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

                          ADSERO CORP. AND SUBSIDIARIES
            (A DEVELOPMENT STAGE COMPANY COMMENCING JANUARY 1, 2004)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 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 June 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
   incorporation or organization)                  Identification No.)


              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
August 12, 2005, was 62,262,000.

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

================================================================================
<PAGE>

                            FALCON NATURAL GAS CORP.
                  June 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.........................................18
Item 3.     Controls and Procedures...................................19

                          PART II - OTHER INFORMATION

Item 1.     Legal Proceedings.........................................20
Item 2.     Unregistered  Sales of Equity Securities and Use
            of Proceeds ..............................................21
Item 3.     Defaults Upon Senior Securities...........................22
Item 4.     Submission of Matters to a Vote of Security Holders.......22
Item 5.     Other Information.........................................22
Item 6.     Exhibits..................................................22


                                       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, 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

ITEM 1.     FINANCIAL STATEMENTS                                          PAGE

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

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

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

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

            Notes to Consolidated Financial Statements (unaudited)       9-17


                                       4
<PAGE>

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

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

CURRENT ASSETS
   Cash and cash equivalents                                                      $     87,174             $    162,227
   Accounts receivable                                                                   2,000                    2,000
                                                                                  ------------             ------------
       Total Current Assets                                                             89,174                  164,227
                                                                                  ------------             ------------

PROPERTY & EQUIPMENT
   Equipment                                                                             4,258                    4,088
   Less accumulated depreciation                                                        (1,306)                    (618)
   Software                                                                             15,000                       --
   Less accumulated amortization                                                        (2,071)                      --
                                                                                  ------------             ------------
       Total Property & Equipment                                                       15,881                    3,470
                                                                                  ------------             ------------

OTHER ASSETS
   Proved oil & gas properties                                                       1,071,410                       --
   Unproved oil & gas properties                                                       649,661                1,582,541
   Prepaid expenses                                                                     42,945                   50,000
   Rent deposit                                                                          1,243                    1,243
                                                                                  ------------             ------------
       Total Other Assets                                                            1,765,259                1,633,784
                                                                                  ------------             ------------

TOTAL ASSETS                                                                      $  1,870,314             $  1,801,481
                                                                                  ============             ============

LIABILITIES AND STOCKHOLDERS' EQUITY

     CURRENT LIABILITIES
   Accounts payable                                                               $     63,431             $      7,349
   Accrued liabilities                                                                      --                    6,959
   Advance from shareholder                                                                 --                      100
   Note payable - related party                                                             --                    3,216
   Note payable                                                                        340,000                  140,000
   Interest payable                                                                     39,462                    4,854
                                                                                  ------------             ------------
       Total Current Liabilities                                                       442,893                  162,478
                                                                                  ------------             ------------

LONG-TERM LIABILITIES
   Convertible debt                                                                  1,000,000                  500,000
   Discount on convertible debt                                                       (171,041)                (126,979)
                                                                                  ------------             ------------
       Total Long-Term Liabilities                                                     828,959                  373,021

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

STOCKHOLDERS' EQUITY
   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
   Deficit accumulated during exploration stage                                     (6,325,701)              (5,511,069)
                                                                                  ------------             ------------
       Total Stockholders' Equity                                                      598,461                1,265,982
                                                                                  ------------             ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                        $  1,870,314             $  1,801,481
                                                                                  ============             ============
</TABLE>

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

                                       5
<PAGE>

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

<TABLE>
                                                         Six months ending                Three months ending              From
                                                   ----------------------------      -----------------------------     March 1, 2004
                                                    June 30,        June 30,         June 30,         June 30,        (Inception) to
                                                     2005           2004             2005             2004             June 30, 2005
                                                    (Unaudited)     (Unaudited)      (Unaudited)      (Unaudited)      (Unaudited)
                                                   ------------     ------------     ------------     ------------     ------------

<CAPTION>
<S>                                                <C>              <C>              <C>              <C>              <C>
REVENUES                                           $         --     $         --     $         --     $         --     $         --
                                                   ------------     ------------     ------------     ------------     ------------


GENERAL AND ADMINISTRATIVE EXPENSES
      Depreciation and amortization                       2,759               --            1,842               --            8,899
      Investor relations                                104,109           68,131           47,243           68,131          219,859
      Advisory services                                 121,754               --            5,900               --        3,955,540
      Lease exploration                                  19,166           73,800              864           73,800          590,670
      Internet/webhosting                                   665           20,084              108           20,084           20,893
      Officers & directors fees                         125,436           15,000           55,500           15,000          262,413
      Office and general expenses                        44,831            1,253            8,441            1,253           60,767
      Professional fees                                 147,429           55,016          101,003           55,016          282,817
      Travel and entertainment                           24,263               --            8,316               --           47,043
      Rent and related expenses                          16,694            9,486           10,611            6,850           40,440
                                                   ------------     ------------     ------------     ------------     ------------
         Total Expenses                                 607,106          242,770          239,828          240,134        5,489,341
                                                   ------------     ------------     ------------     ------------     ------------

LOSS FROM OPERATIONS                                   (607,106)        (242,770)        (239,828)        (240,134)      (5,489,341)
                                                   ------------     ------------     ------------     ------------     ------------

OTHER INCOME (EXPENSES)
      Other income                                                                             --               --              500
      Financing fees                                    (65,398)              --          (44,166)              --         (565,398)
      Interest expense                                 (145,720)              --          (19,942)              --         (275,574)
      Interest income                                       276              252              188              252              796
      Forgiveness of debt                                 3,316               --            3,316               --            3,316
                                                   ------------     ------------     ------------     ------------     ------------
         Total Other Income (Expenses)                 (207,526)             252          (60,604)             252         (836,360)
                                                   ------------     ------------     ------------     ------------     ------------

LOSS BEFORE INCOME TAXES                               (814,632)        (242,518)        (300,432)        (239,882)      (6,325,701)

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

NET LOSS                                           $   (814,632)    $   (242,518)    $   (300,432)    $   (239,882)    $ (6,325,701)
                                                   ============     ============     ============     ============     ============

NET LOSS PER COMMON SHARE,
      BASIC AND DILUTED                            $      (0.01)    $      (0.01)    $      (0.00)    $      (0.00)
                                                   ============     ============     ============     ============

WEIGHTED AVERAGE NUMBER
      OF COMMON SHARES OUTSTANDING,
      BASIC AND DILUTED                              62,235,333       39,780,220       62,208,667       66,540,242
                                                   ============     ============     ============     ============
</TABLE>

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

                                       6
<PAGE>

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

<TABLE>
                                                                                                         Deficit
                                                                Common Stock                            Accumulated
                                                        ---------------------------      Additional       During           Total
                                                         Number of                        Paid-in       Exploration    Stockholders'
                                                           Shares         Amount          Capital          Stage           Equity
                                                        -----------     -----------     -----------     -----------     -----------
<CAPTION>
<S>                                                      <C>            <C>             <C>         <C>                 <C>
Stock issued for $0.001 per share for services
      on March 1, 2004                                   20,000,000     $       200      $19,800  $              --     $    20,000

Shares issued for  acquisition  of leases at $0.25
      per share                                             900,000               9         224,991              --         225,000

Reverse merger acquisition and recapitalization          45,000,000             450          (4,671)             --          (4,221)

Shares issued  for cash at $1.00 per share
      net of expenses of $60                                632,000               6         631,934              --         631,940
                                                        -----------     -----------     -----------     -----------     -----------
Shares issued for cash at approximately $0.93 per
      share net of expenses of $12                        1,500,000              15       1,399,973              --       1,399,988
                                                        -----------     -----------     -----------     -----------     -----------
Shares issued for services at $1.25 per share                50,000              --          62,500              --          62,500

Shares issued for services at $1.42 per share             2,500,000              25       3,549,975              --       3,550,000

Shares issued for services at $1.34 per share               100,000               1         133,999              --         134,000

Shares issued for services at $1.32 per share               100,000               1         131,999              --         132,000

Rescission of shares from officer received at merger     (9,000,000)            (90)            934              --             844

Shares issued  for  financing  costs  and  charges
      related to services provided                          400,000               4         499,996              --         500,000

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

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

                                                        -----------     -----------     -----------     -----------     -----------
BALANCE, December 31, 2004                               62,182,000             621       6,776,430      (5,511,069)      1,265,982

Shares issued for services at $0.45 per share                80,000               1          35,999              --          36,000

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

Net loss for period ending June 30, 2005                         --              --              --        (814,632)       (814,632)

                                                        -----------     -----------     -----------     -----------     -----------
BALANCE, June 30, 2005 (unaudited)                       62,262,000     $       622     $6,923,540  $    (6,325,701)    $   598,461
                                                        ===========     ===========     ===========     ===========     ===========
</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)
CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                    Six months ending                From
                                                                             -------------------------------    March 1, 2004
                                                                                 June 30,        June 30,      (Inception) to
                                                                                  2005             2004         June 30, 2005
                                                                               (Unaudited)      (Unaudited)      (Unaudited)
                                                                             ---------------  ---------------  ---------------
<S>                                                                          <C>              <C>              <C>
         CASH FLOWS FROM OPERATING ACTIVITIES:
                  Net loss                                                   $      (814,632) $      (242,518) $    (6,325,701)

                  Adjustments  to  reconcile  net  loss to net  cash
                     (used) by operating activities:
                  Depreciation and amortization                                        2,759               --            8,898
                  Common stock issued for services                                    36,000           82,500        3,935,332
                  Interest expense for beneficial conversion feature                 111,111               --          236,111
                  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                       7,055           (5,000)         (42,945)
                         Increase (decrease) in accounts payable                      56,082               --           59,757
                         Increase (decrease) in accrued liabilities                   (6,959)              --               --
                         Increase (decrease) in interest payable                      34,608               --           39,462
                         Increase (decrease) in advance from shareholder                  --              100              100
                                                                             ---------------  ---------------  ---------------
                               Net cash used by operating activities                (573,975)        (170,382)      (1,592,228)
                                                                             ---------------  ---------------  ---------------

         CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
                         Purchase of equipment                                       (15,170)              --          (19,258)
                         Oil and gas lease                                          (138,530)        (124,713)      (1,496,071)

                          Cash received through  recapitalization and
                            acquisition                                                   --               --            2,681

                                                                             ---------------  ---------------  ---------------
                              Net cash used by investing activities                 (153,700)        (124,713)      (1,512,648)
                                                                             ---------------  ---------------  ---------------

         CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
                         Proceeds from notes payable                                 200,000            3,217          340,000
                         Proceeds from convertible debt                              455,938               --          823,438
                         Issuance of common stock for cash                                --          631,940        2,031,928
                         Forgiveness of debt                                          (3,316)              --           (3,316)
                                                                             ---------------  ---------------  ---------------
                            Net cash provided by financing activities                652,622          635,157        3,192,050
                                                                             ---------------  ---------------  ---------------

                  Net increase (decrease) in cash and cash equivalents               (75,053)         340,062           87,174

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

         Cash and cash equivalents end of period                             $        87,174  $       340,062  $        87,174
                                                                             ===============  ===============  ===============

         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 for beneficial conversion feature         $       111,111  $            --  $       236,111
                  Common stock issued for financing costs and charges        $            --  $            --  $       500,000
</TABLE>

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

                                       8
<PAGE>

FALCON NATURAL GAS CORP.
(Formerly Countryside Review Inc.)
(An Exploration Stage Company)
Condensed Notes to Consolidated Financial Statements
June 30, 2005

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 June 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.

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 June 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 one  commercial  account  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 June
30, 2005, the exploration costs expensed during the Company's  exploration stage
have been approximately $590,670.

Going Concern
As shown in the accompanying financial statements,  the Company has generated no
revenues since inception.  From inception to June 30, 2005, the Company recorded
losses of approximately  $6,340,000 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.)

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>
                                                        Additional
                                Number of                Paid-in      Deficit      Shareholders'
                                  Shares       Amount    Capital      Accumulated    Equity
                                ------------   -------   ---------    ---------    -------------
<CAPTION>
<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 convertible  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 have 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 will  automatically
convert into common stock on the second anniversary date of issuance.  The terms
of the debt does 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 may 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, 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,  the Company issued convertible debentures to Cornell 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.

NOTE 5 - LOAN AGREEMENT

The Company  borrowed  $140,000 from Blue Mint Exploration on November 24, 2004.
The loan is unsecured, and was scheduled to mature 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 24, 2006 with an
additional facility fee of $5,000 due to the lender.

The Company  borrowed an additional  $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.

                                       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 June 30, 2005:

            Computer Equipment                  $ 4,258

            Software                             15,000

            Less: Accumulated Depreciation       (3,377)
                                                --------
            Total Property & Equipment          $15,881
                                                ========

Depreciation expense for the period ending June 30, 2005 was $2,760.

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, a cash payment was made in
the amount of $858,470.

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.

The  Company  has  reclassified  $1,071,410  associated  with St.  Mary  Parish,
Lousiana, 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 one year  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. (See Note 10.)

                                       15
<PAGE>

On August 2, 2004, the Company entered into a business consulting 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 June 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.

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.

NOTE 11 - COMMON STOCK

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.

                                       16
<PAGE>

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 held. The rescinded shares were valued at
par because they were part of the recapitalization of the Company's shares.

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.)

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

NOTE 12 - SUBSEQUENT EVENTS

On July 15, 2005,  the Company  entered into a promissory  note in the amount of
$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 the law firm of Kirkpatrick
& Lockhart Nicholson Graham, LLP, 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 Kirkpatrick & Lockhart  Nicholson  Graham LLP 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.


                                       17
<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  and Starr
County, Texas.

During 2004 and the first half of 2005, we raised  $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 the costs
for drilling  wells or further  exploration  work on our leased  properties.  We
further  estimate  that we need to raise at least  $600,000  to satisfy our cash
requirements  for an additional  10 months,  excluding the costs of drilling and
lease exploration.  We currently use approximately $60,000 of cash per month for
general  and  administrative  expenses  such  as  investor  relations,  advisory
services, Internet/web-hosting, officers salaries and directors 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 $1,600,000 on lease exploration during 2004 and the first half of
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 in July 2005 on our Wyandotte  Property is going to be a replacement  of
the Inglewood 2 well,  previously  drilled in 1980.  We  previously  anticipated
being able to commence  drilling  operations in July 2005 but due to limited rig
availability,  we now foresee  being able to  commence  drilling  operations  no
sooner than  October  2005.  As a 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 for drilling the well. 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.  The  estimated  cost for drilling and
completion of the replacement well is $5,500,000. Drilling and completion of the
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 June  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.

                                       18
<PAGE>

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.

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.

                                       19
<PAGE>

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 June 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 is
styled  Landmark  Graphics  Corporation,  Halliburton  Company,  and Halliburton
Energy  Services,  Inc.  v.  Falcon  Natural  Gas  Corporation,   Cause  Number,
2004-56842.  We  issued a press  release  and  posted  on our  website  a report
prepared by Landmark (the  "Report"),  which Landmark claims was in violation of
an agreement  between  Landmark and us. We issued a corrective press release and
removed  the Report from our  website.  Landmark  claims  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 quotes from and paraphrases portions of
the Report  and  repeatedly  refers to the Report as a report of  "Halliburton,"
"Halliburton  Company," and "a Halliburton Company." Landmark is claiming breach
of contract  and injury to its  business  reputation  and trade names and marks.
Landmark is seeking  unspecified  damages,  reasonable  attorneys'  fees,  court
costs,  and  injunctive  relief.  We have  generally  denied the  allegations of
Landmark.  Landmark has agreed that if, after discovery,  it finds that there is
no basis for a claim  that we had  knowledge  of,  or were  involved  with,  the
commissioning or financing of the  Advertisement,  Landmark will dismiss us from
the lawsuit.

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.

                                       20
<PAGE>

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
bears  interest at the rate of 12% per annum.  Principal and interest due on the
note is payable in 23 equal weekly installments, each in the amount of $250,000,
and 1  installment  of  $502,452.05.  The first  payment  is 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) is
declared effective by the Securities and Exchange Commission and, in all events,
is  payable  in full no later than 24 weeks  from  September  2, 2005,  which is
February  10,  2006.  The  repayment  of  the  Note  is  not  contingent  on the
Registration Statement being declared effective. If the Note is not paid in full
when due,  the  outstanding  principal  balance  together  with all interest due
thereon shall thereafter be 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 can 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, becomes immediately due and payable.

The Note is  secured  by the  Pledged  Shares,  as such term is  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  consist 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
will  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 shall be 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 shall be returned to us by the
Escrow  Agent for  cancellation  and all rights of the  Lenders  in the  Pledged
Shares shall be  terminated.  The Lenders shall have no ownership  rights in the
Pledged Shares absent an Event of Default.  Accordingly,  the Pledged Shares are
not deemed to be outstanding unless and until an Event of Default occurs.

On April 19, 2005, we and Cornell Capital  Partners,  LP ("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 of
even date therewith were also terminated.  On April 19, 2005, in connection with
the  Termination  Agreement  and  the  execution  of a new  Securities  Purchase
Agreement,  we issued a warrant to Cornell to purchase  1,000,000  shares of our
common stock.  The warrants have an exercise price equal to $0.60 per share. The
warrants expire on April 19, 2007.

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<PAGE>

On April 19, 2005, we entered into a Securities  Purchase Agreement with Cornell
Capital Partners,  LP. Pursuant to the Securities Purchase Agreement,  we issued
convertible  debentures to Cornell Capital Partners LP in the original principal
amount of $1,000,000. The debentures are convertible,  into shares of our common
stock at the holder's option, at any time up to maturity,  at a fixed conversion
price equal to $0.60 per share (the "Fixed  Price").  The debentures are secured
by our assets. The debentures have a two-year term and accrue interest at 5% per
year.  After the earlier to occur of (i) the date a registration  statement (the
"Registration  Statement") related to the shares issuable upon conversion of the
debentures is declared  effective by the United States  Securities  and Exchange
Commission  (the "SEC") or (ii) August 1, 2005,  if the closing bid price of our
common stock, as quoted by Bloomberg,  LP, is less than the Fixed Price, Cornell
Capital  Partners,  LP at its  sole  option  can  elect  cash  repayment  of the
debentures by requiring us to make 5 payments of $200,000,  plus outstanding and
accrued interest (the "Cash Repayment  Election").  At maturity,  the debentures
will  automatically  convert into shares of common  stock at a conversion  price
equal to the Fixed Price. The  Registration  Statement has not yet been declared
effective by the SEC and we cannot  predict at this time when such  Registration
Statement  will be declared  effective.  Further,  our common stock is currently
trading below the Fixed Price.  As at the date of this filing,  Cornell  Capital
Partners LP has not made the Cash Repayment Election,  but they may do so at any
time.

On April 19, 2005, we entered into a Standby Equity Distribution  Agreement with
Cornell  Capital  Partners,  LP.  Pursuant  to the Standby  Equity  Distribution
Agreement,  we may,  at our  discretion,  periodically  sell to Cornell  Capital
Partners,  LP shares of our  common  stock for a total  purchase  price of up to
$20,000,000  (exclusive  of Cornell  Capital  Partners LP's 5% retainage and the
392,000 shares received by Cornell Capital Partners, LP as a one-time commitment
fee).  For each  share of  common  stock  purchased  under  the  Standby  Equity
Distribution  Agreement,  Cornell Capital  Partners,  LP will pay us 100% of the
lowest  volume  weighted  average  price (VWAP) of our common stock as quoted by
Bloomberg,  LP on the Over-the-Counter  Bulletin Board or other principal market
on which our common  stock is traded for the 5 days  immediately  following  the
notice date.  The daily VWAP is  calculated by totaling the dollar amount traded
for every  transaction  (selling price multiplied by the shares traded) and then
dividing  by the total  shares  traded  for the day.  Further,  Cornell  Capital
Partners,   LP  will  retain  5%  of  each  advance  under  the  Standby  Equity
Distribution  Agreement.  Cornell Capital Partners,  LP's obligation to purchase
shares of our common stock under the Standby  Equity  Distribution  Agreement is
subject to certain conditions, including our obtaining an effective registration
statement  for the  shares to be sold  under  the  Standby  Equity  Distribution
Agreement and is limited to $750,000 per weekly advance.

Each  of  the  above  transactions  were  exempt  from  registration  under  the
Securities Act by reason of Section 4(2) of the Securities  Act, or Regulation D
promulgated  thereunder,  as  transactions  by an issuer not  involving a public
offering.

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<PAGE>

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION.

On May 12, 2005 we entered  into a Loan  Agreement  with an  unaffiliated  third
party  pursuant  to which we  received  a  $200,000  loan.  The  loan,  which is
unsecured,  is due May 11, 2006 and bears interest at the rate of 12% per annum.
On May 25,  2005 we amended a November  25,  2004 Loan  Agreement  with the same
party respecting a 12% $140,000 unsecured loan that was set to mature on May 25,
2005.  The repayment date for the $140,000 loan was extended to May 24, 2006. In
consideration  thereof,  we agreed to pay a $5,000 facility fee to the lender at
the end of the term, as extended.

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.

In June 2005 we executed lease assignments, effective as of March 25, 2004, with
Argyle Energy, Inc. ("Argyle")  respecting our Starr County, Texas property.  In
connection therewith, Argyle reserved unto itself an overriding royalty interest
in the leases equal to the difference between 30% and the existing lease royalty
and overriding royalty burdens of record as of the effective date. In connection
with leases  covering less than 100% of the mineral  rights in the lands covered
thereby,  the overriding royalty interest as provided above was  proportionately
reduced.

In June 2005 we executed lease assignments effective as of August 12, 2004, with
Argyle Energy,  Inc.  respecting  our St. Mary Parish,  Louisiana  property.  In
connection therewith, Argyle reserved into itself an overriding royalty interest
in the leases equal to the difference between 30% and the existing lease royalty
and overriding royalty burdens of record as of the effective date. In connection
with leases  covering less than 100% of the mineral  rights in the lands covered
thereby,  the overriding royalty interest as provided above was  proportionately
reduced.

On April 25, 2005 we entered into an agreement (the "Agreement") with Blue Ridge
Energy,  Inc. ("BRE")  respecting BRE's performing the duties of an operator and
otherwise  managing all typical drilling,  completion and production  operations
conducted on our Wyandolte  property located in St. Mary Parish,  Louisiana (the
"Property").  The Agreement,  which was given  retroactive  effect to January 1,
2005,  requires us to pay BRE an amount  equal to $20,000 per month  during each
month that BRE is  actively  engaged in  preparation  for and the  drilling  and
completion of each well drilled on the Property. As additional compensation, BRE
will  receive a 6.25%  carried  working  interest and  corresponding  4.375% net
revenue interest in each well drilled by us on the 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              Promissory Note dated July 15, 2005
                  between Registrant ad Cornell Capital
                  Partners, LP and Highgate House Funds,
                  Ltd.
10.2              Pledge and Escrow Agreement dated July 15,
                  2005 between Registrant and Cornell
                  Capital Partners, LP and Highgate House
                  Funds, Ltd.
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 15, 2005                  Falcon Natural Gas Corp.

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


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