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

                                  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 June 30, 2006

                                       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 [_]

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

       The number of shares of the Registrant's common stock outstanding at
August 10, 2006, was 66,012,000.

       Transitional Small Business Disclosure Format: Yes [_]  No [X]

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


<PAGE>


                            FALCON NATURAL GAS CORP.
                  JUNE 30, 2006 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....................................................24
Item 3. Controls and Procedures..............................................26

                           PART II - OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........26
Item 3. Defaults Upon Senior Securities......................................27
Item 6. Exhibits.............................................................29


                                       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 June 30, 2006, 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



ITEM 1.  FINANCIAL STATEMENTS                                              PAGE
                                                                           ----

         Consolidated Balance Sheets as at June 30, 2006 (unaudited) and
         December 31, 2005                                                     5


         Consolidated Statements of Operations for the three and six
         months ended June 30, 2006 (unaudited) and June 30, 2005
         (unaudited) and for the period from inception (March 1, 2004)
         to June 30, 2006 (unaudited)                                          6


         Consolidated Statement of Stockholders' Equity


         Consolidated Statement of Cash Flows for the six months ended
         June 30, 2006 (unaudited) and June 30, 2005 (unaudited) and
         for the period from inception (March 1, 2004) to June 30, 2006
         (unaudited)                                                           7


         Notes to Consolidated Financial Statements (unaudited)                8

                                       4
<PAGE>

<TABLE>
<CAPTION>
FALCON NATURAL GAS CORP.
(Formerly Countryside Review Inc.)
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEET
---------------------------------------------------------------------------------
                                                       June 30,      December 31,
                                                         2006           2005
                                                     (Unaudited)
                                                     ------------    ------------
<S>                                                  <C>             <C>
ASSETS
    CURRENT ASSETS
      Cash and cash equivalents                      $    362,572    $  3,832,998
      Accounts receivable                                       0               0
                                                     ------------    ------------
        Total Current Assets                              362,572       3,832,998
                                                     ------------    ------------
    PROPERTY & EQUIPMENT
      Equipment, net of depreciation                        2,243           2,654
      Software, net of depreciation                         7,950           9,904
                                                     ------------    ------------
        Total Property & Equipment                         10,193          12,558
                                                     ------------    ------------
    OTHER ASSETS
      Proved oil & gas properties, using
        successful efforts accounting                   1,923,081       1,755,370
      Unproved oil & gas properties, using
        successful efforts accounting                   2,955,726         867,965
      Prepaid expenses                                          0               0
      Rent deposit                                          1,243           1,243
                                                     ------------    ------------
        Total Other Assets                              4,880,050       2,624,578
                                                     ------------    ------------

    TOTAL ASSETS                                     $  5,252,815    $  6,470,134
                                                     ============    ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

    CURRENT LIABILITIES
      Accounts payable                               $    384,231    $  1,121,878
      Convertible debt, net of discount                 6,717,055       5,709,221
      Derivative on convertible debt                       70,114         116,667
      Interest payable                                    650,373         209,029
                                                     ------------    ------------
        Total Current Liabilities                       7,821,773       7,156,795
                                                     ------------    ------------
    LONG-TERM LIABILITIES
      Convertible debt                                          0         693,878
      Derivative on convertible debt                            0          16,667
                                                     ------------    ------------
        Total Long-Term Liabilities                             0         710,545

    COMMITMENTS AND CONTINGENCIES                               0               0
                                                     ------------    ------------

    STOCKHOLDERS' DEFICIT
      Common stock, $0.00001 par value;
        200,000,000 shares authorized,
        65,912,000 and 63,262,000 shares
        issued and outstanding                                658             632
      Additional paid-in capital                        8,224,560       7,167,419
      Common Stock warrants                             5,567,710          98,960
      Deficit accumulated during exploration stage    (16,361,886)     (8,664,217)
                                                     ------------    ------------
        Total Stockholders' Deficit                    (2,568,958)     (1,397,206)
                                                     ------------    ------------

    TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT      $  5,252,815    $  6,470,134
                                                     ============    ============
</TABLE>

              The accompanying condensed notes are an integral part
                  of these consolidated financial statements.

                                       5
<PAGE>


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

                                             Three months ending                Six months ending
                                         ------------------------------    ------------------------------         From
                                            June 30,        June 30,          June 30,         June 30,       March 1, 2004
                                             2006             2005              2006            2005         (Inception) to
                                                         (Unaudited and                    (Unaudited and     June 30, 2006
                                          (Unaudited)       Restated)       (Unaudited)       Restated)        (Unaudited)
                                         ------------    --------------    ------------    --------------    ---------------
<S>                                      <C>             <C>               <C>             <C>               <C>
REVENUES                                 $         --    $           --              --    $           --    $            --

GENERAL AND ADMINISTRATIVE EXPENSES
      Depreciation and amortization             1,182             1,842           2,364             2,759              9,466
      Investor relations                       13,907            47,243          26,298           104,109            346,174
      Advisory services                           202             5,900          94,145           121,754          4,141,433
      Lease exploration                            --               864         178,145            19,166          1,474,426
      Lease expense                             8,483                --         718,901                --            884,071
      Internet/webhosting                         184               108           2,949               665             24,192
      Officers & directors fees                61,500            55,500         123,000           125,436            978,413
      Office and general expenses               6,182             8,441          11,482            44,831             91,940
      Professional fees                        33,224           101,003          75,259           147,429            476,989
      Travel and entertainment                  4,308             8,316          10,942            24,263             81,205
      Rent and related expenses                 6,435            10,611          14,650            16,694             70,778
                                         ------------    --------------    ------------    --------------    ---------------
         Total Expenses                       135,607           239,828       1,258,135           607,106          8,579,087
                                         ------------    --------------    ------------    --------------    ---------------

LOSS FROM OPERATIONS                         (135,607)         (239,828)     (1,258,135)         (607,106)        (8,579,087)
                                         ------------    --------------    ------------    --------------    ---------------

OTHER INCOME (EXPENSES)
      Other expenses                               --                --          (4,450)               --             (4,450)
      Other income                                 --                --              --                --                500
      Financing fees                         (203,113)          (81,558)     (6,084,354)         (142,421)        (7,809,616)
      Interest expense                       (221,890)          (19,942)       (441,342)          (34,609)        (1,104,612)
      Interest income                           8,034               188          31,559               276             93,862
      Gain (loss) on derivatives              367,386           479,167          59,053           533,089          1,038,201
      Forgiveness of debt                          --             3,316              --             3,316              3,316
                                         ------------    --------------    ------------    --------------    ---------------
         Total Other Income (Expenses)        (49,583)          381,171      (6,439,534)          359,651         (7,782,800)
                                         ------------    --------------    ------------    --------------    ---------------

INCOME (LOSS) BEFORE INCOME TAXES            (185,190)          141,343      (7,697,669)         (247,455)       (16,361,887)

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

NET INCOME (LOSS)                        $   (185,190)   $      141,343      (7,697,669)   $     (247,455)   $   (16,361,887)
                                         ============    ==============    ============    ==============    ===============

NET INCOME (LOSS) PER COMMON SHARE,
      BASIC AND DILUTED                  $        nil    $          nil    $      (0.12)   $          nil
                                         ============    ==============    ============    ==============

WEIGHTED AVERAGE NUMBER
      OF COMMON SHARES OUTSTANDING,
      BASIC AND DILUTED                    65,862,000        62,208,667      64,978,667        62,235,333
                                         ============    ==============    ============    ==============
</TABLE>

              The accompanying condensed notes are an integral part
                  of these consolidated financial statements.

                                       6
<PAGE>

<TABLE>
<CAPTION>
FALCON NATURAL GAS CORP.
(Formerly Countryside Review Inc.)
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------
                                                                     Common Stock
                                                             ----------------------------     Additional
                                                               Number of                       Paid-in
                                                                Shares          Amount         Capital
                                                             ------------    ------------    ------------
<S>                                                          <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

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

                                                             ------------    ------------    ------------
BALANCE, December 31, 2004                                     62,182,000             621       6,651,430

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

Warrrants issued                                                       --              --              --

Sharees issued for officer fees at $0.48
    per share                                                   1,000,000              10         479,990


Net loss for period ending December 31, 2005                           --              --              --

                                                             ------------    ------------    ------------

BALANCE, December 31, 2005                                     63,262,000             632       7,167,419

Shares issued for convertible debt at $0.10 per share           2,500,000              25       1,004,142

Warrants issued related to Source Capital agreement                    --              --              --

Warrants issued in settlement of the forbearance agreement             --              --              --

Share issued for services at $0.33 - $0.40 per share              150,000               1          52,999

Net loss for period ending June 30, 2006 (unaudited)                   --              --              --

                                                             ------------    ------------    ------------
BALANCE, June 30, 2006 (unaudited)                             65,912,000    $        658    $  8,224,560
                                                             ============    ============    ============

<CAPTION>
                                                                              Deficit
                                                                            Accumulated
                                                                               During           Total
                                                                            Exploration     Stockholders'
                                                               Warrants        Stage           Equity
                                                             ------------   ------------    -------------
<S>                                                          <C>            <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

                                                                                            -------------
Net loss for period ending December 31, 2004                           --     (5,530,778)      (5,530,778)

                                                             ------------   ------------    -------------
BALANCE, December 31, 2004                                             --     (5,530,778)       1,121,273

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

Warrrants issued                                                   98,960             --           98,960

Sharees issued for officer fees at $0.48
    per share                                                          --             --          480,000

Net loss for period ending December 31, 2005                           --     (3,133,439)      (3,133,439)

                                                             ------------   ------------    -------------

BALANCE, December 31, 2005                                         98,960     (8,664,217)      (1,397,206)

Shares issued for convertible debt at $0.10 per share                  --             --        1,004,167
                                                                                                        0
Warrants issued related to Source Capital agreement               688,750             --          688,750

Warrants issued in settlement of the forbearance agreement      4,780,000             --        4,780,000

Share issued for services at $0.33 - $0.40 per share                   --             --           53,000

Net loss for period ending June 30, 2006 (unaudited)                   --     (7,697,669)      (7,697,669)

                                                             ------------   ------------    -------------
BALANCE, June 30, 2006 (unaudited)                           $  5,567,710   $(16,361,886)   $  (2,568,958)
                                                             ============   ============    =============
</TABLE>

              The accompanying condensed notes are an integral part
                  of these consolidated financial statements.

                                       7
<PAGE>

<TABLE>
<CAPTION>
FALCON NATURAL GAS CORP.
(Formerly Countryside Review Inc.)
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
-------------------------------------------------------------------------------------------------------------------
                                                                         Six months ending               From
                                                                   ------------------------------    March 1, 2004
                                                                      June 30,        June 30,       (Inception) to
                                                                        2006            2005         June 30, 2006
                                                                                     (Unaudited
                                                                    (Unaudited)     and Restated)     (Unaudited)
                                                                   ------------    --------------    --------------
<S>                                                                <C>             <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                     $ (7,697,669)   $     (247,455)   $  (16,361,886)

      Adjustments to reconcile net loss to net
         cash (used) by operating activities:
      Depreciation and amortization                                       2,364             2,759             9,466
      Amortization of debt discount                                   1,313,957            77,023         1,873,578
      Common stock issued for services                                   53,000            36,000         4,468,332
      Common stock and warrant issued for financing costs             5,468,750                --         6,067,710
      Loss (gain) on derivative                                         (59,053)         (533,089)       (1,038,200)
      Forgiveness of debt                                                    --            (3,316)           (3,216)

      Changes in assets and liabilities:
          Decrease (increase) in prepaid expenses                            --             7,055                --
          Increase (decrease) in accounts payable                      (737,647)           56,082           377,329
          Increase (decrease) in accrued liabilities                         --            (6,959)               --
          Increase (decrease) in interest payable                       441,344            34,608           650,373
                                                                   ------------    --------------    --------------
                Net cash used by operating activities                (1,214,954)         (577,292)       (3,956,514)
                                                                   ------------    --------------    --------------

CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
          Purchase of equipment                                              --           (15,170)          (19,660)
          Oil and gas lease                                          (2,255,472)         (138,530)       (4,653,807)
          Decrease (increase) in rent deposit                                --                --            (1,243)
          Cash received through recapitalization and acquisition             --                --             2,681
                                                                   ------------    --------------    --------------
                Net cash used by investing activities                (2,255,472)         (153,700)       (4,672,029)
                                                                   ------------    --------------    --------------

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
          Proceeds from notes payable                                        --           200,000           140,000
          Payment on notes payable                                           --                --          (140,000)
          Proceeds from convertible debt                                     --           455,938         6,959,187
          Issuance of common stock for cash                                  --                --         2,031,928
                                                                   ------------    --------------    --------------
                Net cash provided by financing activities                    --           655,938         8,991,115
                                                                   ------------    --------------    --------------

      Net increase (decrease) in cash and cash equivalents           (3,470,426)          (75,054)          362,572

Cash and cash equivalents beginning of period                         3,832,998           162,227                --
                                                                   ------------    --------------    --------------

Cash and cash equivalents end of period                            $    362,572    $       87,174    $      362,572
                                                                   ============    ==============    ==============

SUPPLEMENTAL CASH FLOW DISCLOSURES:
      Income taxes paid                                            $         --    $           --    $           --
                                                                   ============    ==============    ==============
      Interest paid                                                $         --    $           --    $           --
                                                                   ============    ==============    ==============

NON-CASH INVESTING AND FINANCING TRANSACTIONS:
      Common stock issued for services                             $     53,000    $       36,000    $    3,952,332
      Common stock issued for financing costs and charges          $         --    $           --    $      500,000
      Warrants issued for accounts payable                         $    688,750    $           --    $           --
      Common stock issued for convertible debt                     $    250,000    $           --    $           --
      Commom stock issued for forbearance agreement                $  4,780,000    $           --    $           --
</TABLE>

              The accompanying condensed notes are an integral part
                  of these consolidated financial statements.

                                       7
<PAGE>

FALCON NATURAL GAS CORP.
(Formerly Countryside Review Inc.)
(An Exploration Stage Company)
Condensed Notes to Consolidated Financial Statements
June 30, 2006

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, 2005. 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 June 30, 2006 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2006.

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.

Accounting Methods
The Company's financial statements are prepared using the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America.

Accounts Receivable
The Company carries its accounts receivable at cost.

Recent Accounting Pronouncements
In March 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 156, "Accounting for Servicing of Financial
Assets--an amendment of FASB

                                       8
<PAGE>

Statement No. 140." This statement requires an entity to recognize a servicing
asset or servicing liability each time it undertakes an obligation to service a
financial asset by entering into a servicing contract in any of the following
situations: a transfer of the servicer's financial assets that meets the
requirements for sale accounting; a transfer of the servicer's financial assets
to a qualifying special-purpose entity in a guaranteed mortgage securitization
in which the transferor retains all of the resulting securities and classifies
them as either available-for-sale securities or trading securities; or an
acquisition or assumption of an obligation to service a financial asset that
does not relate to financial assets of the servicer or its consolidated
affiliates. The statement also requires all separately recognized servicing
assets and servicing liabilities to be initially measured at fair value, if
practicable and permits an entity to choose either the amortization or fair
value method for subsequent measurement of each class of servicing assets and
liabilities. The statement further permits, at its initial adoption, a one-time
reclassification of available for sale securities to trading securities by
entities with recognized servicing rights, without calling into question the
treatment of other available for sale securities under Statement 115, provided
that the available for sale securities are identified in some manner as
offsetting the entity's exposure to changes in fair value of servicing assets or
servicing liabilities that a servicer elects to subsequently measure at fair
value and requires separate presentation of servicing assets and servicing
liabilities subsequently measured at fair value in the statement of financial
position and additional disclosures for all separately recognized servicing
assets and servicing liabilities. This statement is effective for fiscal years
beginning after September 15, 2006, with early adoption permitted as of the
beginning of an entity's fiscal year. Management believes the adoption of this
statement will have no impact on the Company's financial condition or results of
operations.

In May 2005, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 154, "Accounting Changes and Error
Corrections," (hereinafter "SFAS No. 154") which replaces Accounting Principles
Board Opinion No. 20, "Accounting Changes", and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements - An Amendment of APB Opinion
No. 28". SFAS No. 154 provides guidance on accounting for and reporting changes
in accounting principle and error corrections. SFAS No. 154 requires that
changes in accounting principle be applied retrospectively to prior period
financial statements and is effective for fiscal years beginning after December
15, 2005. Management does not expect SFAS No. 154 to have a material impact on
the Company's financial position, results of operations, or cash flows.

Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid investments (or short-term debt) with original maturities of three months
or less to be cash equivalents.

Concentration of Credit Risk
The Company maintains its cash in two commercial accounts at a major financial
institution. Although the financial institution is considered creditworthy, at
June 30, 2006 the Company's cash balance exceeded Federal Deposit Insurance
Corporation (FDIC) limits by $226,274.

Derivative Instruments
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (hereinafter "SFAS No. 133"), as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB No. 133", and SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities", and SFAS No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities."
These statements establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. They require that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value.

                                       9
<PAGE>

If certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.

The Company has determined that derivatives existed because of features of
convertible debt as of the balance sheet date of June 30, 2006. (See Note 5.)

Earnings Per Share
The Company has adopted Statement of Financial Accounting Standard No. 128,
which provides for calculation of "basic" and "diluted" earnings per share.
Basic earnings per share includes no dilution and is computed by dividing net
income (loss) available to common shareholders by the weighted average common
shares outstanding for the period. Diluted earnings per share reflect the
potential dilution of securities that could share in the earnings of an entity
similar to fully diluted earnings per share. Although there were common stock
equivalents outstanding June 30, 2006, they were not included in the calculation
of earnings per share because they would have been considered anti-dilutive.

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.

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 June
30, 2006, the exploration costs expensed during the Company's exploration stage
have been approximately $1,474,426.

Exploration Stage Activities
The Company has been in the exploration stage since its formation on March 1,
2004. It is primarily engaged in natural gas exploration.

                                       10
<PAGE>

Fair Value of Financial Instruments
The Company's financial instruments as defined by Statement of Financial
Accounting Standard No. 107, "Disclosures about Fair Value of Financial
Instruments," include cash, trade accounts receivable, accounts payable and
accrued expenses and short-term borrowings. All instruments other than the
derivative on the convertible debt are accounted for on a historical cost basis,
which, due to the short maturity of these financial instruments, approximates
fair value at June 30, 2006 and December 31, 2005.

Going Concern
As shown in the accompanying financial statements, the Company has generated no
revenues since inception. From inception to June 30, 2006, the Company has
recorded operating losses 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.

Impaired Asset Policy
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121, "Accounting for Impairment of Long-lived
Assets." In complying with this standard, the Company reviews its long-lived
assets quarterly to determine if any events or changes in circumstances have
transpired which indicate that the carrying value of its assets may not be
recoverable. The Company determines impairment by comparing the undiscounted
future cash flows estimated to be generated by its assets to their respective
carrying amounts.

The Company does not believe any adjustments are needed to the carrying value of
its assets at June 30, 2006.

Oil and Gas Properties
The Company uses the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves, and
to drill and equip development wells are capitalized. Costs to drill exploratory
wells that do not find proved reserves, geological and geophysical costs, and
costs of carrying and retaining unproved properties are expensed.

Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the Company's experience of successful
drilling and average holding period. Capitalized costs of producing oil and gas
properties, after considering estimated dismantlement and abandonment costs and
estimated salvage values, are depreciated and depleted by the unit-of-production
method. Support equipment and other property and equipment are depreciated over
their estimated useful lives.

                                       11
<PAGE>

On the sale or retirement of a complete unit of a proven property, the cost and
related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On the
retirement or sale of a partial unit of proven property, the cost is charged to
accumulated depreciation, depletion, and amortization with a resulting gain or
loss recognized in income.

On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any unrecorded impairment if the property had been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.

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.

Provision for Taxes
Income taxes are provided based upon the liability method of accounting pursuant
to Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," (hereinafter "SFAS No. 109"). Under this approach, deferred income taxes
are recorded to reflect the tax consequences in future years of differences
between the tax basis of assets and liabilities and their financial reporting
amounts at each year-end. A valuation allowance is recorded against deferred tax
assets if management does not believe the Company has met the "more likely than
not" standard imposed by SFAS No. 109 to allow recognition of such an asset.

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.

NOTE 3 - CONVERTIBLE DEBT

On April 19, 2005, the Company and Cornell Capital Partners, LP ("Cornell")
terminated the securities purchase agreement entered into November 19, 2004, and
the related convertible debt agreements in the amount of $1,000,000, the
security agreement, escrow agreement, investor registration rights agreement and
irrevocable transfer agent instruction and entered into a new securities
purchase agreement with Cornell. Pursuant to the new securities purchase
agreement, Cornell issued a convertible debenture to the Company in the
principal amount of $1,000,000. On June 20, 2005, the April 19, 2005 secured
debenture was amended and restated. The amended and restated $1,000,000
debenture is convertible at Cornell's option any time up to maturity at a fixed
conversion price of $0.60. The debenture is secured by the assets of the
Company. The debenture has a two year term and accrues interest at 5% per year.
Cornell can elect cash repayment of the debentures by requiring the Company to
make 5 payments of $200,000 each month from September 1, 2005 to January 1, 2006
plus accrued interest of each such installment. If there is an event of default
pursuant to any of the documents and/or agreements, including this debenture,
the conversion price shall be $0.10 per share. During the year ended December
31, 2005 and 2004, the Company recognized embedded derivatives in the
convertible debentures. (See Note 5.) Effective January 1, 2006, the Company was
in default under the $1,000,000 loan and entered into a forbearance agreement as
a negotiated settlement with Cornell Capital Partners, LP and Highgate House
Funds, LLP.

                                       12
<PAGE>

On April 19, 2005, the Company issued a 1,000,000 stock purchase warrant to
Cornell Capital Partners, LP as a financing fee. On June 20, 2005, the April,
2005 stock purchase warrant was amended and restated. Following EITF 00-19,
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settle in, a Company's Own Stock," and SFAS No. 133, the Company has recognized
an embedded equity derivative in the warrant. For accounting and fair value
purposes, the equity derivative will be accounted for as a stock option,
following SFAS No. 123(R) for valuation purposes.

On October 17, 2005, the Company entered into secured convertible debentures
with Cornell Capital Partners, LP and Highgate House Funds, LLP in which the
Company received a $7,000,000 loan less related expenses of $406,742 of which
$185,424 was retained by the lenders as interest accrued on the $6,000,000
promissory note (See Note 4.) The expenses will be allocated as discount on debt
and will be amortized over the term of the note. The debentures are due on
October 17, 2006 and accrue interest at a rate of 12% interest. The debentures
shall be paid by monthly scheduled payments beginning January 19, 2006 until
maturity and paid in full. The debentures shall be convertible into shares of
common stock at the option of the investors, in whole or in part at any time and
from time to time. The number of common shares issuable upon conversion equals
the quotient obtained by dividing the outstanding amount of these debentures to
be converted by the conversion price of $0.60 per share and may be adjusted in
the event of default. During the year ended December 31, 2005, the Company
recognized embedded derivatives in the convertible debentures. (See Note 5.)
Effective January 19, 2006, the Company was in default under the $7,000,000 loan
and entered into a forbearance agreement as a negotiated settlement with Cornell
Capital Partners, LP and Highgate House Funds, LLP.

Effective March 28, 2006, the Company entered into a forbearance agreement with
Cornell in connection with its defaults under the $1,000,000 April 19, 2005 and
$7,000,000 October 17, 2005 debentures. As at March 28, 2006, the Company owed
Cornell interest of $88,767 and $151,509 under the April, 2005 and October, 2005
debentures, respectively. Under the forbearance agreement, the maturity dates of
the April, 2005 and October, 2005 debentures have been extended until December
31, 2007. As of March 31, 2006, Cornell converted the outstanding balance of
$250,000 and reduced the principal balance of the convertible debenture by
$250,000 and the Company issued 2,500,000 shares to Cornell. Additionally, the
Company issued to Cornell 23,000,000 warrants valued according to a Black
Scholes valuation model in the amount of $4,780,000. On April 1, 2007, and the
first business day of each month thereafter until the debentures are paid in
full, the Company is required to make payments of principal and interest. Each
monthly payment will be equal to the outstanding principal balance of the
debentures on the date such payment is due divided by 10, plus accrued and
unpaid interest. The forbearance agreement further provides that the Company is
required to re-file the registration statement for the resale of the shares of
common stock underlying the debentures and the warrants issued pursuant to the
forbearance agreement on or before May 15, 2006 and to have such registration
statement declared effective on or before July 31, 2006. Currently, the
registration statement has not been declared effective and warrants have been
issued according to the forbearance agreement.

                                       13
<PAGE>

Standby Equity Distribution Agreement
In November, 2004, the Company entered into a standby equity distribution
agreement with 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 and 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, the Company entered into an agreement with Cornell to
terminate the standby equity distribution agreement, dated November 19, 2004,
and the related registration rights agreement, placement agent agreement and
escrow agreement and entered into a new standby equity distribution agreement
with Cornell. Pursuant to the standby equity distribution agreement, the Company
may, at its discretion, periodically sell to Cornell shares of common shares for
a total purchase price of $20,000,000. 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 the Company's 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.

NOTE 4 - LOAN AGREEMENT

The Company borrowed $140,000 from Blue Mint Exploration on November 24, 2004.
The loan, which was unsecured, with interest at 12% per annum, was paid in full
as of December 31, 2005.

The Company borrowed $200,000 from Blue Mint Exploration on May 13, 2005. The
loan, which was unsecured, with interest at 12% per annum, was paid in full as
of December 31, 2005.

On July 15, 2005, the Company entered into a promissory note with Cornell
Capital Partners, LP and Highgate House Funds, LLP in which the Company received
a $6,000,000 loan less related expenses of $1,382,727, to be allocated as
discount on debt and amortized over the term of the note. This note, originally
due on February 10, 2006, was superseded by a $7,000,000 secured debenture in
which the Company entered into with Cornell Capital Partners, LP and Highgate
House Funds, LLP. (See Note 3.)

                                       14
<PAGE>

NOTE 5 - DERIVATIVES

Derivatives have been accounted for in accordance with SFAS 133, as amended, and
EITF No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock." The Company has identified that
the debentures described in Notes 3 and 4 have embedded derivatives. These
embedded derivatives have been bifurcated from their respective host debt
contracts and accounted for as derivative liabilities in accordance with EITF
00-19. When multiple derivatives exist within the loan agreements, they have
been bundled together as a single hybrid compound instrument in accordance with
SFAS No. 133, Derivatives Implementation Group Implementation Issue No. B-15,
"Embedded Derivatives: Separate Accounting for Multiple Derivative Features
Embedded in a Single Hybrid Instrument."

The embedded derivatives within the loan agreements have been recorded at fair
value at the date of issuance and are marked-to-market each reporting period
with changes in fair value recorded on the Company's income statement as gain
(loss) on derivatives.

The fair value of the derivative liabilities is subject to the changes in the
trading value of the Company's common stock, as well as other factors. As a
result, the Company's financial statements may fluctuate from quarter-to-quarter
based on factors, such as the price of the Company's stock at the balance sheet
date and the amount of shares converted by note holders. Consequently, the
Company's financial position and results of operations may vary from
quarter-to-quarter based on conditions other than its operating revenues and
expenses.

The initial fair value of the derivative embedded in the November, 2004 $500,000
convertible debenture was $233,695 and at December 31, 2004, the embedded
derivative was revalued to its fair value of $370,968. The initial fair value of
the derivative embedded in the January, 2005 $500,000 convertible debenture was
$295,454. Each of the $500,000 debentures was subsequently superseded by the
April, 2005 $1,000,000 debenture, and the initial fair value of the derivative
embedded in the $1,000,000 convertible debenture was $166,667 and the initial
fair value of the derivative embedded in the $7,000,000 convertible debenture
was $583,333. At June 30, 2006, the embedded derivatives were revalued to their
fair value of $25,882 for the $1,000,000 convertible debenture and $44,232 for
the $7,000,000 convertible debentures. Any change to the fair value of the
derivatives is recognized on the income statement and recorded as gain/(loss) on
derivatives. At June 30, 2006, the Company recognized a decrease in the fair
value of the derivatives of $59,053 and a corresponding gain on derivatives on
the consolidated statements of operation.

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 June 30, 2006, and December
31, 2005:

                                       15
<PAGE>

                                   June 30,     December 31,
                                     2006           2005
                                 ------------   ------------
Computer Equipment               $      4,660   $      4,660
Software                               15,000         15,000
                                 ------------   ------------
                                       19,660         19,660
Less: Accumulated Depreciation          9,467          7,102
                                 ------------   ------------
Total Property & Equipment       $     10,193   $     12,558
                                 ============   ============

Depreciation expense for the period ending June 30, 2006 and December 31, 2005
were $2,365 and $6,484, respectively.

NOTE 7 - OIL AND GAS LEASES

The Company entered into participation agreements with Bayou City Exploration
("BCE") for the drilling and completion of several wells. Falcon purchased 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. From these prospects, the Mary Lyne#1 well is being drilled and
completed. Additionally, Falcon agreed 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. Falcon purchased 25% of the working interest
from BCE for the Gemini and Zodiac II Prospects. From these two prospects, the
Hilda Henry #1 well has been drilled and completed and the Zodiac II #1 well is
being drilled. Also, Falcon agreed to 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.

The Company with Edwin S. Nichols Exploration, Inc. plans to develop the Hollins
Prospect located along the Eastern Shelf in northwestern Nolan County, Texas
that will target the Canyon Sand over 1,480 acres of leasehold position and
should ultimately result in the drilling of 20 to 25 wells. The total cost to
develop a 20-well field is estimated to be approximately $14 million. Falcon
Natural Gas Corp. has purchased 75% of the working interest (55.80% of the net
revenue interest). Falcon also has obligated itself to pay its proportionate
share of all G&G costs, third party prospect fees, land brokerage costs, lease
bonus and all other similar costs of the prospect as per the agreement with
Edwin S. Nichols Exploration, Inc.

The Company entered into a participation agreement with Stanotex, LLC for the
drilling and completion of a test well on the Brookshire Weido Prospect located
in Waller County, Texas. Participation involves a 50% working interest and 25%
net revenue interest on a authorization for expenditure 1/3 for 1/4 basis. The
estimated cost is $436,557 and the Company's share would be 50% of this amount.
Participation in the well is subject to the Company's prior review of the
results of 2-D seismic to be conducted on the prospect.

                                       16
<PAGE>

The Company entered into a participation agreement with Vincent Oil and Gas Corp
for a test well to be drilled by Vincent Oil and Gas Corp on the Norman prospect
located in Bee County, Texas. The Company will have a 12% working interest and
77% net revenue interest on an authorization for expenditure 1/3 for 1/4 basis
whereby the Company would pay 16% of all costs associated with drilling the well
to the casing point and 12% of all completion and operating costs, if
applicable. The Company's share of drilling costs is estimated to be
approximately $380,000. In February, 2006, the Company paid Vincent Oil and Gas
Corp $41,375 for costs associated.

The Company entered into a participation agreement with WhitMar Exploration
Company in relation to the drilling of a test well on the South Wilburton
Prospect located in Latimer County, Oklahoma. Participation would involve a
12.5% working interest and 77.5% net revenue interest on an authorization for
expenditure 1/3 for 1/4 basis whereby the Company would pay 16.67% of drilling
costs to the casing point and 12.5% of all costs after the casing point. The
estimated drilling costs for the well are $2,162,500 and the estimated
completion cost is $1,007,000. The Company's estimated share of such costs would
be $360,417 for drilling and $125,875 for completion.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

On August 9, 2004, the Company entered into an agreement for financial advisory
services. The terms of the agreement include compensation of 10% cash and 10%
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 but includes automatic extension until notice is provided by
either party. As of December 31, 2004, 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 and accrued an
additional $10,000 for fees. The Company valued the warrants at $22,609 and this
amount was estimated using Black Scholes calculation and the following
assumptions were made to value the warrants for the period ending December 31,
2004: estimated risk free interest rate of 4%; estimated volatility of 48%; a
term of two years; no payment of dividends. As of December 31, 2005, the Company
paid an additional $75,000 in fees and accrued an additional $675,000 for fees.
The Company valued the warrants at $341,041 and this amount was estimated using
Black Scholes calculation and the following assumptions were made to value the
warrants for the period ending December 31, 2005: estimated risk free interest
rate of 4%; estimated volatility of 48%; a term of two years; no payment of
dividends. All accrued fees and warrants have been recorded as accounts payable,
and as of June 30, 2006 none of the warrants earned in the year 2004 or 2005
have been issued. During the period ended June 30, 2006, the Company entered
into a settlement agreement with the parties to the financial advisory service
and agreed to issue 2,000,000, 5 year, common stock purchase warrants with an
exercise price, subject to adjustment, of $0.60 per share. These warrants have
been determined by management to have a value of $688,750. Additionally, the
Company is to pay $400,000 in cash, of which $40,000 has been previously paid.
The remaining balance of $360,000 will be paid pursuant to the agreed payment
plan.

                                       17
<PAGE>

On November 19, 2004, the Company entered into a standby equity distribution
agreement with Cornell Capital Partners, LP ("Cornell"). Pursuant to this
agreement, Cornell was to 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. On April 19, 2005, the Company entered into an
agreement with Cornell Capital Partners, LP to terminate the standby equity
distribution agreement, dated November 19, 2004, and the related registration
rights agreement, placement agent agreement and escrow agreement, of same date.
On April 19, 2005, upon execution of the termination agreement, the Company
entered into a new standby equity distribution agreement with Cornell. Pursuant
to the standby equity distribution agreement, the Company may, at its
discretion, periodically sell to Cornell shares of common shares for a total
purchase price of $20,000,000. (See Note 3.)

NOTE 9 - 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. As of
December 31, 2005, the shareholder has elected to forgive the debt.

NOTE 10 - COMMON STOCK

The Company is authorized to issue 200,000,000 shares of common stock. All
shares have equal voting rights, are non-assessable and have one vote per share.
Voting rights are not cumulative and, therefore, the holders of more than 50% of
the common stock could, if they choose to do so, elect all of the directors of
the Company.

On June 5, 2006, the Company issued 50,000 shares valued at $0.33 per share to
Source Capital Group Inc. for financial advising services.

On May 2, 2006, the Company issued 50,000 shares valued at $0.33 per share to
Source Capital Group Inc. for financial advising services.

On April 5, 2006, the Company issued 50,000 shares valued at $0.40 per share to
Source Capital Group Inc. for financial advising services.

During the period ended March 31, 2006, the Company issued 2,500,000 common
shares for the conversion of debt in the amount of $250,000 on the convertible
debenture dated April 19, 2005 at a default conversion price of $0.10 per share.

During the year ended December 31, 2005, the Company deposited 24,000,000 shares
of the Company's common stock with an escrow agent as security for its
performance under the Cornell Capital Partners, LP and Highgate House Funds, Ltd
convertible debentures. The escrow shares are considered issued but not
outstanding and are not included in the issued and outstanding balance of common
shares for the period ended.

                                       18
<PAGE>

Warrants
On April 19, 2004, the Company issued 1,000,000 warrants to Cornell Capital
Partners, LP enabling the holder to purchase 1,000,000 shares of common stock at
an exercise price of $0.60 for a term of 2 years. These warrants are recorded on
the balance sheet at $98,960. During the years ended December 31, 2005 and 2004,
the Company issued 1,396,483 warrants to Source Capital Group, Inc. enabling the
holder to purchase 1,396,483 shares of common stock at an exercise price equal
to the price of the common stock subject to adjustment for a term of 5 years.
For the years ending December 31, 2005 and 2004, these warrants were classified
as accounts payable on the balance sheet in the amount of $363,750 and $22,609,
respectively. The amounts were estimated using Black Scholes calculation and the
following assumptions were made to value the warrants for the period ending
December 31, 2005 and 2004: estimated risk free interest rate of 4%; estimated
volatility of 48%; a term of two years; no payment of dividends.

On February 3, 2006, the Company entered into a settlement agreement with Source
Capital Group that modified the terms of the original agreement. The new
agreement states that the Company agrees to issue 2,000,000, 5 year, common
stock purchase warrants with an exercise price of $0.60 per share. The 2,000,000
purchase warrants were valued by management at $688,750.

In consideration of the forbearance agreement (described in Note 3), the Company
issued an aggregate of 23,000,000 common stock purchase warrants dated March 29,
2006 to Cornell, each exercisable for a period of five years commencing March
29, 2006 for the purchase of one share of common stock. The warrants provide
that the holder cannot exercise the warrants to the extent such exercise would
cause the holder and its affiliates to own more than 4.99% of our outstanding
common shares, except within 60 days of the warrant expiration date. The
restriction may be waived by the holder upon not less than 65 days prior notice
to us. The warrants have exercise prices, subject to adjustment, ranging from
$0.30 to $0.80 per share and contain cashless exercise provisions.


                            Number of       Weighted-Average    Exercise
                            Warrants        Remaining Life      Price
                           -----------      ----------------    --------------
Outstanding
and Exercisable-
Cornell Capital             24,000,000           4.50           $0.30 to $0.80

Outstanding
and Exercisable-
Source Capital               2,000,000           4.80               $0.60

NOTE 11 - SUBSEQUENT EVENTS

In July and August, 2006, the Company issued 50,000 shares of common stock for
each month as payment in lieu of cash on the outstanding payable due Source
Capital Group. (See Note 9.) The balance of $307,000 as of June 30, 2006 was
recorded in accounts payable and has been reduced by approximately $28,000 as of
August, 2006, for the value of the common shares issued.

                                       19
<PAGE>

In August, 2006, the Company began producing from the Hilda Henry No. 1, the
first well in the Gemini prospect. (See Note 7.)

NOTE 12 - RESTATEMENT OF 2005 INFORMATION

As part of the Company's annual filings, the Company restated certain financing
transactions under which derivatives were recognized. These changes had no
effect upon Loss from operations but did change other income and expenses as
follows:

                              Six months                  Three months
                                ended                         ended
                             June 30, 2005                June 30, 2005
                      ---------------------------   ---------------------------
                      As originally        As       As originally         As
                          filed         restated        filed         restated
                      -------------    ----------   -------------    ----------

Financing Fees        $      65,398    $  142,421   $      44,166    $   81,558

Interest Expense      $     145,720    $   34,609   $      19,942    $   19,942
Gain (loss) on
derivatives           $          --    $  533,089   $          --    $  479,167

Net Income (loss)     $    (814,632)   $ (247,455)  $     (300,432)  $  141,343
Net Income (loss)
 per share                    (0.01)           --              --            --

                                       20


<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 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 have been recently 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 2006. We
spent approximately $3,500,000 on lease exploration during 2004 and 2005.

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 2006 but
due to limited rig availability, we now expect to be able to commence drilling
operations no sooner than October 2006. 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 two wells have been drilled and four
additional wells are scheduled to be drilled in the next three to six months. On
August 8th the Hilda Henry No.1 began production at a rate of 310 MCF per day.
On November 11, 2005 we also executed oil and gas well participation agreements
with Southern Resource Company for up to 11 wells which are scheduled to be
start in mid to late 2006. We have received an offer to sell our position in
this project and it is currently under consideration. In order to establish
positive cash flow and expand our asset base we have also agreed to
participation agreements on low risk wells with Whitmar Exploration Company,
Stanotex, LLC, Vincent Oil and Gas Inc., and Edwin S. Nichols Exploration, Inc.
Work on these wells started during May 2006. We are currently in negotiations
with a major operator in the area who has expressed an interest to farm in to
our Wyandotte project. We expect to reach an agreement by the end of August.

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.

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<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. 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, 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 (70% of which or 18.2 BCF are owned directly by the Company
and 30% of which is owned by local mineral owners) 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.

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<PAGE>

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


ITEM 3.  CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Under the supervision and
with the participation of our chief executive officer and chief financial
officer, we conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended,
as of the end of the period covered by this report (the "Evaluation Date").
Based on this evaluation, our chief executive officer and chief financial
officer conclude as of the Evaluation Date that our disclosure controls and
procedures were effective such that the information relating to us, including
our consolidated subsidiaries, required to be disclosed in our Securities and
Exchange Commission ("SEC") reports (i) is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms, and (ii) is
accumulated and communicated to our management, including our chief executive
officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting. There were no changes
in our internal control over financial reporting that occurred during the period
covered by this report that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting.


                           PART II--OTHER INFORMATION

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

Effective April 1, 2006 we issued 50,000 shares of our restricted common stock
to Source Capital Group, Inc. ("SCGI") and its designees pursuant to our March
15, 2006 Supplemental Settlement Agreement with SCGI. The shares were issued by
us pursuant to Section 4(2) of the Act since the foregoing issuance did not
involve a public offering, the recipient had access to information that would be
included in a registration statement, took the shares for investment and not for
resale and we took appropriate measures to restrict resale.

                                       23
<PAGE>

Effective May 1, 2006 we issued 50,000 shares of our restricted common stock to
designees of Source Capital Group, Inc. ("SCGI") pursuant to our March 15, 2006
Supplemental Settlement Agreement with SCGI. The shares were issued by us
pursuant to Section 4(2) of the Act since the foregoing issuance did not involve
a public offering, the recipient had access to information that would be
included in a registration statement, took the shares for investment and not for
resale and we took appropriate measures to restrict resale.

Effective June 1, 2006 we issued 50,000 shares of our restricted common stock to
designees of Source Capital Group, Inc. ("SCGI") pursuant to our March 15, 2006
Supplemental Settlement Agreement with SCGI. The shares were issued by us
pursuant to Section 4(2) of the Act since the foregoing issuance did not involve
a public offering, the recipient had access to information that would be
included in a registration statement, took the shares for investment and not for
resale and we took appropriate measures to restrict resale.

Effective July 1, 2006 we issued 50,000 shares of our restricted common stock to
designees of Source Capital Group, Inc. ("SCGI") pursuant to our March 15, 2006
Supplemental Settlement Agreement with SCGI. The shares were issued by us
pursuant to Section 4(2) of the Act since the foregoing issuance did not involve
a public offering, the recipient had access to information that would be
included in a registration statement, took the shares for investment and not for
resale and we took appropriate measures to restrict resale.

Effective August 1, 2006 we issued 50,000 shares of our restricted common stock
to designees of Source Capital Group, Inc. ("SCGI") pursuant to our March 15,
2006 Supplemental Settlement Agreement with SCGI. The shares were issued by us
pursuant to Section 4(2) of the Act since the foregoing issuance did not involve
a public offering, the recipient had access to information that would be
included in a registration statement, took the shares for investment and not for
resale and we took appropriate measures to restrict resale.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Effective March 28, 2006 we entered into a Forbearance Agreement (the
"Forbearance Agreement") with Cornell Capital Partners, LP ("Cornell") in
connection with our defaults under our $1,000,000 April 19, 2005 and $7,000,000
October 17, 2005 debentures with Cornell (singly and collectively the
"Debentures"). As at March 28, 2006 we owed Cornell interest of $88,767 and
$151,509 under the April 2005 and October 2005 Debentures, respectively. The
Forbearance Agreement also took into account our failure to timely register the
common stock underlying the Debentures. Under the Forbearance Agreement, the
maturity dates of the April 2005 and October 2005 Debentures were extended until
December 31, 2007. Further, we have no interest or principal payment obligations
under the Debentures until April 1, 2007, at which time, and the first business
day of each month thereafter until the Debentures are paid in full, we are
required to make payments of principal and interest. Each monthly payment will
be equal to the outstanding principal balance of the Debentures on the date such
payment is due divided by 10, plus accrued and unpaid interest.

                                       24
<PAGE>

Pursuant to the Debenture defaults, Cornell was entitled, among other things, to
convert the April 19, 2005 Debenture into shares of our common stock at the
default rate of $0.10 per share. In connection therewith and the Forbearance
Agreement, Cornell converted $250,000 of the principal amount of the April 2005
Debenture into 2,500,000 shares of our common stock. In consideration of the
Forbearance Agreement, we also issued an aggregate of 23,000,000 common stock
purchase warrants dated March 29, 2006 to Cornell, each exercisable for a period
of five years commencing March 29, 2006 for the purchase of one share of our
common stock. The warrants provide that the holder cannot exercise the warrants
to the extent such exercise would cause the holder and its affiliates to own
more than 4.99% of our outstanding common shares, except within 60 days of the
warrant expiration date. The restriction may be waived by the holder upon not
less than 65 days prior notice to us. The warrants have exercise prices, subject
to adjustment, ranging from $0.30 to $0.80 per share and contain cashless
exercise provisions. The number of warrants and applicable exercise prices
thereon are as follows:

         o        3,000,000 warrants - $0.30
         o        3,000,000 warrants - $0.35
         o        3,000,000 warrants - $0.40
         o        3,000,000 warrants - $0.50
         o        3,000,000 warrants - $0.60
         o        3,000,000 warrants - $0.70
         o        5,000,000 warrants - $0.80


The Forbearance Agreement required us to re-file the Registration Statement for
the resale of the shares of common stock underlying (i) the Debentures and (ii)
the warrants issued pursuant to the Forbearance Agreement (as described above),
on or before May 15, 2006 and to have such Registration Statement declared
effective on or before July 31, 2006. We did not re-file the Registration
Statement until July 25, 2006 and the Registration Statement has yet to be
declared effective. Accordingly, we are in default under the Forbearance
Agreement. As a consequence thereof, the Debentures are presently convertible at
their respective default conversion prices of $0.10 per share (April 19, 2005
Debenture) and $0.0948 per share (October 2005 Debenture). Further, Cornell has
the right to seize upon the collateral securing the Debentures, including our
assets. At this time, Cornell has not elected to pursue any remedies available
to it by reason of this default, but no assurance can be given that they will
not choose to do so in the future.

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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

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:  August 14, 2006             Falcon Natural Gas Corp.

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


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