Falcon Ridge Development (PKSP) 10QSB/A 2006 Q2 Quarterly report (small business) (amended)

United States

Securities and Exchange Commission

Washington, DC 20549

FORM 10-QSB/A

Amendment #1

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 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: 752,262,441 shares of common stock.

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

1

TABLE OF CONTENTS

	Page
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheet (Unaudited) at June 30, 2006	1
Statements of Operations (Unaudited) for the three months    and six months ended June 30, 2006 and 2005	2
Statements of Shareholders' Deficit (Unaudited) for the for the three months and six months    ended June 30,2006 and 2005	3
Notes to Consolidated Financial Statements	4
Statements of Cash Flows (unaudited) , for the six months ended June 30, 2006 and 2005	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	20

2

FALCON RIDGE DEVELOPMENT, INC.

BALANCE SHEET

(Unaudited)

Assets
Real estate held for sale	$	2,727,901
Fixed assets, net of accumulated depreciation		37,432
Cash		64,178
Prepaid expenses		—
Other assets		220
Total assets	$	2,829,731
Liabilities and Shareholders' Equity
Liabilities
Indebtedness to related parties	$	1,002,372
Note payable, long-term		379,830
Accounts payable		155,062
Retainage payable		100,000
Accrued expenses		59,391
Preferred stock subject to mandatory redemption		415,000
Total liabilities		2,111,655
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, 752,262,441 shares issued and
outstanding		752,262
Additional paid-in capital		899,420
Accumulated equity		(1,333,606	)
Total Liabilities and Shareholders' Deficit		(718,076	)
	$	2,829,731

See Notes to Consolidated Financial Statements

3

FALCON RIDGE DEVELOPMENT, INC.

STATEMENT OF OPERATIONS

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30						June 30
	2006			2005			2006			2005
Lot sales:
Net sales	$	—		$	2,808,159		$	—		$	5,824,945.00
Costs of sales		—			(2,390,709	)		—			(5,261,696.00	)
Gross profit (loss)		—			417,450			—			563,249
Selling, general and administrative expenses		171,978			174,646			264,756			191,490
Loss (income) before provision for income taxes		(171,978	)		242,804			(264,756	)		371,759
Income taxes		—			—			—			—
Loss		(171,978	)		242,804			(264,756	)		371,759
Proforma adjustments:
Members' distributions (note 2)		—			(15,000	)		—			(30,000	)
Income taxes		—			—			—			(96,918	)
Proforma Loss	$	(171,978	)	$	227,804		$	(264,756	)		244,841
Loss per share	$	—		$	—		$	—			—
Weighted average number of shares outstanding		752,262,441			118,632,686			752,262,441			110,647,249

See Notes to Consolidated Financial Statements

4

FALCON RIDGE DEVELOPMENT, INC.

STATEMENT OF SHAREHOLDER'S DEFICIT

(Unaudited)

	Preferred Stock Shares		Par value			Common Stock Shares		Par Value		Additional paid-in capital			Accumulated deficit			Total
Balance at January 1, 2005		—	$	—			100,000,000	$	100,000	$	210,644		$	(882,288	)	$	(571,644	)
Dividend distribution		—		—			—		—		—			(30,000	)		(30,000	)
Merger with PocketSpec
Technologies, Inc (Note 1)		—		—			37,265,372		37,265		—			(37,265	)		—
Stock issuance for
Spanish Trails, LLC (Note 2)		—		—			614,882,069		614,882		(210,644	)		(402,238	)		2,000
Compensation		—					115,000		115		2,185						2,300
Stock issuance for Cash		160,000		400,000			—		—		—			—			400,000
Adjustment for prior period (note 9)		—		—			—		—		897,235			402,238			1,299,473
Loss		—		—			—		—		—			(119,297	)		(119,297	)
Balance at December 31, 2005		160,000	$	400,000			752,262,441	$	752,262	$	899,420		$	(1,068,850	)	$	982,832	)
Balance at January 1, 2006		160,000	$	400,000			752,262,441	$	752,262	$	899,420		$	(1,068,850	)	$	982,832	)
Stock issuance for Cash		166,000		415,000			—		—		—			—			415,000
Reclassified preferred stock subject to mandatory redemption		—		(415,000	)		—		—		—			—			(415,000	)
Loss		—		—			—		—		—			(264,756	)		(264,756	)
Balance at June 30, 2006		326,000	$	815,000			752,262,441	$	752,262	$	899,4205		$	(1,333,606	)	$	718,076	)

See Notes to Consolidated Financial Statements

5

FALCON RIDGE DEVELOPMENT, INC.

STATEMENT OF CASH FLOWS

(Unaudited)

	Period Ended
	June 30
	2006			2005
Cash flows from operating activities:
Net income/loss	$	(264,756	)	$	371,759
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation		2,100			—
Changes in operating assets and liabilities,
excluding effects of business combinations:
Land development costs		(253,599	)		3,523,422
Prepaid expenses		13,540			—
Other current assets		—			45,461
Acquisition and development notes		—			(3,868,625	)
Accounts payable		(211,673	)		(344,920	)
Deferred revenue		—			(138,000	)
Net cash (used in) provided by
operating activities		(714,388	)		(410,903	)
Cash flows from investing activities:
Acquisition of fixed assets		(6,319	)		(7,577	)
Net cash used in
investing activities		(6,319	)		(7,577	)
Cash flows from financing activities:
Decrease in related party indebtedness		(88,966	)		416,000
Proceeds from acquisition and development notes					430,822
Repayments of acquisition and development notes					(416,558	)
Repayments of real estate contract		(9,218	)		—
Proceeds from preferred shares		415,000			—
Dividend paid		—			(30,000	)
Net cash used in
financing activities		316,816			400,264
Net change in cash		(403,891	)		(18,216	)
Cash:
Beginning of period		468,069			158,834
End period	$	64,178		$	140,618
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes	$	—		$	—
Interest	$	11,682		$	76,256

6

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.

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.

7

FALCON RIDGE DEVELOPMENT, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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.

Use of Estimates

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

Reclassifications

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

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 June 30, 2006.

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.

.

8

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 June 30, 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 and six month periods ended June 30, 2006 and 2005.were $3,408 and $3,998 in 2006 and $0 and $0 in 2005, respectively.

9

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, 2005 and no awards were granted in the six months ended June 30, 2006.

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 years December 31, 2004, the Company operated as a partnership, 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. For the 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. The Company intends to file a consolidated tax return and will recognize the tax attributes on a consolidated basis. The Company has a consolidated tax loss of approximately $201,756, which is available to reduce taxable income in future years. Use of the loss will expire in 2021.

Financial Instruments and Concentration of Credit Risk

The carrying amounts of the Company's financial assets and liabilities, including cash, and accounts payable at June 30,2006, approximate fair value because of the short maturity of these instruments. The carrying amount of the Company's notes payable approximates fair value at June 30,2006, 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 June 30, 2005 100 percent of the Company's sales were to three homebuilders.

Pro Forma Provision for Salary Distributions and Income Taxes

The accompanying statements of operations include 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 June 30, 2006 would have been 640,264 shares at a bid price of $ 1.20 per share or $ 538,889.

10

FALCON RIDGE DEVELOPMENT, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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.

11

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 owned by an affiliate. During the three and six months ended June 30, 2006 and 2005, the Company recorded rent expense of $15,500 and $ 15,000 and $ 15,000.00 and $3,953, respectively. At June 30,2006 the Company owed rent in the amount of $15,500, 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 June 30, 2006:

Note payable to Karen Duran, interest at 12%, 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		628,099
Accrued interest payable		33,276
	$	1,002,375

12

FALCON RIDGE DEVELOPMENT, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(3) Fixed Assets

Fixed assets consist of the following at June 30, 2006:

	Cost		Accumulated Depreciation
Software	$	32,349	$	1,302
Equipment		7,981		1,596
	$	40,330	$	2,898

Depreciation expense, included in selling, general and administrative expenses in the accompanying financial statements. For the three and six months ended June 30, 2006 and 2005, the Company recorded depreciation expense of $1,050 and $ 2,100 and $ 0 and $0 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."

Real estate held for development and sale, consists of the following at June 30, 2006:

Land acquisition costs	$	2,139,362
Land development costs		512,322
Capitalized interest		76,217
	$	2,727,901

(5) Note Payable

Note payable consists of the following at June 30, 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
Total financing under the agreement is $435,000	$	379,380

13

FALCON RIDGE DEVELOPMENT, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(6) Income Taxes

A reconciliation of U.S. statutory federal income tax rate to the effective rate

follows for the period ended June 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 June 30, 2006, the Company has a net operating loss carry forward for federal income tax purposes of approximately $201,756, which was fully allowed for in the valuation allowance of $50,035. 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 June 30, 2006 was $23,760. . 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 2021.

(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.

14

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.

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 interest 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 preceeding 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 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 June 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.

15

(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) Correction of an Error in Previously Issued Financial Statements

The Company restated its financial statements for the year ended December 31, 2005 to correct errors identified before and during a regulatory review of the Company’s financial statements and reflect certain corresponding changes described below. There was a increase of $ 1,299,473 in real estate held for resale and an increase in additional paid in capital of $ 897,235 and a reduction in the Accumulated deficit of $ 402,238.

As described in Note 7, we acquired Spanish Trails LLC for 614,882,250 shares on July 6, 2005. The transaction was originally recorded at predecessor cost. It has been determined that the transaction should have been recorded at fair value. In determining fair value the company considered an appraisal by a certified appraiser prepared for the company’s banker and additional corroborating values from a local real estate professional. The appraisal was based on a revised plat with 441 smaller lots on an “as is” basis. The company applied the fair value to 296 larger lots based on the original plat, as acquired by STLLC.

This restatement also corrects the presentation of the Consolidated Statement of Changes in Shareholders’ Deficit resulting from the acquisition described above.

The following table shows the effect of the restatements on the Balance Sheet from this restatement:

	As			As
	Reported			Restated
Assets
Cash	$	468,069			468,069
Real estate held for resale		1,174,829			2,474,302
Property and equipment, net of accumulated depreciation		33,213			33,213
Prepaid expenses		13,540			13,540
Other assets		220			220
Total assets	$	1,689,871			2,989,344
Liabilities and Shareholders' Deficit
Liabilities
Indebtedness to related parties	$	1,091,338			1,091,338
Note payable, current portion		18,737			18,737
Note payable, long-term portion		370,311			370,311
Accounts payable		293,200			293,200
Retainage payable		151,627			151,627
Accrued expenses		81,299			81,299
		2,006,512			2,006,512
Shareholders' deficit
Preferred stock,Class A no par value,
400,000 shares authorized, 160,000 shares issued and
outstanding		400,000			400,000
Common stock, $0.001 par value, 900,000,000 shares
authorized, 752,262,441 shares issued and
outstanding		752,262			752,262
Additional paid-in capital		—			899,420
Accumulated deficit		(1,468,903	)		(1,068,850	)
Total shareholders' deficit		(316,641	)		982,832
Total liabilities and shareholders' deficit	$	1,689,871			2,989,344

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 2006 into homebuilding on our Spanish Trails lots. Our executive offices are located in the Albuquerque, New Mexico area.

On May 20, 2005, we completed a reverse acquisition transaction. We acquired Sierra Norte, a New Mexico limited liability company, which thereby became our wholly-owned subsidiary. Sierra Norte is a land development company in the Albuquerque, New Mexico area. Formerly we were a technology company which

was in the business of developing and marketing color comparison devices. We acquired Spanish Trails on July 6, 2005 as discussed below.

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

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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 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 there was not a change of control of us, as the owners of a majority of Spanish Trails were the executive officers of the Company. After the exchange, 752,147,441 shares of common stock was 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.

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-2006. When our platting plan receives final approval, we will be able to begin construction of the first phase of development of approximately 450 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. As disclosed in our Form 8-K filed on October 25, 2005, we have an executed contract with DR Horton under which it will purchase approximately 150 designated completed lots in Phase II of our Spanish Trails project. 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 with remaining developed Spanish Trails project lots. We now expect to have initial models open in the Fall of 2006. The sale of homes and, consequently, the pace of construction, will be determined by the rate of market absorption. Simultaneously, we will be processing other parcels that are currently under purchase contracts in preparation for seeking entitlements and final plat approval from Valencia County authorities.

Since our master plan for the Spanish Trails project has many facets and the development includes not only residential lots but and recreational areas, our time frames and the order in which we begin various projects is highly dependent upon the market for the area and the need for specific areas to be completed and other uncontrollable items such as financing.

Results of Operations

Three and Six Month Periods Ended June 30, 2006 Compared to Three and Six Month Periods Ended June 30, 2005

We had no sales in the three and six month periods ended June 30, 2006. We are in a development phase and now anticipate sales in the late fall. All projects from prior periods have closed out. In 2005 we achieved revenues for the three and six months ended June 30, 2005 of $ 2,808,1590 and $ 5,824,945,respectively. In 2005, we had sold out phase one and began receiving revenue from phase two lot sales. Lot closings are tied to construction and completion or partial completion of the lots for the community and closings take place only after completion.

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There is no significant change in our selling, general and administrative expenses for the three months ended June 30, 2006 and 2005.

Selling, general and administrative expenses for the six months ended June 30, 2006 and 2005.increased significantly to $264,756, compared to selling, general and administrative expenses of $191,490 for the six months ended June 30,2005. The major components of these expenses are salaries, payroll taxes and professional fees. We have significantly expanded our operations as a public company in 2006. This is reflected in the increased overhead. We expect that our costs of being a public company will lead to increased general and administrative expenses. in the future.

Due primarily to no lot sales and increased general and administrative expenses as a result of being a public company, we incurred a loss of $171,978 and $ 264,756 or $0.00 per share, for the three and six months ended June 30, 2006 compared to a net income of $242,804 and $ 244,841, or $0.00 per share, for the three and six months ended June 30,2005.

Our principal source of revenue will be the sales of lots and homes in our Spanish Trails project. In the future we will acquire other real estate development projects in other states as well as New Mexico.

Liquidity and Capital Resources

At June 30, 2006 our cash position was $64,178.

Our net cash used in operating activities was $714,388 for the six months ended June 30, 2006, compared to net cash used by operating activities of $410,907 for the six months ended June 30, 2005.

Our net cash used by investing activities was $6,319 for the six months ended June 30, 2006, compared to $7,577 of net cash used by investing activities for the six months ended June 30, 2005.

Our net cash provided by financing activities was $316,816 for the six months ended June 30, 2006, compared to $400,264 of net cash provided by financing activities for the six months ended June 30, 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. Our chief financial officer and Falcon Ridge Development LLC (a related party) have loaned us funds for us to meet 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 August 2005 we raised $400,000 and again in May 2006 we raised $415,000 from the private placement of convertible preferred stock, which has helped us with our working capital needs and allowed us to continue to use capital in seeking to develop our Spanish Trails project.

The timing of the completion of the platting of our Spanish Trails project is not certain, so we cannot assure that our cash flow from lot sales, particularly relating to the DR Horton proposed purchase and other lot closings will occur in the near future. Thus, we may be faced with a working capital shortage. In such 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 late fall of 2006. This initiative will require working capital which we cannot assure will be available. We are negotiating with banks and other lenders to seek debt financing for this endeavor.

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Most of our costs are incurred in the initial phases of our real estate projects. We are in the initial stages of the Spanish Trails project and expect it to be profitable. 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

Within the 90 days prior to the date of 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 not 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 was acquired as a result of the Sierra Norte acquisition discussed above, and a new board and management was installed, only recently have we been able to timely file our Form 10-QSBs and 8Ks timely.In the past we missed deadlines for filing some Form 8-Ks due to non recognition of the events requiring the Form 8-Ks. Specifically, an advance made to Sierra Norte by our chief financial officer was not recorded on the books of the Company and three other lending arrangements to us by related parties were not reported in a timely manner on Form 8-K. As discussed in Item 5 herein, "Other Information," as a result of the failure to record the advance of $150,000 to one of our subsidiaries prior to the time such subsidiary was acquired by us, the Form 10-QSB for the quarter ended June 30, 2005 contained an error by understating liabilities of $150,000 and did not include expenses of $150,000.

The Form 10-QSB for the quarter ended June 30, 2005 was amended to reflect these adjustments. Management is in the process of completing the analysis and will adopt new policies and procedures to remedy the design and operations of our disclosure controls, including review and education concerning Form 8-K requirements. 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 have scheduled 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.

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: Februrary 21, 2007	By:	/s/ Fred M. Montano
		Fred M. Montano
		President, Chief Executive Officer, and Director
Dated: Februrary 21, 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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