one hundred
seventy five days (175) from the Effective Date of the Company's Registration
Statement. The repayment of this Note is in no manner contingent on the
Registration Statement being declared effective. In the event the Registration
Statement is declared effective, the Company shall use the net proceeds to be
received by the Company under that certain standby equity distribution agreement
dated April 19, 2005 towards the repayment of the obligations due under this
note. The Company has escrowed twenty three requests for advances under the
standby equity distribution agreement in an amount not less that two hundred
fifty thousand dollars and one request for advance in an amount not less than
two hundred fifty thousand dollars plus accrued interest on the outstanding
principal balance of this note with a law firm, and on the effective date,
twenty four million (24,000,000) shares of the Company's common stock. The
advanced notices shall be released to Cornell by the law firm every seven
calendar days commencing on the first Monday after the effective date. If this
note is not paid in full when due, the outstanding principal owed hereunder
shall be due and payable in full together with interest thereon at the rate of
twenty-four percent (24%) per annum or the highest permitted by applicable law,
if lower.


                                       14
<PAGE>

NOTE 6 - PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is calculated using
the straight-line method over five years. The following is a summary of
property, equipment and accumulated depreciation at September 30, 2005:


                Computer Equipment              $    4,505
                Software                            15,000
                Less: Accumulated Depreciation      (5,240)
                                                ----------
                Total Property & Equipment      $   14,265
                                                ==========

Depreciation expense for the period ending September 30, 2005 was $4,622.

NOTE 7 - OIL AND GAS LEASES

On March 25, 2004, the Company paid cash and issued stock for oil and gas
leases. The leases, assigned from Argyle Energy Corp (hereinafter "Argyle"),
entitle the Company to a 100% working interest and 70% net revenue interest in 5
tracts of land in Starr County, Texas.

On August 2, 2004, the Company contracted with Argyle Energy, Inc. ("Argyle")
for various oil, gas and mineral leases located in St. Mary Parish, Louisiana.
The contract provides that the Company will receive a 100% working interest in
these leases in exchange for two cash payments to Argyle of $404,235 and
$454,235 by September 30, 2004. As of March 31, 2005, these payments have been
made.


                                       15
<PAGE>

NOTE 8 - PROVEN RESERVES

The Securities and Exchange Commission defines proved oil and gas reserves as
those estimated quantities of crude oil, natural gas, and natural gas liquids
which geological and engineering data demonstrate with reasonable certainty to
be recovered in future years from known reservoirs under existing economic and
operating conditions. Proved developed oil and gas reserves are reserves that
can be expected to be recovered through existing wells with existing equipment
and operating methods.

In 2005, the Company reclassified $1,071,410 of unproved oil and gas properties
in St. Mary Parish, Louisiana to proved properties, based on an independent
engineering report dated June 10, 2005. Proved reserves do not include amounts
that may result from extensions of currently proved areas or from application of
enhanced recovery processes not yet determined to be commercial in specific
reservoirs.


NOTE 9 - COMMITMENTS AND CONTINGENCIES

On June 14, 2004, the Company entered into a contract for one year from the date
of the contract for investor relations services. The terms of the contract
include a retainer of $5,000 per month plus any out-of-pocket expenses, and
50,000 restricted shares in the Company's common stock.

On August 2, 2004, the Company entered into a business consultant agreement. The
consultant will be paid $15,000 for work performed in accordance with the
agreement. In addition, the Company agrees to pay the consultant 7.5% in cash
and 10% in warrants for any financing monies raised. As of September 30, 2005,
no financing monies had been raised by the consultant and $15,000 was paid for
services performed.

On August 9, 2004, the Company entered into an agreement for financial advisory
services. The terms of the agreement include compensation of 2% cash and 2%
warrants on all monies raised by the financial advisory company and payment of a
retainer in the amount of $5,000. The agreement states a termination date of
January 1, 2005. As of March 31, 2005, the financial advisory company was
instrumental in the raising of funds related to Cornell Capital Partners LP and
new terms related to the agreement dated August 9, 2004 were renegotiated. Under
the new terms of the agreement, the Company paid a retainer in the amount of
$5,000 in addition to a fixed one time payment of $35,000.

On November 24, 2004, the Company entered into an unsecured loan agreement with
Blue Mint Exploration in the amount of $140,000 for a term of six months and an
interest rate of 12% per annum to be paid at the maturity of the loan agreement.

On May 13, 2005, the Company entered into an unsecured loan agreement with Blue
Mint Exploration in the amount of $200,000 for a one year term and an interest
rate of 12% per annum to be paid at the maturity of the loan agreement.

Standby Equity Distribution Agreement
In November, 2004, the Company entered into a standby equity distribution
agreement with Cornell Capital Partners LP ("Cornell"). Pursuant to this
agreement, Cornell will purchase up to $10,000,000 of the Company's common stock
through a placement agent over a two year period after the effective
registration of the shares. (See Note 4)


                                       16
<PAGE>

NOTE 10 - RELATED PARTY TRANSACTIONS

A shareholder advanced the Company $100 to open the Company's bank account. The
funds advanced are unsecured, non-interest bearing, and due on demand. This
advance was forgiven at June 30, 2005.

NOTE 11 - COMMON STOCK

On March 2, 2005, the Company issued 80,000 shares valued at $0.45 per share to
two consultants for geological services.

During the period ended December 31, 2004, the Company issued 20,000,000 shares
valued at $0.001 per share for services received.

During the period ended December 31, 2004, the Company issued 900,000 shares of
common stock in partial payment of an oil and gas lease. The shares were valued
at $0.25 per share, or $225,000.

During the period ended December 31, 2004, the Company issued for cash 632,000
shares of common stock at $1.00 per share, less expenses of $60, for a net of
$631,940.

     In April, 2004, the Company entered into a 5 for 1 forward stock split. The
number of shares of the registrant company outstanding at the time of the
adoption of the 5 for 1 forward stock split was 9,000,000 shares which were
restated to 45,000,000 shares. (See Note 3.)

On June 14, 2004, the Company issued 50,000 restricted shares valued at $1.25
per share as part of an investor relations contract. See Note 8.

On August 2, 2004, the Company issued 2,500,000 shares valued at $1.42 per share
for services as part of the Argyle Energy, Inc. lease contract.

On August 27, 2004, the Company issued 100,000 shares valued at $1.32 per share
to an independent consultant for advisory services.

On September 7, 2004, the Company issued 100,000 shares valued at $1.34 per
share to an independent consultant for advisory services.

On October 8, 2004, the Company entered into a subscription agreement to issue
1,500,000 shares at the purchase price of approximately $0.93 per share. The
Company received $1,400,000 less expenses of $12, for a net of $1,399,988.

In October, 2004, an officer of the Company resigned from his position as CEO
and rescinded 9,000,000 shares that he currently held. The rescinded shares were
valued at par because they were part of the recapitalization of the Company's
shares.


                                       17
<PAGE>

In October, 2004, the Company issued 392,000 shares to Cornell Capital and 8,000
to the placement agent related to the standby equity distribution agreement
valued at fair market value of $1.25 per share. (See Note 4.)

Warrants
On April 19, 2004, the Company issued 1,000,000 warrants with an exercise price
of $0.60 cents. These warrants are recorded on the balance sheet at $98,960.
This amount was estimated using Black Scholes calculation and the following
assumptions were made to value the warrant for the period ending September 30,
2005: estimated risk free interest rate of 4%; estimated volatility of 48%; and
a term of two years.

NOTE 12 - SUBSEQUENT EVENTS

On October 05, 2005, the Company entered into a loan agreement with Cornell
Capital Partners, LP and Highgate House Funds, LLP ("the Investors") in which
the Company received a $7,000,000 loan less related expenses of $625,486, which
will be allocated as discount on debt and will be amortized over a one year
period. The loan is due on October 05, 2006. Interest shall accrue on the
outstanding principal balance at a rate of 12%. Monthly scheduled payments are
required consisting of principal and accrued interest. The first scheduled
payment is due ninety days from the date of the loan, each subsequent payment is
due on the same day of each subsequent calendar month until the maturity date.
The convertible securities are secured by the security agreement dated November
16, 2004. The debenture shall be convertible into shares of common stock at the
option of the holder, in whole or in part at any time and from time to time,
after the original issue date at a price of $0.60. The number of shares of
common stock issuable upon a conversion hereunder equals the quotient obtained
by dividing the outstanding amount of this debenture to be converted by the
conversion price. This loan agreement replaces the promissory note dated July
15, 2005. (See Note 5.)

The Company entered signed nonbinding letters of intent (LOI) with Blue Ridge
Group, Inc (BRG) and Bayou City Exploration (BCE) to purchase working interests
in one of BRG's and five of BCE's oil and gas prospects. According to the LOI
with BRG, Falcon will purchase 12.5% of the working interest of Prospect 107
located in Beauregard Parish Louisiana and pay 16.67% of all well costs to
casing point on the initial well drilled on the prospect. Additionally, Falcon
will pay 16.67% of all G&G costs, third party prospect fees, land brokerage
costs, lease bonus, and all other similar costs associated with the prospect.
Under the terms of the LOI with BCE, Falcon will purchase 12.5% of the working
interest for the Live Oak County Prospects, which include Jaboncillo Windmill
Prospect, Leopard Branch Prospect, and Frost National Bank Deep Prospect.
Additionally, Falcon agrees to pay 16.67% of all well costs to casing point on
the initial well drilled on each prospect and 16.67% of all G&G costs, third
party prospect fees, land brokerage costs, lease bonus and all similar costs
associated with the project. Under the trade terms for BCE's Jeff Davis Parish
Prospects, including Gemini Prospect and Zodiac II Prospect, Falcon agrees to
purchase 25% of the working interest from BCE. Also, Falcon will pay 33.33% of
all well costs to casing point on the initial well drilled on each prospect and
its proportionate share of all G&G costs, third party prospect fees, land
brokerage costs, lease bonus, and all other similar costs associated with the
prospect.


                                       18
<PAGE>

ITEM 2.  PLAN OF OPERATION

The following Plan of Operation of ours should be read in conjunction with our
consolidated financial statements and notes thereto included herein.

We are in the exploration stage as a natural gas exploration company. As such,
we have not realized any revenues from our planned operations. We are engaged in
natural gas exploration activities in St. Mary Parish, Louisiana; Starr County,
Texas; Beauregard Parish, Louisiana; Jeff Davis Parish, Louisiana; and Live Oak
County, Texas.

During 2004 and the first nine months of 2005, we raised approximately
$9,000,000 from a combination of equity and debt financing. We estimate that we
can satisfy our cash requirements for the next 12 months which does not take
into account our present debt services requirements which are presently being
restructured, the costs for drilling wells or further exploration work on our
leased properties. We currently use approximately $60,000 of cash per month for
general and administrative expenses such as investor relations, advisory
services, Internet/web-hosting, officer's salaries and director's fees, office
and general expenses, professional fees, travel and entertainment and rent and
related expenses. We estimate that such uses of cash will continue throughout
2005. We spent approximately $1,900,000 on lease exploration during 2004 and the
first nine months of 2005. In October 2005 we received an additional $1,000,000
of debt financing part of which is being used to make interest payments due on
prior debt.

We obtained the services of independent contractors to complete two-dimensional
geophysical studies of our Starr County property and three-dimensional
geophysical seismic studies on our Wyandotte property. The well scheduled to be
drilled on our Wyandotte Property is intended to be a replacement of the
Inglewood 2 well, previously drilled in 1980. We originally anticipated being
able to commence drilling operations on the Wyandotte Property in July 2005 but
due to limited rig availability, we subsequently expected to being able to
commence drilling operations no sooner than October 2005. Now due to Hurricane
Katrina, we do not have any authorized commencement date although we still
intend to proceed with drilling on the Wyandotte Property as and when
circumstances permit. The Wyandotte Property was not damanged by Hurricane
Katrina but the State of Louisiana is more than three months behind schedule in
issuing drilling permits. At this time, Louisiana is giving priority to
reconstruction efforts involving public and private infrastructure. For this
reason, on October 1, 2005 we executed oil and gas well participation agreements
with each of Bayou City Exploration, Inc. and Blue Ridge Group, Inc. under which
an aggregate of six wells are scheduled to be drilled in the next three months.
As the result of our July 15, 2005 loan from Cornell Capital Partners, LP and
Highgate House Funds, Ltd. in which we received net proceeds of $5,490,000 we
now have the necessary funds to cover our costs for drilling these new wells and
for drilling part of the Wyandotte Property well.

In connection with the Wyandotte Property, an engineering study has concluded
that the reentry of the old well would be too risky. A new well will therefore
be drilled. We plan to drill the replacement well to develop the Discorbis Bol
Sands.


                                       19
<PAGE>

The estimated cost for drilling and completion of the replacement well is
$6,000,000. Drilling and completion of this or any other well is no guarantee
that we will be able to produce commercial quantities of natural gas. The
discovery of natural gas and the ability to produce it in commercial quantities
is very speculative. If we do not discover and produce commercial quantities of
natural gas, we will not have any products or services to offer and our business
could fail. Estimates of reserves are made under conditions of uncertainty.
Notwithstanding the foregoing, in September 2005 we requested and received a
reserves report from an independent petroleum engineering firm with respect to
the Wyandotte Property. The report indicated estimated proved undeveloped
reserves of approximately 26 billion cubic feet of gas in the reservoirs
comprising the Discorbis Bol Sands. Proved reserves are those quantities of
petroleum and gas which, by analysis of geological and engineering data, can be
estimated with reasonable certainty to be commercially recoverable, from a given
date forward, from known reservoirs and under current economic conditions,
operating methods, and government regulations. Proved reserves are categorized
as developed or undeveloped.

In general, reserves are considered proved if the commercial producibility of
the reservoir is supported by actual production or formation tests. In this
context, the term proved refers to the actual quantities of petroleum reserves
and not just the productivity of the well or reservoir. In certain cases, proved
reserves may be assigned on the basis of well logs or core analysis that
indicate the subject reservoir is hydrocarbon bearing and is analogous to
reservoirs in the same area that are producing or have demonstrated the ability
to produce on formation tests.

The area of the reservoir considered as proved includes (i) the area delineated
by drilling and defined by fluid contacts, if any, and (ii) the undrilled
portions of the reservoir that can reasonably be judged as commercially
productive on the basis of available geological and engineering data. In the
absence of data on fluid contacts, the lowest known occurrence of hydrocarbons
controls the proved limit unless otherwise indicated by definitive geological,
engineering or performance data.

Reserves may be classified as proved if facilities to process and transport
those reserves to market are operational at the time of the estimate or there is
a reasonable expectation that such facilities will be installed. Reserves in
undeveloped locations may be classified as proved undeveloped provided (i) the
locations are direct offsets to wells that have indicated commercial production
in the objective formation, (ii) it is reasonably certain such locations are
within the known proved productive limits of the objective formation, (iii) the
locations conform to existing well spacing regulations where applicable, and
(iv) it is reasonably certain the locations will be developed. Reserves from
other locations are categorized as proved undeveloped only where interpretations
of geological and engineering data from wells indicate with reasonable certainty
that the objective formation is laterally continuous and contains commercially
recoverable petroleum at locations beyond direct offsets.

We plan to drill the replacement well a few yards away from an existing well. We
believe that we will have to drill the replacement well to a depth of at least
17,000 feet. We have estimated a dry hole cost of $4,340,000 and a completed
cost of $5,500,000.

If we can produce commercial quantities of natural gas that we can sell, we
intend to use the proceeds to fund a second well on the Wyandotte property to
accelerate the recovery time of the natural gas reserves. Based on our letter
agreement with Argyle Energy Inc. for transferring all of our purchased leases
into our name and the leases, we are entitled to receive a 70% net revenue
interest. In addition, we plan to use any proceeds from production to fund
additional exploration and drilling on our leased properties. We estimate that
we will need between $2 million and $7 million of additional financing for each
additional well that we desire to drill. We have not examined the title to our
leased properties.


                                       20
<PAGE>

We do not expect to purchase or sell any plant or significant equipment during
the next twelve months.

We have two full-time employees consisting of Fred B. Zaziski, our President and
Chief Executive Officer, and Massimiliano Pozzoni, our Vice President of
Business Development, Secretary and Treasurer (Principal Financial Officer). We
do not expect significant changes in the number of employees during the next
twelve months. We intend to use several contractors on an as-needed basis to
conduct our operating activities. Messrs. Zaziski and Pozzoni will select and
hire these contractors and manage and evaluate their work performance.
Additionally, we have formed an advisory board with three experienced members,
Alan Aitchison, our former Chief Executive Officer, Paul C. Kirkitelos and
Daniel H. Tesfamicael. We established the advisory board in an effort to save
cost by relying on the members rather than consultants in such areas as
drilling, petroleum engineering, and capital raising efforts.

ITEM 3.  CONTROLS AND PROCEDURES

Our principal executive officer and principal financial officer evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-14(c) under the Securities Exchange Act of 1934) as of the end of the
quarter ended September 30, 2005. Based on this evaluation, our principal
executive officer and principal financial officer have concluded that our
controls and procedures are effective in providing reasonable assurance that the
information required to be disclosed in this Report is accurate and complete and
has been recorded, processed, summarized and reported within the time period
required for the filing of this Report. Subsequent to the date of this
evaluation, there have not been any significant changes in our internal controls
or, to our knowledge, in other factors that could significantly affect our
internal controls.

                           PART II--OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

On October 8, 2004, Landmark Graphics Corporation, Halliburton Company, and
Halliburton Energy Services, Inc. (collectively "Landmark") filed a lawsuit
against us in the 125th District Court of Harris County, Texas. The case was
titled Landmark Graphics Corporation, Halliburton Company, and Halliburton
Energy Services, Inc. v. Falcon Natural Gas Corporation, Case Number,
2004-56842. We issued a press release and posted on our website a report
prepared by Landmark (the "Report"), which Landmark claimed was in violation of
an agreement between Landmark and us. We issued a corrective press release and
removed the Report from our website. Landmark claimed that we breached our
agreement with Landmark by engaging MS Corporate Communications d/b/a Michael
Williams Market Movers ("Market Movers") to create and distribute an
advertisement (the "Advertisement") that quoted from and paraphrased portions of
the Report and repeatedly referred to the Report as a report of "Halliburton,"
"Halliburton Company," and "a Halliburton Company." Landmark was claiming breach
of contract and injury to its business reputation and trade names and marks.
Landmark was seeking unspecified damages, reasonable attorneys' fees, court
costs, and injunctive relief. We generally denied the allegations of Landmark
and made a motion for summary judgment. In November 2005, prior to the hearing
on our summary judgment motion, Landmark voluntarily withdrew the lawsuit
without prejudice.


                                       21
<PAGE>

In the ordinary course of our business, we may from time to time become subject
to routine litigation or administrative proceedings which are incidental to our
business.

We are not aware of any proceedings to which any of our directors, officers,
affiliates or security holders are a party adverse to us or has a material
interest adverse to us.

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On July 15, 2005 we issued a $6,000,000 promissory note (the "Note") to Cornell
Capital Partners, LP ("Cornell") and Highgate House Funds, Ltd ("Highgate") with
respect to an aggregate of $6,000,000 loaned to us by Cornell and Highgate
consisting of $4,000,000 from Cornell and $2,000,000 from Highgate. The Note
bore interest at the rate of 12% per annum. Principal and interest due on the
note was payable in 23 equal weekly installments, each in the amount of
$250,000, and 1 installment of $502,452.05. The first payment was due the
earlier of September 2, 2005 or the first Friday after the date on which our
registration statement (the "Registration Statement") on Form SB-2 (File No.
333-124397) was declared effective by the Securities and Exchange Commission
and, in all events, was payable in full no later than 24 weeks from September 2,
2005, which is February 10, 2006. The repayment of the Note was not contingent
on the Registration Statement being declared effective. If the Note was not paid
in full when due, the outstanding principal balance together with all interest
due thereon was to be thereafter due and payable with interest thereon at the
rate of 24% per annum or the highest rate permitted by applicable law, if lower,
until paid. At our option, the Note could be prepaid in whole or in part.
Cornell and Highgate (collectively the "Lenders") received a cash fee of 8% or
$480,000 and a structuring fee of $10,000 in connection with the loan. Further,
Lender's counsel was paid $20,000 in connection with the loan transaction. We
received aggregate loan proceeds of $5,490,000. Upon an Event of Default, as
described in the Note, the entire principal balance and accrued interest
outstanding under the Note, was to become immediately due and payable.

The Note was secured by the Pledged Shares, as such term was defined in the
related Pledge and Escrow Agreement between us, Cornell and Highgate dated July
15, 2005, as well as the Security Agreement entered into by and between us and
Cornell on April 19, 2005. The Pledged Shares consisted of an aggregate of
24,000,000 shares of our common stock issued in the name of the Lenders (the
"Escrow Agent") delivered to Kirkpatrick & Lockhart Nicholson Graham LLP, as
escrow agent (the "Escrow Agent") on or about July 20, 2005. The Pledged Shares
were to be held by the Escrow Agent until payment in full on the Note or
termination or expiration of the Pledge and Escrow Agreement. Upon the
occurrence of an Event of Default, as defined in the Pledge and Escrow Agent,
the Lenders were to become entitled to vote the Pledged Shares, to receive
dividends and other distributions thereon, and to enjoy all other rights and
privileges incident to the ownership of the Pledged Shares. Upon payment of all
amounts due to the Lenders under the Note, the Pledged Shares were to be
returned to us by the Escrow Agent for cancellation and all rights of the
Lenders in the Pledged Shares shall was to be terminated. The Lenders were to
have no ownership rights in the Pledged Shares absent an Event of Default.
Accordingly, the Pledged Shares were not deemed to be outstanding unless and
until an Event of Default have occurred.


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<PAGE>

We were unable to make any of the installment payments due under the Note, the
first of which was to have been made on September 2, 2005. At such time, Cornell
and Highgate declined to exercise their right to declare the nonpayment an Event
of Default and agreed to restructure our existing obligations to them under the
Note and to provide us with additional financing. In connection therewith, on
October 17, 2005 we received gross proceeds of $1,000,000 from Highgate,
cancelled the Note and replaced it with $7,000,000 of Secured Convertible
Debentures dated October 17, 2005 which represented the original $4,000,000 lent
to us by Cornell, the original $2,000,000 lent to us by Highgate and an
additional $1,000,000 lent to us by Highgate on October 17, 2005. Accordingly,
the $7,000,000 of Debentures consisted of a $4,000,000 Debenture issued to
Cornell and a $3,000,000 Debenture issued to Highgate. In connection with the
additional financing, we paid Highgate a 10% cash fee of $100,000, paid a
$10,000 structuring fee, paid $5,485.73 in legal fees, and paid Highgate and
Cornell an aggregate $185,424.66 representing all interest due on the Note from
its July 15, 2005 date of issuance to the October 17, 2005 date of cancellation.
After making these payments, we retained the net proceeds of $699,089.61. The
Secured Convertible Debentures mature on October 17, 2006 and bear interest at
the rate of 12% per annum. Payments of principal and interest are due and
payable monthly on the Secured Convertible Debentures commencing January 15,
2006. The Debentures are convertible into shares of our common stock at the
option of the holders thereof, in whole or in part, at any time, at a price of
$.60 per share, which may be adjusted pursuant to the terms of the Debentures
(the "Conversion Price"). In the event the closing price for our common stock is
less than the Conversion Price, we can, at our option, redeem all or a portion
of the principal and interest then due on the Debentures at a 20% premium over
the amount of principal and interest being redeemed.

In October 2005 we issued 1,000,000 shares of restricted common stock to Fred
Zaziski, our president and chief executive officer pursuant to our October 27,
2004 employment agreement with Mr. Zaziski.

All of the foregoing securities were issued in reliance on Section 4(2) of the
Securities Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

As discussed in greater detail in Item 2 above, we defaulted on the payment of
interest and principal that was due on our July 15, 2005 Note commencing on
September 2, 2005. The holders of the Note did not exercise their right to
declare the nonpayment an Event of Default and restructured our existing
obligations to them under the Note.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.


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<PAGE>

ITEM 5. OTHER INFORMATION.

In connection with a $6,000,000 12% July 15, 2005 Note issued by us to Cornell
Capital Partners, LLP and Highgate House Funds, Ltd. and a related Pledge and
Escrow Agreement of the same date, as more fully described in Item 2 hereof, we
received net loan proceeds of $5,490,000 and issued 24,000,000 shares of our
common stock in escrow as security for repayment of the Note.

Effective October 17, 2005 we received $1,000,000 in gross proceeds from
Highgate, cancelled the $6,000,000 July 15, Note and rolled our obligation under
the Note together with our obligation under the October 2005 funding, into
$7,000,000 of Secured Convertible Debentures, for a more detailed description of
the terms of the October 17, 2005 Debentures. See Item 2 hereof.

Effective October 27, 2005 we renewed our October 27, 2004 Employment Agreement
with Fred Zaziski, our President and Chief Executive Officer for an additional
one year period. The October 27, 2004 Employment Agreement provides that for
each completed year of the Employment Agreement, as renewed, up to a maximum of
five years, we are required to issue to Mr. Zaziski 1,000,000 shares of our
restricted common stock. We are also required to issue shares of our common
stock to Mr. Zaziski, on a pro rata basis, for partially completed years under
the Employment Agreement. In connection with the renewal, we also increased Mr.
Zaziski's annual salary under the employment agreement from $132,000 to
$144,000. In consideration of the employment year ended October 26, 2005, in
October 2005 we issued 1,000,000 shares of our common stock to Mr. Zaziski.

Effective November 11, 2005 we entered into a renewable, one year Employment
Agreement with Massimiliano Pozzoni pursuant to which Mr. Pozzoni serves as our
Vice President of Business Development, Secretary and Treasurer. Thereunder we
are paying Mr. Pozzoni an annual salary of $102,000. Further, we have agreed to
issue 1,000,000 shares of our restricted common stock to Mr. Pozzoni for each
completed year of the Employment Agreement, as renewed, up to a maximum of five
years. In the event Mr. Pozzoni's Employment Agreement is terminated by us
without cause or by Mr. Pozzoni for good reason we are required to make
severance payments to Mr. Pozzoni equal to three months of additional salary.

On October 1, 2005 we entered into oil and gas well participation agreements
with each of Blue Ridge Group, Inc. ("Blue Ridge") and Bayou City Exploration,
Inc. ("Bayou City"). Under the agreement with Blue Ridge, we agreed to purchase
a 12.5% working interest from Blue Ridge in the initial well drilled on Prospect
107 located in Beauregard Parish, Louisiana (the "Blue Ridge Prospect"). We
further agreed to pay 16.67% of all well costs to the casing point on the
initial well drilled on the Blue Ridge Prospect and to pay 16.67% of all other
drilling costs, third party prospect fees, land brokerage costs, lease bonuses
and all other similar costs associated with the Blue Ridge Prospect. To date, we
have paid Blue Ridge a total of $121,200 consisting of geological and
geophysical costs. The total cost for drilling the initial well on the Blue
Ridge Prospect is presently estimated to be $2,100,000. Under the Agreement with
Bayou City we agreed to purchase working interests from Bayou City in 5 oil and
gas prospects including the Jaboncillo Windfall Prospect, Leopard Branch
Prospect and Frost National Bank Deep Prospect, each located in Live Oak County
Texas and the Gemini Prospect and Zodiac II Prospect, each located in Jeff Davis
Parish, Louisiana. The agreement terms with respect to the 3 Live Oak County
Prospects (the "Live Oak Prospects") are that we will purchase a 12.5% working
interest in the initial well drilled on each Live Oak Prospect subject to prior
recovery of well costs by all well participants. We further agreed to pay 16.67%
of all well costs to the initial casing point on the initial well drilled on
each Live Oak Prospect and to pay 16.67% of all geological and geophysical
costs, third party prospect fees, land brokerage costs, lease bonus and all
other costs associated with the respective Live Oak Prospects. The total
aggregate cost for drilling the initial wells on the 3 Live Oak County Prospects
is presently estimated to be $4,200,000. The agreement terms with respect to the
2 Jeff Davis Parish, Louisiana Prospects (the "Jeff Davis Prospects") are that
we will purchase a 25% working interest in the initial well drilled on each Jeff
Davis Prospect. We have further agreed to pay 33.33% of well costs to the casing
point on the initial well drilled on each Jeff Davis Prospect and to pay 33.33%
of all geological and geophysical costs , third party prospect fees, land
brokerage costs, lease bonus and all other similar costs associated with each
Jeff Davis Prospect. To date we have paid Bayou City an aggregate of $256,200
including $53,851 for the Frost National Bank Deep Prospect, $16,137 for the
Leopard Branch Prospect, $16,212 for the Jaboncillo Windmill Prospect, $62,667
for the Gemini Prospect and $107,333 for the Zodiac II Prospect. Subject to rig
availability, drilling is scheduled to commence on the Blue Ridge Prospect, 3
Live Oak County Prospects and 2 Jeff Davis Prospects anytime from mid December
2005 through mid February 2006. Drilling a well on the Wyandotte Property
remains a priority for us. We are seeking further financing and a drilling
partner with respect to the Wyandotte Property.


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<PAGE>

ITEM 6.     EXHIBITS

Exhibits

The following exhibits are filed as a part of this report on Form 10-QSB:

Exhibit
No.                            Description
---                            -----------

10.1        $4,000,000 Secured Debenture dated October 17, 2006

10.2        $3,000,000 Secured Debenture dated October 17, 2006

10.3        Executive Employment Agreement with Max Pozzoni effective as of
            November 11, 2005

31.1        Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive
            Officer

31.2        Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Financial
            Officer

32.1        Rule 1350 Certification of Principal Executive Officer

32.2        Rule 1350 Certification of Principal Financial Officer


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<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-QSB to be
signed on its behalf by the undersigned, thereunto duly authorized.

     Dated: November 18, 2005              Falcon Natural Gas Corp.

                                           By: /s/ Massimiliano Pozzoni
                                               ------------------------
                                           Name:  Massimiliano Pozzoni
                                           Title: Secretary, Treasurer and
                                                  Chief Financial Officer


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