Falcon Ridge Development (PKSP) 10QSB 2006 Q4 Quarterly report (small business)

United States

Securities and Exchange Commission

Washington, DC 20549

FORM 10-QSB

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended     December 31, 2006

Commission File Number     000-28789

Falcon Ridge Development Inc.

(Exact name of registrant as specified in its charter)

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

(866) 302-2248 

(Registrant's telephone number, including area code)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days     Yes [X]     No []

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

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 14,441,312shares of common stock.

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

TABLE OF CONTENTS

	Page
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheet (Unaudited) at December 31, 2006	1
Statements of Operations (Unaudited) for the three months ended December 31, 2006 and 2005	2
Statements of Shareholders' Deficit (Unaudited) for the for the three months ended December 31,2006 and 2005	3
Statements of Cash Flows (unaudited) , for the three months ended December31, 2006 and 2005	4
Notes to Consolidated Financial Statements	5
Item 2. Management's Discussion and Analysis or Plan of Operation.	14
Item 3. Controls and Procedures	18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.	19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3. Defaults Upon Senior Securities.	19
Item 4. Submission of Matters to a Vote of Security Holders.	19
Item 5. Other Information.	19
Item 6. Exhibits and Reports on Form 8-K.	20
Signatures	21

FALCON RIDGE DEVELOPMENT, INC.

BALANCE SHEET

(Unaudited)

Assets
Real estate held for development and sale	$	2,944,291
Fixed assets, net of accumulated depreciation		34,805
Cash		159,947
Other assets		220
Total assets	$	3,139,263
Liabilities and Shareholders' Equity
Liabilities
Indebtedness to related parties	$	1,033,008
Notes payable		570,311
Accounts payable		467,740
Retainage payable		100,000
Accrued expenses		62,030
Preferred Shares subject to manadatory redemption		485,000
Total liabilities		2,718,089
Shareholders' Equity
Preferred stock,Class A .0001 par value,
400,000 shares authorized, 160,000 shares issued and
outstanding		400,000
Common stock, $0.001 par value, 900,000,000 shares
authorized, 14,011,312 shares issued and
outstanding		752,262
Additional paid-in capital		909,670
Accumulated equity		(1,640,758	)
Total Liabilities and Shareholders' Equity		421,174
	$	3,139,263

See Notes to Financial Statements

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FALCON RIDGE DEVELOPMENT, INC.

STATEMENT OF OPERATIONS

(Unaudited)

	Three Months Ended
	December 31
	2006			2005
Lot sales:
Net sales	$	—		$	643,969
Costs of sales		—			(689,730	)
Gross profit (loss)		—			(45,761	)
Selling, general and administrative expenses		153,934			214,568
Loss before provision for income taxes		(153,934	)		(260,329	)
Income taxes		—			—
Loss		(153,934	)		(260,329	)
Loss per share	$	—		$	—
Weighted average number of shares outstanding		3,117,647			593,163

See Notes to Financial Statements

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FALCON RIDGE DEVELOPMENT, INC.

STATEMENT OF SHAREHOLDER'S DEFICIT

(Unaudited)

	Preferred Stock				Common Stock					Additional paid-in			Accumulated
	Shares		Par value		Shares			Par value		capital			deficit			Total
Balance at
October 1, 2005		160,000	$	400,000		752,147,441		$	752,147	$	38,418		$	(808,498	)	$	382,067
Adjustment for acquisition of
Spanish Trails, LLC (Note 2)		—		—		—			—		(38,418	)		—			(38,418	)
Compensation		—				115,000			115		2,185			—			2,300
Effect of reverse split 8-06		—		—		(748,501,129	)		—		—			—			—
Effect of STLLC restatement		—		—		—			—		897,235			402,238			1,299,473
Loss		—		—		—			—		—			(662,590	)		(662,590	)
Balance at
December 31,2005		160,000	$	400,000		3,761,312		$	752,262	$	899,420		$	(1,068,850	)	$	982,832
Balance at
Octobert 1, 2006		160,000	$	400,000		3,761,312		$	752,262	$	899,420		$	(1,486,824	)	$	564,858
Stock issuance for compensation						10,250,000			10,250		—			—			10,250
Loss		—		—		—			—		—			(153,934	)		(153,934	)
Balance at
December 31, 2006		160,000	$	400,000		14,011,312		$	762,512	$	899,420		$	(1,640,758	)	$	421,174

See Notes to Financial Statements

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FALCON RIDGE DEVELOPMENT, INC.

STATEMENT OF CASH FLOWS

(Unaudited)

	Period Ended
	December 31
	2006			2005
Cash flows from operating activities:
Net income/loss	$	(153,934	)	$	(260,329	)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation		1,577			394
Changes in operating assets and liabilities,
excluding effects of business combinations:
Land development costs		(100,851	)		(1,014,250	)
Prepaid expenses		—			(13,540	)
Accounts payable		131,550			124,815
Accrued liabilities		16,235			81,299
Retainage payable		—			(55,335	)
Stock based compensation		10,250			115
Deferred revenue		—			(196,500	)
Net cash (used in) provided by     operating activities		(95,173	)		(1,333,331	)
Cash flows from investing activities:
Acquisition of fixed assets		—			(26,030	)
Net cash used in  investing activities		—			(26,030	)
Cash flows from financing activities:
Decrease in related party indebtedness		51,366			1,183,557
Repayments of notes payable		—			(81,650	)
Increase in other assets		—			(220	)
Proceeds from short term note		200,000			—
Net cash used in financing activities		251,366			1,101,687
Net change in cash		156,193			(257,674	)
Cash:
Beginning of period		3,754			323,505
End period	$	159,947		$	65,831
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes	$	—		$	—
Interest	$	29,778		$	19,452

See Notes to Financial Statements

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FALCON RIDGE DEVELOPMENT, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(1) Summary of Significant Accounting Policies

Organization, Shell Merger and Principles of Consolidation

Organization

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

Going Concern

The Company experienced significant operating losses during the three months ended December 31, 2006 and 2005, of $153,934 and $260,329 respectively. The Company has a working capital deficit and implementation of its business plan is dependent upon its ability to raise additional capital. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management believes that it will be successful in raising additional capital and that it has assets available to securitize debt should the Company look to borrow. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of the recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

Shell Merger

On May 20, 2005, Sierra Norte LLC ("SNLLC") exchanged certificates representing 100 percent of its equity securities for 100,000,000 shares of the common stock of Pocketspec Technologies, Inc. (PTI), a public shell company. The acquisition has been treated as a recapitalization of SNLLC, a New Mexico limited liability company, with PTI the surviving legal entity. Since PTI had, prior to the merger, minimal assets, (consisting of cash) and no operations, the recapitalization has been accounted for as the sale of 37,265,372 shares of common stock for the net assets of PTI. After the closing of the acquisition, there were 137,265,372 shares of common stock of the Company issued and outstanding. PTI was incorporated under the laws of Colorado in 1998. In June 2005, PTI changed its domicile to Nevada and its name to Falcon Ridge Development Inc.

SNLLC was deemed to be the acquirer (for accounting purposes) in the reverse acquisition and, consequently, the assets and liabilities and historical operations that are reflected in the accompanying financial statements are those of SNLLC and are recorded at the historical cost basis of SNLLC.

In connection with the merger, PTI sold to a group of its shareholders, PTI's color comparison devices business in exchange for an indemnification from liabilities by these investors. These shareholders assumed the color comparison devices business including its liabilities. The sale was consummated between related parties. Accordingly, the sale was booked as a capital transaction and no gain or loss on the transaction was recorded.

Since incorporation in 1998, PTI has conducted three businesses. Originally PTI was in the retail arts and crafts industry. PTI then transitioned into the real estate development business, where it acquired and developed real estate properties for its own account, primarily in Colorado. Finally, PTI became a technology company. In 1999, PTI filed a registration statement on Form 10-SB with the U.S. Securities and Exchange Commission to become a reporting company under Section 12G of the Securities and Exchange Act of 1934.

Principles of Consolidation

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

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FALCON RIDGE DEVELOPMENT, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Use of Estimates

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

Revenue Recognition on Sales of Real Estate

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

Cash and Cash Equivalents

The Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents. The Company had no cash equivalents at December 31, 2006 and 2005.

Real Estate Held for Sale

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

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

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

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FALCON RIDGE DEVELOPMENT, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Interest

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

Fixed Assets and Depreciation

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

years; equipment, 5 years.

Earnings (loss) per Common Share

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

At December 31, 2006, there was no variance between basic and diluted loss per share as the convertible preferred stock outstanding, if converted, would be anti-dilutive.

Impairment or Disposal of Long-Lived Assets

The Company evaluates real estate projects and other long-lived assets on an individual basis for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and SFAS 67 “Accounting for Costs and Initial Rental Operations of Real Estate Projects.” An asset is considered impaired if its carrying amount exceeds the future net cash flow the asset is expected to generate or its net realizable value. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair market value. We assess the recoverability of our real estate projects, long-lived and intangible assets by determining whether the unamortized balances can be recovered through undiscounted future net cash flows of the related assets. The amount of impairment, if any, is measured based on projected discounted future net cash flows. When impairment exists the carrying value of the asset will be reduced by an allowance for the amount of the impairment. There is no impairment in 2006 or 2005.

Advertising Expenses

The Company expenses advertising expenses as incurred. Advertising expense for the three month period ended December 31, 2006 and 2005 was $ 3,011 and $ 3,085 respectively.

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FALCON RIDGE DEVELOPMENT, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Stock-based Compensation

The Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R), effective January 1, 2006. SFAS 123R requires the recognition of the fair value of stock-based compensation in net income. The Company has elected the modified prospective transition method for adopting SFAS 123R. Under this method, the provisions of SFAS 123R apply to all awards granted or modified after the date of adoption. In addition, the unrecognized expense of awards not yet vested at the date of adoption, determined under the original provisions of SFAS 123, shall be recognized in net income in the periods after the date of adoption. The Company had no unvested awards at December 31, 2006 and 2005 respectively.

Income Taxes

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

In tax year December 31, 2005, the Company operated as a partnership through May 20, 2005 and as a "c" corporation for the period May 21, 2005 through December 31, 2005 and therefore was exempt from taxation; instead, its earnings and losses are included in the personal returns of the members and taxed depending on the individual's personal tax situation. The Company is the sole member of its two subsidiaries and consequently includes their activity in its return on a consolidated basis. The Company has a tax loss of approximately $259, 536 which is available to reduce taxable income in future years. Use of the loss will expire in 2022.

Financial Instruments and Concentration of Credit Risk

The carrying amounts of the Company's financial assets and liabilities, including cash, accounts payable, and preferred shares with mandatory redemption at December 31,2006, approximate fair value because of the short maturity of these instruments. The carrying amount of the Company's notes payable approximates fair value at December 31, 2006, since the notes are at floating rates or fixed rates that approximate current market rates for notes with similar risks and maturities.

For the period ended December 31, 2005 100 percent of the Company's sales were to three homebuilders.

Pro Forma Provision for Salary Distributions and Income Taxes

The accompanying statement of operations for the period ended December 31, 2005, includes pro forma adjustments to reflect as salaries, distributions to officers/shareholders that were made while the Company operated as an LLC, and to reflect an estimated provision for income taxes. Prior to the reverse acquisition, the Company was taxed as a partnership and, consequently, was not subject to income tax. The effective income tax rate used on the pro forma adjustments is that estimated had the Company been a C corporation.

Preferred Shares subject to mandatory redemption

The features of our Series B Preferred Stock within SFAS 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. Due to redemption features of the securities, the preferred shares are being classified as a liability in these financial statements. The securities give the holder the option of a net cash settlement or a settlement in common share based on a conversion rate. The settlement amount under SFAS 150 at December 31, 2006 would have been approximately 615,873 shares at a low bid price of $ 1.05 per share or $ 646,666.

- 8 -

FALCON RIDGE DEVELOPMENT, INC.

Notes to Consolidated Financial Statements

New Accounting Standards

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

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

financial statements.

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

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

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

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

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FALCON RIDGE DEVELOPMENT, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

(2) Related Party Transactions

The Company conducts its operations in a building rented by an affiliate. During the three months ended December 31, 2006 and 2005, the Company recorded rent expense of $15,750 and $ 15,000, respectively. At December 31, 2006 the Company owed rent in the amount of $ 21,000, which is included in accounts payable.

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

Indebtedness to related parties consisted of the following at December 31, 2006:

Note payable to Karen Duran, interest at 8.5%, principal and interest payable in annual installments of $17,000
Total financing under the agreement is $200,000	$	191,000
Note payable to Karen Duran, interest at 8.5%, principal and interest payable May 25,2007
Total financing under the agreement is $150,000		150,000
Advances payable to Falcon Ridge Development LLC, an affiliate, payable on demand		663,181
Accrued interest payable		28,827
	$	1,033,008

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FALCON RIDGE DEVELOPMENT, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(3) Fixed Assets

Fixed assets consist of the following at December 31, 2006:

	Cost		Accumulated Depreciation
Software	$	32,349	$	3,131
Equipment		7,981		2,394
	$	40,330	$	5,525

Depreciation expense is included in selling, general and administrative expenses in the accompanying financial statements. For the three month period ended December 31, 2006 and 2005 the Company recorded depreciation expense of $1,577 and $ 798 respectively.

(4) Real Estate Operations

The Company completed development of Sierra Norte I and II subdivisions in Rio Rancho, New Mexico in 2005. The Company is in the process of developing approximately 139 acres of raw land in the Belen, New Mexico referred to as "Spanish Trails." Spanish Trails consists of 139 acres of land platted into approximately 517 home sites. Home sites will be sold to different builders or developed by the Company.

Real estate held for resale, consists of the following at December 31, 2006:

Land acquisition costs	$	2,186,033
Land development costs		660,576
Capitalized interest		97,682
	$	2,944,291

(5) Notes Payable

Note payable consists of the following at December 31, 2006:

Note payable to Toby and Mary Ann Cordova, with interest at 6.5 percent, principal and interest payable in semi-annual installments of $21,862, collateralized by a real estate contract due 2-18-2019
Total financing under the agreement is $435,000	$	370,311

Note payable to an individual, repayable with interest calculated at 10% per annum on the receipt of $ 5,000,000 from a private placement of securities or six months whichever comes first. The note may be extended for ninety days with the payment of a two percent renewal fee.
Total financing under the agreement is $200,000		200,000
	$	570,311

Aggregate maturities required on long-term debt at December 31, 2006, are as follows:

Year ending December 31,
2007	$	219,975
2008		21,294
2009		22,702
2010		24,201
2011 and thereafter		282,139
	$	570,311

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FALCON RIDGE DEVELOPMENT, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(6) Income Taxes and Change in Estimate

A reconciliation of U.S. statutory federal income tax rate to the effective rate follows for the period ended September 30, 2006:

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

At September 30, 2006, the Company has a net operating loss carry forward for federal income tax purposes of approximately $413,470, which was fully allowed for in the valuation allowance of $102,540. The valuation allowance offsets the net deferred tax asset for which there is no assurance of recovery. The change in the valuation allowance for the period ended December 31, 2006 was $38,176. The Company had no material temporary differences other than the net operating loss carryforwards.

Because of various stock transactions during 2005, management believes the Company has undergone an "ownership change" as defined by Section 382 of the Internal Revenue Code. Accordingly, the utilization of a portion of the net operating loss carry forward may be limited. Due to this limitation, and the uncertainty regarding the ultimate utilization of the net operating loss carry forward, no tax benefit for losses has been provided by the Company in the accompanying financial statements. The net operating loss carry forward will expire in 2027.

For the year ended December 31, 2005 the company estimated that the company would have a loss for income taxes purposes and therefore reported no provision. In 2006 the company received information regarding the decisions made by the partnership that resulted in its reporting a loss on its final return, the company had anticipated the partnership would report income thereby reducing the amount taxable to the company. As a result of that decision the company incurred a tax liability of $ 50,184 that will be recovered by carrying back a loss from this year.

(7) Shareholders' Deficit

Preferred Stock

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

· Shares are non-cumulative with a preference over common shares if and when a dividend is declared.

· Shares are convertible into common stock at any time on the basis of 100 common shares for 1 share of preferred stock. This conversion rate is subject to adjustments for forward or reverse splits or other capitalizations. The option was of no intrinsic benefit, at the commitment date, to the preferred shareholder.

- 12 -

FALCON RIDGE DEVELOPMENT, INC.

Notes to Consolidated Financial Statements

(Unaudited)

· Shares have a priority over common shares upon liquidation.

· Shares are callable at any time by the Company at the original purchase price. The Preferred Shareholders will have thirty days thereafter to convert to common stock.

(8)    Preferred Shares subject to mandatory redemption

The features of our Series B Preferred Stock and determined that it falls within SFAS 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. Due to redemption features of the securities, the preferred shares are being classified as a liability in these financial statements. The securities give the holder the option of a net cash settlement or a settlement in common share based on a conversion rate. The value of the liability is fixed at the stated value of $485,000. However, the number of common shares into which the preferred shares are convertible is inversely related to changes in the Company’s common stock. Although the potential conversion could conceivably require the Company to issue a number of shares in excess of its authorized limit, the Company does not believe that its liability recorded at September 30, 2006, associated with the Series B preferred stock is appropriate in that such obligation would not exceed the aggregate stated value.

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

· Shares are non-cumulative with a preference over common shares if and when a dividend is declared.

· Investor will receive a dividend of 12% per annum payable monthly for a period of eighteen months from the date of purchase.

· Shares are convertible into common stock at any time on the basis of 75% of the average current bid price for the preceding 20 days of the Company's receipt of notice to convert. This conversion rate is subject to adjustments for forward or reverse splits or other capitalizations. The option was of no intrinsic benefit, at the commitment date, to the preferred shareholder.

· Shares have a priority over common shares upon liquidation.

· Shares are callable by the Company at any time after 12 months of issuance of Preferred B shares at the original purchase price. The Preferred Shareholders will have sixty days thereafter to convert to common stock. The shares will be repurchased after eighteen months for the original issue price.

(9)Subsequent Event

On January 11, 2007 the company issued the following shares;

435,000 of free trading common stock for services with a par value of $435 and a stated market value of $ 374,100

- 13 -

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

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

Forward-Looking Statements

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

Overview and History

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

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

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

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

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

On August 10 we affected a 1 for 200 reverse split of our common stock. This reduced the authorized capital form 900,000,000 common shares to 4,500,000 common shares and the outstanding common shares from 752,262,441 to 3,761,312. We changed our trading symbol to FCNR.BB.

Our Spanish Trails project is progressing through local real estate governmental clearance toward final approval of our platting plan. We anticipate the process should be completed by mid-2007. When our platting plan receives final approval, we will be able to begin construction of the first phase of development of approximately 517 lots for single family homes. Considerable up front costs in any real estate platting project must first be incurred and paid for, thus in the early stages of our real estate projects significant amounts of capital can be required until platting occurs, and lots are improved and sold. Predictably, greater revenues will be achieved as soon as a portion of the lots are improved and sold. When the lot development has been completed and accepted by the Valencia County, New Mexico, engineers and construction of the lots completed, the sale of those lots will be funded and closed. It is also our intention to initiate a home building division on some of the remaining developed Spanish Trails project lots not sold to homebuilders. We expect to have initial models open in the Spring of 2007. The sale of homes and, consequently, the pace of construction, will be determined by the rate of market absorption.

Results of Operations

Three Months Ended December 31,2006 Compared to 2005

We had no revenue for the three months ended December 31, 2006 compared to revenues of $643,969 for the three months ended December 31, 2005. This decrease was primarily attributable to our lack of project funding. In 2005, we had completed and sold out the Sierra Norte development.

Our costs of sales for the three months ended December 31, 2006 was $ 0 compared to costs of sales of $689,730 for the three months December 31, 2005. This decrease is due to having no lot sales in 2006. Our selling, general and administrative expenses for the three months ended December 31, 2006 were $153,934, compared to selling, general and administrative expenses of $214,568 for the three months December 31, 2005. The major components of these expenses are salaries, payroll taxes and professional fees. We have reduced payroll in period ended December 31, 2006. We expect to increase our staff in the near future as development activity picks up.

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Due primarily to increased lack of lot sales and increased general and administrative expenses as a result of being a public company, we incurred a loss of $153,934, or $0.00 per share, for the three months ended December 31, 2006 compared to a loss of $260,329, or $0.00 per share, for the three months ended December 31, 2005.

Our principal source of revenue in the near term is expected to be from 139 acres of land we own in the Spanish Trails project, which is being developed as discussed above. In this development, we plan to be a homebuilder as well as a land developer. The timeframe over which developed lots and /or homes will be sold may be several years. We have made deposits on additional in Oregon land that may be developed if the necessary capital and/ or financing becomes available.

Liquidity and Capital Resources

At December 31, 2006 our cash position was $159,947.

Our net cash used in operating activities was $95,173 for the three months ended December 31, 2006, compared to net cash used by operating activities of $33,858 for the three months ended December 31, 2005.

Our net cash used by investing activities was $ 0 for the three months ended December 31, 2006, compared to $26,030 of net cash used by investing activities for the three months ended ended December 31, 2005.

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Our net cash provided by financing activities was $251,366 for the three months ended December 31, 2006, compared to $204,452 of net cash provided by financing activities for the three months ended December 31, 2005.

From time to time we need working capital when we do not have funds to pay for lot development or general and administrative expenses. During the three months ended December 31, 2006, our chief financial officer and Falcon Ridge Development LLC (a related party) have loaned us funds for us to meet our some of our obligations and to continue working on platting and preparing lots for home building. We cannot assure that such funding will be available in the future. In December we secured $200, 000 in bridge financing which has helped us with our working capital needs and allowed us time to continue seeking additional capital and other financing allowing us to continue our Spanish Trails project.

The timing of the completion of the platting of our Spanish Trails project is not certain, so we cannot assure the timing of cash flow from lot sales. Thus, we may be faced with a working capital shortage. In that event we may be required to seek financing which may not be available or, if available, it could be on terms which are cost prohibitive to us.

In addition, we now expect to begin building homes on our Spanish Trails project in mid 2007. This initiative will require working capital which we cannot assure will be available. We are pursuing debt financing for this endeavor.

Most of our costs are incurred in the initial phases of our real estate projects. Our profitability depends upon our ability to develop, manage and sell real estate projects on a timely basis and to control our costs. We expect that we will develop a more consistent pipeline of activity as we mature and, thereby, a more consistent source of revenues and profit. If we succeed in this effort and generate sufficient revenues, we will expect to be profitable. However, we cannot assure that we will be profitable.

We do not intend to pay dividends for the foreseeable future. We do not expect our revenues to be impacted by seasonal demands.

Recently Issued Accounting Pronouncements

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

Critical Accounting Policies

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

conditions.

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

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ITEM 3. CONTROLS AND PROCEDURES

Management is responsible for establishing and maintaining adequate internal control over financial reporting. As of the end of the period covered by this report, our chief executive officer and our chief financial officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15b under the Securities Exchange Act of 1934. Based on their review of our disclosure controls and procedures, they have concluded that our disclosure controls and procedures are effective in timely alerting each of them to material information relating to us that is required to be included in our periodic SEC filings. Since our Company has been acquired as a result of the Sierra Norte acquisition discussed above, and a new board and management has been installed, we have been able to timely file our Form 10-QSBs and our Form 8-Ks. Management is in the continuing process of analyzing and adopting new policies and procedures to improve the design and operations of our disclosure controls, We acknowledge that a change with respect to financial controls has been made to alert us with respect to funding provided by related parties and that the changes in disclosure controls, particularly recognizing Form 8-K events, are ongoing. We expect these changes in internal controls will have a significant effect on our disclosure controls after the evaluation date and the date of this report.

Changes to Internal Controls include a reorganization of available staff to better segregate duties, acquisition and implementation of more sophisticated accounting software and a personnel plan to hire additional accounting and administrative staff. We continue to schedule training for employees and management in critical areas to enhance their ability to perform the duties assigned to them.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no legal proceedings, to which we are a party, which could have a material adverse effect on our business, financial condition or operating results. However, a former attorney has filed a complaint and obtained a default judgement against us for fees and costs in the approximate amount of $ 47,000. We believe that the judgement will be reversed and we will enter arbitration with the attorney. We have included $ 38,000 in these financial statements and the costs assessed by the attorney of approximately $ 9,000 are not included.

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits

Exhibit No.	Description
2.1	Agreement and Plan of Reorganization - Pocketspec Technologies, Inc. and Sierra Norte LLC (a)
2.2	Acquisition Agreement - Pocketspec Technologies, Inc. and Spanish Trails, LLC (b)
3.1	Articles of Incorporation of Falcon Ridge Development, Inc. previously filed.
3.2	Bylaws of Falcon Ridge Development, Inc. previously filed.
3.3	Articles of Organization of Sierra Norte, LLC previously filed.
3.4	Operating Agreement of Sierra Norte, LLC previously filed.
3.5	Articles of Organization of Spanish Trails, LLC previously filed.
3.6	Operating Agreement of Spanish Trails, LLC previously filed.
4.1	Articles of Amendment - Establishment of Series of Preferred Stock previously filed.
10.1	Purchase Agreement - Spanish Trails, LLC and D.R. Horton* (Confidential portions of this agreement noted by *** have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidentiality under Rule 24b-2 of the Securities Exchange Act of 1934.) Previously filed.
10.2	Promissory Note - Karen Y. Duran - Sierra Norte, LLC - May 20, 2005 - $150,000 previously filed.
10.3	Promissory Note - Karen Y. Duran - Sierra Norte, LLC - June 1, 2005 - $200,000 previously filed.
10.4	Promissory Note - Karen Y. Duran - Sierra Norte, LLC - June 19, 2005 - $66,000 previously filed.
14.1	Code of Ethics previously filed.
21.1	List of Subsidiaries previously filed.
23.1	Consents of experts
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a)*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a)*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
99	Additional Exhibits - None

______________

* Filed herewith.

(a) Filed on May 25, 2005 as Exhibit 2.1 with the Registrant's Current Report on Form 8-K and incorporated herein by reference.

(b) Filed on July 8, 2005 as Exhibit 10.19 with the Registrant's Current Report on Form 8-K and incorporated herein by reference.

b. Reports on Form 8-K

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SIGNATURES

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

		Falcon Ridge Development, Inc.
Dated: January 20, 2007	By:	/s/ Fred M. Montano
		Fred M. Montano
		President, Chief Executive Officer, and Director
Dated: January 20, 2007	By:	/s/ Karen Y. Duran
		Karen Y. Duran
		Vice President, Treasurer and Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.		Description
2.1	��	Agreement and Plan of Reorganization - Pocketspec Technologies, Inc. and Sierra Norte LLC (a)
2.2		Acquisition Agreement - Pocketspec Technologies, Inc. and Spanish Trails, LLC (b)
3.1		Articles of Incorporation of Falcon Ridge Development, Inc. previously filed.
3.2		Bylaws of Falcon Ridge Development, Inc. previously filed.
3.3		Articles of Organization of Sierra Norte, LLC previously filed.
3.4		Operating Agreement of Sierra Norte, LLC previously filed.
3.5		Articles of Organization of Spanish Trails, LLC previously filed.
3.6		Operating Agreement of Spanish Trails, LLC previously filed.
4.1		Articles of Amendment - Establishment of Series of Preferred Stock previously filed.
10.1		Purchase Agreement - Spanish Trails, LLC and D.R. Horton* (Confidential portions of this agreement noted by *** have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidentiality under Rule 24b-2 of the Securities Exchange Act of 1934.) Previously filed.
10.2		Promissory Note - Karen Y. Duran - Sierra Norte, LLC - May 20, 2005 - $150,000 previously filed.
10.3		Promissory Note - Karen Y. Duran - Sierra Norte, LLC - June 1, 2005 - $200,000 previously filed.
10.4		Promissory Note - Karen Y. Duran - Sierra Norte, LLC - June 19, 2005 - $66,000 previously filed.
14.1		Code of Ethics previously filed.
21.1		List of Subsidiaries previously filed.
23.1		Consents of experts
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a)*
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a)*
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
99		Additional Exhibits - None

___________________

* Filed herewith.

(a) Filed on May 25, 2005 as Exhibit 2.1 with the Registrant's Current Report on Form 8-K and incorporated herein by reference.

(b) Filed on July 8, 2005 as Exhibit 10.19 with the Registrant's Current Report on Form 8-K and incorporated herein by reference.

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