<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

(Mark One)

 X  Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
    of 1934

For the quarterly period ended       SEPTEMBER 30, 2001
                               ------------------------------------------------

         Transition report under Section 13 or 15(d) of the Exchange Act

For the transition period from ____________ to ______________

                             BLUE RIDGE ENERGY, INC.
--------------------------------------------------------------------------------
        (Exact Name of Small Business Issuer as Specified in Its Charter)

           NEVADA                                        61-1306702
-------------------------------                  -------------------------------
(State or Other Jurisdiction of                         (IRS Employer
Incorporation or Organization)                          Identification No.)

              632 ADAMS STREET, SUITE 710, BOWLING GREEN, KY 42101
--------------------------------------------------------------------------------
                    (Address of Principal Executive Offices)
                                 (270) 842-2421
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

                                       N/A
--------------------------------------------------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report)

         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
    -----      -----


                      APPLICABLE ONLY TO CORPORATE ISSUERS

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:        7,357,344
                                                     ---------------------------








<PAGE>



                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
(a) FINANCIAL STATEMENTS OF REGISTRANT

<TABLE>
<CAPTION>
         INDEX                                                                     NUMBER
<S>                                                                                 <C>
         Condensed Balance Sheets (Unaudited) as of September 30, 2001 and
         December 31, 2000.                                                          2-3

         Condensed Statements of Income (Unaudited) for the three and nine
         months ended September 30, 2001 and 2000.                                     4

         Condensed Statements of Cash Flows (Unaudited) for the nine
         months ended September 30, 2001 and 2000.                                     5

         Notes to Condensed Financial Statements (Unaudited)                        6-13

         Report of Review By Independent Accountants                                  14
</TABLE>


The condensed financial statements of the Registrant included herein have been
prepared, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Although certain information normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted, the Registrant believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these condensed financial statements be read in conjunction with
the financial statements and the notes thereto included in the Form 10K-SB of
the Registrant for its fiscal year ended December 31, 2000.

The condensed financial statements included herein reflect all adjustments
(consisting only of normal recurring accruals) which, in the opinion of
management, are necessary to present a fair statement of the results for the
interim periods.

The results for interim periods are not necessarily indicative of trends or of
results to be expected for a full year.
<TABLE>
<CAPTION>
<S>                                                                                 <C>
(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS                             15-19


                                     PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS                                                            20
ITEM 2.  CHANGES IN SECURITIES                                                        20
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                              20
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                          20
ITEM 5.  OTHER INFORMATION                                                            20
ITEM 6.  EXHIBITS AND REPORTS OF FORM 8-K                                             20

</TABLE>




                                       1

<PAGE>







                             BLUE RIDGE ENERGY, INC.
                            CONDENSED BALANCE SHEETS
                                   (UNAUDITED)


                                                  SEPTEMBER 30,     DECEMBER 31,
                                                      2001             2000
                                                   ----------       ----------
ASSETS
------

CURRENT ASSETS:
Cash                                               $  190,978       $  918,963
Accounts Receivable:
   Managed Limited Partnerships                        11,581          278,390
   Trade and Other                                     99,433            9,302
Advances to Related Parties                               ---           17,155
Prepaid Expenses                                       95,106          129,048
                                                   ----------       ----------

         TOTAL CURRENT ASSETS                         397,098        1,352,858

DEFERRED INCOME TAX BENEFIT                            17,421              ---

PROPERTY AND EQUIPMENT, NET                         3,772,339        3,770,580

OTHER ASSETS, NET                                         490              490
                                                   ----------       ----------

TOTAL ASSETS                                       $4,187,348       $5,123,928
                                                   ==========       ==========




                   The accompanying notes are an integral part
                          of these financial statements




                                       2
<PAGE>



                             BLUE RIDGE ENERGY, INC.
                            CONDENSED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                       SEPTEMBER 30,   DECEMBER 31,
                                                            2001           2000
                                                        -----------    -----------
<S>                                                     <C>            <C>
LIABILITIES AND
---------------
STOCKHOLDERS' EQUITY
--------------------


CURRENT LIABILITIES:
Accounts Payable and Accrued Liabilities                $   249,217    $    43,251
Drilling Advances                                           358,000        918,000
Advances from Related Parties                                96,138            ---
Current Portion Long Term Debt                              305,995        287,314
                                                        -----------    -----------
         TOTAL CURRENT LIABILITIES                        1,009,350      1,248,565

LONG TERM DEBT                                              202,878        297,631
DEFERRED INCOME TAX LIABILITY                                   ---        151,830
                                                        -----------    -----------
         TOTAL LIABILITIES                                1,212,228      1,698,026

COMMITMENTS AND CONTINGENCIES                                   ---            ---

STOCKHOLDERS' EQUITY:
Preferred Stock, $0.001 par value; 5,000,000 shares
    authorized; 158,750 and 430,000 shares issued
    and outstanding at September 30, 2001 and
    December 31, 2000, respectively
    (liquidation preference of $793,750 at
    September 30, 2001 and $2,150,000 at
    December 31, 2000)                                          159            430
Common Stock, $0.005 par value; 20,000,000
    shares authorized; 7,357,344 and 6,084,494 shares
    issued and outstanding at September 30, 2001
    and December 31, 2000, respectively                      36,787         30,422
Additional Paid-In Capital                                5,675,876      5,631,970
Accumulated Deficit                                      (2,737,702)    (2,236,920)
                                                        -----------    -----------
         TOTAL STOCKHOLDERS' EQUITY                       2,975,120      3,425,902
                                                        -----------    -----------

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY                                    $ 4,187,348    $ 5,123,928
                                                        ===========    ===========
</TABLE>







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


                                       3
<PAGE>



                             BLUE RIDGE ENERGY, INC.
                         CONDENSED STATEMENTS OF INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                           3 MONTHS ENDED               9 MONTHS ENDED
                                            SEPTEMBER 30,                SEPTEMBER 30,
OPERATING REVENUES:                     2001           2000           2001           2000
-------------------                 -----------    -----------    -----------    -----------
<S>                                 <C>            <C>            <C>            <C>
Turnkey Contract Sales              $ 1,552,000    $   966,303    $ 2,020,000    $ 2,663,721
Management Fees                             ---         14,249            ---         87,481
Drilling Services Sales                 476,543        358,075      1,269,676        936,719
Oil and Gas Sales                        44,803         27,081        156,463        148,117
                                    -----------    -----------    -----------    -----------
         Total Operating Revenues     2,073,346      1,365,708      3,446,139      3,836,038

OPERATING COSTS AND
-------------------
    OTHER EXPENSES:
    ---------------
Turnkey Contract Costs                1,118,525        613,961      1,425,096      1,942,776
Drilling Services Costs                 437,440        317,415      1,259,398        759,204
Lease Operating Costs                     1,283         39,433         26,509         63,193
Depreciation, Depletion
   and Amortization                      45,000         36,046        135,000        108,046
Marketing Costs                         121,932         27,992        224,938         31,621
General and Administrative Costs        220,102        236,864        812,032        543,956
                                    -----------    -----------    -----------    -----------
         Total Operating Costs        1,944,282      1,271,711      3,882,973      3,448,796
                                    -----------    -----------    -----------    -----------

OPERATING INCOME (LOSS)                 129,064         93,997       (436,834)       387,242

OTHER INCOME (EXPENSE):
-----------------------
Interest Income (Expense)               (18,541)       (26,176)       (48,862)       (48,184)
                                    -----------    -----------    -----------    -----------
         Total Other Income             (18,541)       (26,176)       (48,862)       (48,184)
                                    -----------    -----------    -----------    -----------
INCOME (LOSS) BEFORE TAXES              110,523         67,821       (485,696)       339,058
Income Tax (Provision) Benefit          (36,500)       (22,380)       162,518       (111,048)
                                    -----------    -----------    -----------    -----------
NET INCOME (LOSS)                   $    74,023    $    45,441    $  (323,178)   $   228,010
                                    ===========    ===========    ===========    ===========


EARNINGS (LOSS) PER
-------------------
COMMON SHARE:
-------------
     Basic                          $      0.01    $     (0.00)   $     (0.08)   $     (0.01)
                                    ===========    ===========    ===========    ===========
     Diluted                        $      0.01    $     (0.00)   $     (0.08)   $     (0.01)
                                    ===========    ===========    ===========    ===========
     Weighted Average Common
         Shares Outstanding           7,147,094      5,942,907      6,439,089      5,854,960
                                    ===========    ===========    ===========    ===========
</TABLE>




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


                                       4
<PAGE>

                             BLUE RIDGE ENERGY, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)


                                                         9 MONTHS ENDED
                                                          SEPTEMBER 30,
                                                        2001        2000
                                                        ----        ----
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Income (Loss)                                    $(323,178)   $ 228,010
Adjustments to Reconcile Net Income to
Net Cash Flows from Operating Activities:
  Depreciation, Depletion and Amortization             135,000      108,046
  Increase (Decrease) in Deferred Taxes               (169,251)     110,639
  Decrease (Increase) in Accounts Receivable           176,678     (414,216)
  Decrease in Drilling Advances                       (560,000)          --
  Increase (Decrease) in Accounts Payable
    and Accrued Liabilities                            205,966      136,320
                                                     ---------    ---------
   NET CASH PROVIDED (USED) BY
     OPERATING ACTIVITIES                             (534,785)     168,799

   CASH FLOWS FROM
   INVESTING ACTIVITIES:
Increase (Decrease) in Advances to Related Parties     113,293      461,581
Decrease (Increase)  in Prepaid Expenses                33,942      (62,681)
Purchase of Drilling Equipment                              --     (107,087)
Purchase of Oil and Gas Properties                    (136,759)    (399,711)
                                                     ---------    ---------
NET CASH PROVIDED (USED)BY
 INVESTING ACTIVITIES                                   10,476     (107,898)

CASH FLOWS FROM
FINANCING ACTIVITIES:
Additions to Notes Payable                                  --       75,000
Payments of Notes Payable                              (76,072)    (117,230)
Issuance of Preferred Stock                                 --      187,758
Exercise of Common Stock Warrants                       50,000        7,000
Payments of Preferred Stock Dividends                 (177,604)    (289,273)
                                                     ---------    ---------
    NET CASH PROVIDED (USED)
     BY FINANCING ACTIVITIES                          (203,676)    (136,745)
                                                     ---------    ---------
    NET INCREASE (DECREASE) IN CASH                   (727,985)     (75,844)
    CASH AT BEGINNING OF PERIOD                        918,963      131,465
                                                     ---------    ---------
    CASH AT END OF PERIOD                            $ 190,978    $  55,621
                                                     =========    =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest                               $  48,862    $  48,184
                                                     =========    =========
Cash Paid for Income Taxes                           $   6,733    $     409
                                                     =========    =========

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


                                       5
<PAGE>


                            BLUE RIDGE ENERGY, INC.
              NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                          SEPTEMBER 30, 2001 AND 2000

    1.  OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    GENERAL

        Blue Ridge Energy, Inc., (the Company), a Nevada corporation, was
organized in November, 1994, as Gem Source, Incorporated (Gem Source), and
subsequently changed the name of the Company to Blue Ridge Energy, Inc. in May,
1996. The Company has offices at 632 Adams Street, Suite 710, Bowling Green,
Kentucky, 42101. The Company is engaged in the oil and gas business; primarily
in Texas, Kentucky, New Mexico and West Virginia. The Company sponsors oil and
gas drilling partnerships through which it raises money for the drilling of oil
and gas wells and participates for a 1% partnership interest as the managing
general partner of the oil and gas exploration partnerships. The Company also
owns two drilling rigs. These rigs are used to drill oil and gas wells for the
sponsored oil and gas drilling partnerships and also other non-affiliated oil
and gas companies. The rigs are operated on behalf of the Company by an
affiliate, Blue Ridge Group, Inc. (BR Group) The Company also acquires direct
working interest participation in oil and gas properties. The participation
includes both operated and non-operated working interest in exploratory and
development wells. These acquisitions are funded by a combination of the profits
earned from sponsoring oil and gas drilling programs, the profit earned from
contract drilling, profits from producing oil and gas properties and from the
proceeds of private offerings of preferred stock. The Company intends to
maintain an active role in the oil and gas industry as an operator of oil and
gas wells, a sponsor of oil and gas drilling programs, a participant in oil and
gas programs, and as an independent producer of oil and gas.

    PRINCIPALS OF CONSOLIDATION

        The accompanying financial statements include the accounts of Blue Ridge
Energy, Inc. and its investment in limited partnerships for which it acts as
managing general partner. As such, the company has the sole and exclusive right
and power to manage and control the partnership. The Company accounts for its
investment in limited partnerships under the proportionate consolidation method.
Under this method, the Company's financial statements include its pro-rata share
of assets and liabilities and revenues and expenses, respectively, of the
limited partnership in which it participates. All material inter-company
accounts and transactions have been eliminated in consolidation.

    USE OF ESTIMATES

        The preparation of financial statements in conformity with generally
accepted accounting principles 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 periods. Actual results could differ from those estimates.

    OPERATION OF DRILLING RIGS

        The Company follows the percentage of completion method of accounting
for its drilling operations. This accounting method allows for the periodic
recognition of income as it is earned. Under this method, income under drilling
contracts, expenses under drilling contracts, all direct costs, and appropriate
portions of indirect costs related to contracts in progress are recognized as
revenues and expenses based upon estimates of the percentage of work completed
at the end of each reporting period.

    WORKING INTERESTS


                                       6
<PAGE>

                             BLUE RIDGE ENERGY, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                           SEPTEMBER 30, 2001 AND 2000


         Oil and gas revenue from working interests the Company owns are
recognized at the point of sale.



     MANAGED LIMITED PARTNERSHIPS

        The Company sponsors limited partnerships for which it serves as the
Managing General Partner. The purpose of these partnerships is to acquire and
develop oil and gas leases. The partnerships enter into turnkey drilling
contracts with the Company to drill, complete and equip, if warranted, the oil
and gas wells of the partnerships. The Company receives direct compensation,
reimbursement of costs and expenses, and revenues related to turnkey drilling
contracts. The Company normally participates for 1% of the Limited Partnerships
as the Managing General Partner. The Company follows the industry practice of
pro rata consolidation of its investments in these partnerships. Accordingly,
the Company records on its financial statements its pro rata share of the
assets, liabilities, revenues and expenses of each partnership.

    PROPERTY AND EQUIPMENT

        Property and equipment (other than oil and gas) are stated at cost.
Depreciation is recognized on the straight line method, after considering
salvage value, over the estimated useful lives of the assets as follows:

        LIVES (YEARS)
        -------------
        Machinery and Equipment                                       10
        Autos and Trucks                                               5

        The Company follows the successful efforts method of accounting for oil
and gas producing activities. Under the successful efforts method of accounting,
costs which relate directly to the discovery of oil and gas reserves are
capitalized. These capitalized costs include:

        (1)      the costs of acquiring mineral interest in properties,
        (2)      costs to drill and equip exploratory wells that find proved
                 reserves,
        (3)      costs to drill and equip development wells and
        (4)      costs for support equipment and facilities used in oil and gas
                 producing activities.

        These costs are depreciated, depleted or amortized on the unit of
production method, based on estimates of recoverable proved developed oil and
gas reserves. Costs to drill exploratory wells that do not find proved reserves,
geological and geophysical costs, and costs of carrying and retaining unproved
properties are expensed.

        The costs of acquiring unproved properties are capitalized as incurred
and carried until the property is reclassified as a producing oil and gas
property, or considered impaired. The Company annually assesses its unimproved
properties to determine whether they have been impaired. If the results of this
assessment indicate impairment, a loss is recognized by providing a valuation
allowance. When an unproved property is surrendered, the costs related thereto
are charged to the application valuation allowance, if adequate, or charged as a
loss to current operations.

        The costs of drilling exploration wells are capitalized as wells in
progress pending determination of whether


                                      7
<PAGE>
                             BLUE RIDGE ENERGY, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                           SEPTEMBER 30, 2001 AND 2000

the well has found proved reserves. Once a determination is made, the
capitalized costs are either charged to expense or reclassified as part of the
costs of the Company's wells and related equipment. In the absence of a
determination as to whether the reserves that have been found can be classified
as proved, the costs of drilling such an exploratory well are not carried as an
asset for more than one year following completion of drilling. If after a year
has passed, the Company is unable to determine that proved reserves have been
found, the well is assumed to be impaired, and its costs are charged to expense.

    SURRENDER OR ABANDONMENT OF DEVELOPED PROPERTIES

        Normally, no gain or loss is recognized if only an individual well or
individual item of equipment is abandoned or retired or if only a single lease
or other part of a group of proved properties constituting the amortization base
is abandoned or retired as long as the remainder of the property or group of
properties continues to produce oil or gas. The asset being abandoned or retired
is deemed to be fully amortized, and its cost is charged to accumulated
depreciation, depletion, or amortization. When the last well on an individual
property or group of properties with common geological structures ceases to
produce and the entire property or property group is abandoned, gain or loss is
recognized.

    OTHER DISPOSITIONS

        Upon disposition or retirement of property and equipment other than oil
and gas properties, the cost and related accumulated depreciation are removed
from the accounts and the gain or loss thereon, if any, is credited or charged
to income. The Company recognizes the gain or loss on the sale of either a part
of a proved oil and gas property or of an entire proved oil and gas property
constituting a part of a field upon the sale or other disposition of such. The
unamortized cost of the property or group of properties, a part of which was
sold or otherwise disposed of, is apportioned to the interest sold and interest
retained on the basis of the fair value of those interests.

    IMPAIRMENT OF LONG-LIVED ASSETS

        The Company follows the provisions of SFAS 121-"Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Consequently, the Company reviews its long-lived assets to be held and used,
including oil and gas properties accounted for under the successful efforts
method of accounting. Whenever events or circumstances indicate the carrying
value of those assets may not be recoverable, an impairment loss for proved
properties and capitalized exploration and development costs is recognized. The
Company assesses impairment of capitalized costs of proved oil and gas
properties by comparing net capitalized costs to undiscounted future net cash
flows on a field-by-field basis using expected prices. If an impairment is
indicated based on undiscounted expected future cash flows, then an impairment
is recognizable to the extent that net capitalized costs exceed the estimated
fair value of the property.

    EARNINGS PER COMMON SHARE

        The Company's basic earnings per common share ("Basic EPS") is based on
the weighted average number of common shares outstanding during the respective
periods. The income available to common shareholders is computed after deducting
dividends on the preferred stock. The convertible preferred stock and
outstanding stock warrants are considered anti-dilutive and therefore, excluded
from the earnings per share calculations. The following is a reconciliation of
the numerators and denominators used in the calculation of Basic EPS for the
three months and nine months ended September 30, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                                                        3 MONTHS
    BASIC EPS COMPUTATION                                                                          SEPTEMBER 30, 2001
                                                                                                   ------------------

<S>                                                                                                 <C>
    Net Income (Loss)                                                                               $  74,023
</TABLE>


                                       8
<PAGE>


                             BLUE RIDGE ENERGY, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                           SEPTEMBER 30, 2001 AND 2000



<TABLE>

<S>                                                                        <C>
    Less: Preferred Stock Dividends                                         (48,690)
                                                                           --------
    Net Income Available to Common Stockholders                            $ 25,333
                                                                           ========


<CAPTION>
    DATES                                                                      SHARES        FRACTION        WEIGHTED
    OUTSTANDING                                                              OUTSTANDING     OF PERIOD    AVERAGE SHARES
    -----------                                                              -----------     ---------    --------------

<S>                                                                              <C>           <C>           <C>
    July 1-September 30                                                          7,147,094     100.0%        7,147,094
    Conversion of Preferred Stock-September 30                                     210,250       0.0%               --
                                                                              ------------                  ----------
                                                                                  7,357,344                  7,147,094
    Weighted Average Shares

    Basic EPS Income                                                                                      $      0.01
                                                                                                            ===========


<CAPTION>
                                                                                                        3 MONTHS
    BASIC EPS COMPUTATION                                                                          SEPTEMBER  30, 2000
                                                                                                   -------------------

<S>                                                                                                 <C>
    Net Income (Loss)                                                                               $   45,441
    Less: Preferred Stock Dividends                                                                    (89,694)
                                                                                                    ----------
    Loss Available to Common Stockholders                                                           $  (44,253)
                                                                                                    ==========


<CAPTION>
    DATES                                                                     SHARES        FRACTION        WEIGHTED
    OUTSTANDING                                                             OUTSTANDING     OF PERIOD    AVERAGE SHARES
    -----------                                                             -----------     ---------    --------------

<S>                                                                        <C>               <C>            <C>
    July 1-September 30                                                    5,809,794         100.0%         5,809,794

    Exercise of Common Stock Warrants                                          2,000          24.4%               488

    Conversion Preferred Stock                                               265,500          50.0%           132,625
                                                                           -----------                       ----------

    Weighted Average Shares                                                6,077,294                        5,942,907

    Basic EPS (Loss)                                                                                       $    (0.00)
                                                                                                            ==========

<CAPTION>

                                                                                                     9 MONTHS
    BASIC EPS COMPUTATION                                                                       SEPTEMBER 30, 2001
                                                                                                ------------------

<S>                                                                                                 <C>
    Net Income (Loss)                                                                               $(323,178)
    Less: Preferred Stock Dividends                                                                  (177,604)
                                                                                                    ----------
    Loss Available to Common Stockholders                                                           $(500,782)
                                                                                                    =========

<CAPTION>
    DATES                                                                      SHARES        FRACTION        WEIGHTED
    OUTSTANDING                                                              OUTSTANDING     OF PERIOD    AVERAGE SHARES
    -----------                                                              -----------     ---------    --------------

<S>                                                                              <C>          <C>            <C>
    January 1-Sept 30                                                            6,084,494    100.0%         6,084,494
    Exercise of Common Stock Warrants-June 29                                    1,000,000     33.3%           333,333
    Conversion of Preferred Stock-Feb                                                  750     88.8%               666
    Conversion of Preferred Stock--June 30                                          61,850     33.3%            20,596
    Conversion of Preferred Stock - September 30                                   210,250      0.0%                --
                                                                                 ---------                  -----------
</TABLE>


                                       9
<PAGE>

                             BLUE RIDGE ENERGY, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                           SEPTEMBER 30, 2001 AND 2000


<TABLE>
<CAPTION>
<S>                                                                               <C>                          <C>
     Weighted Average Shares                                                      7,357,344                    6,439,089

     Basic EPS (Loss)                                                                                         $    (0.08)
                                                                                                             ===========


<CAPTION>

                                                                                                        9 MONTHS
     BASIC EPS COMPUTATION                                                                         SEPTEMBER  30, 2000
                                                                                                   -------------------

<S>                                                                                                  <C>
     Net Income (Loss)                                                                               $  228,010
     Less: Preferred Stock Dividends                                                                   (289,273)
                                                                                                     ----------
     Loss Available to Common Stockholders                                                           $  (61,263)
                                                                                                     ==========


<CAPTION>
     DATES                                                                      SHARES      FRACTION          WEIGHTED
     OUTSTANDING                                                              OUTSTANDING   OF PERIOD      AVERAGE SHARES
     -----------                                                              -----------   ---------      --------------

<S>                                                                             <C>         <C>            <C>
     January 1-September 30                                                      5,809,794   100.0%         5,809,794
     Exercise of Common Stock Warrants-June                                          2,000    41.4%               828
     Conversion of Preferred Stock                                                 265,500    16.7%            44,338
                                                                                 ----------                 ---------
     Weighted Average Shares                                                      6,077,294                 5,854,960

     Basic EPS (Loss)                                                                                       $  (0.01)
                                                                                                             ========
</TABLE>


    INCOME TAXES

        Income taxes are provided based on earnings reported for financial
statement purposes. The provision for income taxes differ from the amounts
currently payable because of temporary differences (primarily intangible
drilling costs and the net operating loss carryforward) in the recognition of
certain income and expense items for financial reporting and tax reporting
purposes.

    CASH AND CASH EQUIVALENTS

        For purposes of reporting cash flows, cash and cash equivalents includes
cash on hand and cash on deposit. The Company defines cash equivalents as
short-term and highly liquid investments that are both readily convertible to
known amounts of cash and have an original maturity of less than 90 days.

    2.  AFFILIATED OIL AND GAS PARTNERSHIPS
        ------------------------------------

        The Company provides turnkey drilling services for the various oil and
gas partnerships which it sponsors. Fees earned for these drilling services,
including the sale of leases to the partnerships, amounted to $2,020,000 and
$2,683,721 during the nine months ended September 30, 2001 and 2000,
respectively. During 2000 the Company received a management fee from some of the
partnerships for its services in connection with the selection of the joint
venture prospects and the initial operations of the joint venture in addition to
syndication fees for funds raised directly by the Company. Management fees
earned during the nine months ended September 30, 2001 and 2000 amounted to $-0-
and $87,481, respectively.

        Included in the Company's financial statements are contributions made to
the various Company sponsored oil and gas partnerships. The Company has
allocated, on a pro-rata basis the amounts associated with these investments to
the appropriate asset and liability accounts.



                                       10
<PAGE>


                            BLUE RIDGE ENERGY, INC.
              NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                          SEPTEMBER 30, 2001 AND 2000


    3.  RELATED PARTY TRANSACTIONS
        --------------------------

    STOCK TRANSACTIONS

    As of September 30, 2001, there are 7,357,344 shares of common stock issued
    and outstanding. A total of 4,141,133 shares are held by BR Group and the
    remainder of 3,216,211 shares are held by approximately 600 shareholders, 40
    of which are original stockholders of the Company.

    As of December 31, 2000, BR Group held warrants to purchase 4,000,000
    additional shares of the Company's common stock at $0.05 per share. During
    April 2001, 3,000,000 of these warrants were surrendered by BR Group and
    canceled. On June 29, 2001, BR Group exercised the remaining warrants and
    purchased 1,000,000 shares of the Company's common stock. As of September
    30, 2001, BR Group has -0- warrants remaining for the purchase of the
    Company's common stock.

    ADVANCES FROM RELATED PARTIES

    Blue Ridge Group, Inc. provides various management, administrative,
    accounting and geological services for the Company at a rate of $20,000 per
    month during 2000 and $20,750 per month during 2001. Blue Ridge Energy also
    reimbursed BR Group for direct costs paid on its behalf. As of September 30,
    2001 there was $96,138 due and payable to BR Group. As of December 31, 2000
    there was $11,868 due and receivable from BR Group.





     4.  PROPERTY AND EQUIPMENT
         ----------------------

       Property and equipment, stated at cost, consisted of the following at
    September 30, 2001 and December 31, 2000:

<TABLE>
<CAPTION>
                                                             September 30,                     December 31,
                                                                2001                               2000
                                                              -----------                      -----------
<S>                                                            <C>                             <C>
          Oil and Gas Properties                               $2,010,988                      $ 1,871,402
          Drilling Rigs and Equipment                           2,207,861                        2,212,861
          Office Equipment                                          2,173                              --
                                                              -----------                      -----------
                                                                4,221,022                       4,084,263

          Less Accumulated Depletion,
          Depreciation and Amortization                           448,683                          313,683
                                                              -----------                      -----------
                                                               $3,772,339                      $ 3,770,580
                                                              ===========                      ===========
</TABLE>


                                       11
<PAGE>
                         BLUE RIDGE ENERGY, INC.
           NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                       SEPTEMBER 30, 2001 AND 2000

Depletion and depletion expense was $135,000 and $108,046 during the nine months
ended September 30, 2001 and 2000, respectively.

   5.  COMMITMENTS AND CONTINGENCIES
       -----------------------------

   COMMITMENTS

    The Company has agreed to automatically convert all shares of preferred
stock outstanding effective as of the first day the Company's common stock is
publicly traded on any exchange or over-the-counter, or two years from issuance,
whichever comes first.

   CONTINGENCIES
    The Company's drilling and oil and gas exploration and production operations
are subject to inherent risks, including blowouts, fire and explosions which
could result in personal injury or death, suspended drilling operations, damage
to or destruction of equipment, damage to producing formations and pollution or
other environmental hazards. As a protection against these hazards, the Company
maintains general liability insurance coverage of approximately $10 million per
occurrence and in the aggregate. The Company believes it is adequately insured
for public liability and property damage to others with respect to its
operations. However, such insurance may not be sufficient to protect the Company
against liability for all consequences of well disasters, extensive fire damage,
or damage to the environment. The Company has never been fined or incurred
liability for pollution or other environmental damage in connection with its
operations.

   6.  STOCKHOLDERS' EQUITY
       --------------------

    The Company is authorized to issue two classes of stock that are designated,
respectively, common and preferred stock. As of September 30, 2001, the Company
was authorized to issue 25,000,000 shares of stock -- 20,000,000 being
designated as common stock and 5,000,000 shares designated as preferred stock.

COMMON STOCK

    As of December 31, 2000, BR Group held warrants to purchase 4,000,000
additional shares of the Company's common stock at $0.05 per share. During April
2001, 3,000,000 of these warrants were surrendered by BR Group and canceled. On
June 29, 2001, BR Group exercised the remaining warrants and purchased 1,000,000
shares of the Company's common stock. As of September 30, 2001, BR Group has -0-
warrants remaining for the purchase of the Company's common stock.

    In August 2001, the shareholders approved the Blue Ridge Energy 2001 Stock
Option Plan ("the Plan"). The Plan authorizes the issuance of options for up to
1,000,000 shares of the Company's Common Stock, plus 10% of any increase in the
number of authorized and issued shares of Common Stock in excess of 6,070,294
shares. Under this Plan, 500,000 of these options were granted to various
officers and directors of the Company as detailed in the Company's Proxy
Statement to its shareholders dated July 26, 2001. All of the options granted
have an exercise price of $1.70 per share and have a maximum term of 10 years.

 SERIES D PREFERRED STOCK

    During 1998, the Company authorized the issuance and sale of 1,000,000
shares of Series D Preferred Stock ("Series D Stock") which has a par value of
$0.001 per share at $5.00 per share. The Series D Stock bears a 12% per annum
dividend payable monthly. Each share of the Series D Stock shall be converted
automatically into one (1) share of Common Stock effective when a Securities Act
Registration Statement for the Common Stock is filed with the SEC or two years
from issuance, whichever occurs first.

    In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the


                                       12
<PAGE>


                             BLUE RIDGE ENERGY, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                           SEPTEMBER 30, 2001 AND 2000

existing holders of Series D Stock shall be entitled to receive, prior and in
preference to any distribution of any assets or surplus funds of the Company to
the holders of Common Stock the amount of $5.00 per share, plus all unpaid
dividends on such share of each share of Series D Stock then held by the
shareholder.

    At September 30, 2001 and December 31, 2000, there were 158,750 and 430,000
shares of Series D Stock issued and outstanding, respectively.

    7.  SUBSEQUENT EVENTS
        -----------------

    During October 2001, the Company consummated the sale of its oil and gas
properties in Harlan County, Kentucky for $468,750.



                                       13
<PAGE>



                 REPORT OF REVIEW BY INDEPENDENT ACCOUNTANTS


TO THE STOCKHOLDERS AND DIRECTORS
  OF BLUE RIDGE ENERGY, INC.



We have reviewed the accompanying condensed balance sheet of Blue Ridge Energy,
Inc. as of September 30, 2001 and the related condensed statements of income
for each of the three months and nine months periods ended September 30, 2001
and 2000 and the condensed statements of cash flow for the nine month periods
ended September 30, 2001 and 2000.  Such condensed interim financial statements
and related disclosures have been prepared in accordance with the required
format and disclosures prescribed by the SEC for Form 10-QSB. These interim
financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial statements consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole.  Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed interim financial statements for them to
be in conformity with generally accepted accounting principles.

We previously audited, in accordance with generally accepted auditing
standards, the Blue Ridge Energy, Inc. balance sheet as of December 31, 2000
and the related statements of income, stockholders' equity, and cash flows for
the year then ended (not presented herein), and in our report dated March 24,
2001 we expessed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying condensed balance sheet
as of December 31, 2000, is fairly stated in all material respects, in relation
to the balance sheet from which it has been derived.



Looney, Samson & Associates, PLLC
Dallas, Texas
November 9, 2001





                                      14
<PAGE>

              MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS

FINANCIAL OVERVIEW:

Blue Ridge Energy, Inc. ("BR Energy"), a Nevada corporation, was organized in
November, 1994, as Gem Source, Incorporated ("Gem Source"), and subsequently
changed the name of the company to Blue Ridge Energy, Inc. in May 1996. BR
Energy has offices at 632 Adams Street, Suite 710, Bowling Green, KY 42101.

     BR Energy is engaged in the oil and gas business primarily in Texas,
Kentucky, New Mexico and West Virginia. BR Energy sponsors oil & gas drilling
partnerships through which it raises funds for the drilling of oil and gas wells
and normally participates for a 1% partnership interest as the managing general
partner of the partnerships. BR Energy also owns two drilling rigs. These rigs
are used to drill oil and gas wells for the sponsored oil and gas drilling
partnerships and also other non-affiliated oil and gas companies. The rigs are
operated on behalf of BR Energy by an affiliate, Blue Ridge Group, Inc.

     BR Energy also acquires direct working interest participation in oil and
gas properties. The working interest participation includes exploratory and
development wells and both operated and non-operated working interest
participation. BR Energy intends to maintain an active role in the oil and gas
industry as an operator of oil and gas wells, a sponsor of oil and gas drilling
programs, a participant in oil and gas programs and as an independent producer
of oil and gas.

     By September 30, 2001, BR Energy had total assets of $4.2 million, total
liabilities of $1.2 million and shareholders' equity of $3.0 million. BR
Energy's net income decreased to a loss of $323 thousand during the first nine
months of 2001 as compared to net income of $228 thousand for the same period in
2000. Earnings per common share, which take into account cash dividends paid on
preferred stock decreased to $(0.08) per share during the first nine months of
2001 as compared to $(0.01) during the same period in 2000. All per share data
in this report has been adjusted to give effect to applicable stock issues and
conversions.

     As of September 30, 2001, BR Energy has participated, either directly or
indirectly through its sponsored limited partnerships, in 69 wells, of which 46
are presently productive and 7 are in the completion process. These wells are
located in Kentucky, Texas , West Virginia and New Mexico.

     The following table summarizes by geographic area BR Energy's developed and
undeveloped acreage as of September 30, 2001:

DEVELOPED AND UNDEVELOPED ACREAGE
---------------------------------

GEOGRAPHIC AREA                  DEVELOPED ACREAGE         UNDEVELOPED ACREAGE
---------------                  -----------------         -------------------


                               GROSS ACRES    NET ACRES  GROSS ACRES   NET ACRES
                               -----------    ---------  -----------   ---------

New Mexico                         80.00        53.60        0.00           0.00
Texas                             863.78        33.03      332.00         133.00
Kentucky                          700.00        99.40   58,587.00      32,143.00
West Virginia                     120.00         8.24    2,520.00       2,142.00
                               ---------    ---------   ---------      ---------
    Totals                       1763.78       194.27   61,439.00      34,418.00
                               =========    =========   =========      =========

     Productive wells are producing wells and wells capable of production,
including gas wells awaiting pipeline connections and oil wells awaiting
connection to production facilities. Wells that are completed in more than one
producing horizon are counted as one well. The following table summarizes by
geographic area BR Energy's gross and net interests in productive oil and gas
wells as of September 30, 2001. The oil and gas reserve information presented
herein is as of December 31, 2000 which is the latest date the Company has
independent petroleum engineers' evaluations related to its reserves.


<TABLE>
<CAPTION>
PRODUCTIVE WELLS      GROSS WELLS         NET WELLS                RESERVES
                      -----------         ---------                --------
GEOGRAPHIC AREA     OIL       GAS        OIL       GAS      OIL (BBLS)     GAS (MCF)
                    ---       ---        ---       ---      ----------     ---------
<S>                 <C>       <C>        <C>       <C>         <C>            <C>

</TABLE>

                                       15

<PAGE>

<TABLE>

<S>                 <C>       <C>        <C>       <C>         <C>            <C>
New Mexico          1.00      0.00       0.67      0.00        10,537         13,000
Texas               1.00      1.00       0.80      0.01        16,857         31,000
Kentucky            0.00     41.00       0.00      6.83             0        926,301
West Virginia       0.00      9.00       0.00      1.89             0         68,521
                   -----     -----      -----     -----     ---------      ---------
    Totals          2.00     51.00       1.47      8.73        27,394      1,038,822
                   =====     =====      =====     =====     =========      =========
</TABLE>


               MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS

     In October 2001, BR Energy sold its Harlan County properties which
 represented approximately 700,000 MCF of the Kentucky gas reserves as of
 December 31, 2000.

    KEY PROPERTIES

    The working interest owned by BR Energy, either directly or indirectly
through the oil and gas partnerships, is owned jointly with other working
interest partners. Management does not believe any of these burdens materially
detract from the value of the properties or will materially detract from the
value of properties or materially interfere with their use.

    The following are the primary properties held by BR Energy as of September
30, 2001:

    DEVELOPED PROPERTIES:

    Boon's Camp Prospect: During the second quarter of 2000, BR Energy committed
to the acquisition of and development of undeveloped and non-producing oil and
gas leases consisting of a 50% Working Interest in 12 wells to be drilled in the
Boon's Camp Prospect in Johnson County, Kentucky. During the latter half of
2000, BR Energy sold a 45% Working Interest to a limited partnership sponsored
by BR Energy, thereby retaining a 5% Working Interest. All 12 wells were drilled
and being completed as productive gas wells during the latter half of 2000. As
of September 30, 2001, nine (9) wells are producing a total of approximately
550-650 MCF per day, (2) wells are still in the completion stage and (1) one
well has been determined to be a dry hole in the lower zone it tested and is
being evaluated for completion in other zones.

    Homestake #1: The Homestake #1 oil well is a development well located in Lea
County, New Mexico. BR Energy owns 66.9% of the Working Interest in the
Homestake #1 which is a 50.2% Net Revenue Interest.

    Harlan/Big Sandy Prospects: In 1998, BR Energy embarked on an Appalachian
Basin drilling program in Johnson, Bell, Knox and Harlan counties of Kentucky.
As of September 30, 2001, eighteen (18) wells have been drilled. Of the eighteen
(18), ten (10) are currently in production and selling gas on a curtailed basis,
(5) are drilled and scheduled for completion in 2001, two (2) are shut in and
one (1) was a dry hole. These wells accounted for 67% of the total value of BR
Energy's reserves as of December 31,2000, with no single well being a majority
of the reserve value attributed thereto. BR Energy owns varying Working
Interests in these wells ranging from 25% to 30.25% of the Working Interest with
Net Revenue Interests ranging from 18.75% to 22.69% in each well. During October
2001, BR Energy consummated the sale of the nine wells located in Harlan County,
Kentucky for $468,750 which represented 46% of the value of BR Energy's oil and
gas reserves as of December 31, 2000.


                                       16
<PAGE>

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS

    Contrary Creek Prospect: During the second quarter of 2000, BR Energy
committed to the acquisition and development of undeveloped and non-producing
oil and gas leases consisting of a 50% Working Interest in 11 wells to be
drilled in the Contrary Creek Prospect in Lawrence County, Kentucky. During the
fourth quarter of 2000, BR Energy sold these Working Interests to limited
partnerships sponsored by BR Energy, thereby retaining varying Working
Interests. Drilling in this prospect began during the fourth quarter of 2000
with all 11 wells having been drilled and determined as commercially productive
as of September 30, 2001. Two wells are currently producing and the remaining
wells are expected to be put into production during the fourth quarter of 2001.

    McDonald Prospect: During the second quarter of 2000, BR Energy committed to
the acquisition and development of undeveloped and non-producing oil and gas
leases consisting of a 50% Working Interest in 5 wells to be drilled in the
McDonald Prospect in Logan County, West Virginia. During the fourth quarter of
2000, BR Energy sold these Working Interests to limited partnerships sponsored
by BR Energy, thereby retaining varying Working Interests. Drilling in this
prospect began during the fourth quarter of 2000 with 3 wells having been
drilled and determined as commercially productive as of September 30, 2001. The
remaining two (2) wells are expected to be drilled during the fourth quarter of
2001.

    Keegan Gibson #1: The Keegan Gibson #1 oil well is a development well
located in Smith County, Texas. In December of 1999, BR Energy increased its
ownership in this well to 74% of the Working Interest which is a 63% Net Revenue
Interest. This well was reworked during the second quarter of 2001 and
production has increased substantially.

    Shelby County, Texas: BR Energy owns a 0.5% Net Revenue Interest in the
Hailey Bridges #1 in Shelby County, Texas, which began producing in September,
2000 and continues to produce approximately 3.3 MMCF per day.

    Mingo and Wyoming Counties, West Virginia: BR Energy owns an 8.0% Working
Interest in five (5) development wells in Mingo and Wyoming Counties, West
Virginia. Drilling activities for these wells began in December, 1999. These
wells are presently producing a total of 200-250 MCF per day.

    UNDEVELOPED PROPERTIES

    Redwine Prospect: In September 2001, BR Energy entered into a joint venture
agreement with Hay Exploration, Inc. of Ashland, Kentucky to evaluate, explore
and develop an 18,000 acre leasehold area of mutual interest ("AMI") in eastern
Kentucky. The AMI will be developed on a 50/50 basis and the two companies will
equally share future lease acquisition, drilling and operating costs as well as
the proceeds from sale of production.

    West Pebble Island Prospect: During the second quarter of 2000, BR Energy
committed to the acquisition and development of undeveloped and non-producing
oil and gas leases consisting of a 40% Working Interest in 2 wells to be drilled
in the West Pebble Island Prospect in Tyler County, Texas. During the fourth
quarter of 2000, BR Energy sold this Working Interest to a limited partnership
sponsored by BR Energy, thereby retaining varying Working Interests. Drilling in
this prospect began during the first quarter of 2001and mechanical difficulties
were encountered. The drilling contractor has refunded the funds paid for the
drilling of this well and BR Energy has sold its interest in this property
thereby recouping its investment

    Licking River Prospect: During the fourth quarter of 2000, BR Energy
committed to the acquisition and development of undeveloped and non-producing
oil and gas leases consisting of a 50% Working Interest in approximately 18,000
acres in the Licking River Prospect in Morgan County, Kentucky. Drilling in this
prospect is now scheduled to begin during the final quarter of 2001.

    DRILLING RIGS

    During 1999, the Company acquired two drilling rigs and ancillary equipment.
Rig #4 is a 1999 Ingersoll Rand RD-20 which is capable of drilling to 6,500 feet
and Rig #2 which is an Ingersoll Rand TR-4 acquired from BR Group which is
capable of drilling to 3,000 feet. The drilling rigs are managed by BR Group on
behalf of BR Energy and are used to drill wells for oil and gas partnerships
sponsored by BR Energy as well as on a contract basis for other third parties.
These two rigs have drilled 40 wells during the nine months ended September 30,
2001.

    INCOME STATEMENT REVIEW:

    NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000:


                                       17
<PAGE>
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS

    BR Energy's net income decreased to a loss of $323 thousand during the first
nine months of 2001 as compared to net income of $228 thousand for the same
period in 2000, Earnings per common share, which take into account cash
dividends paid on preferred stock decreased to a $(0.08) loss per share during
the first nine months of 2001 as compared to a $(0.01) loss per share during the
same period in 2000.

    Operating Revenues:
    ------------------

    Operating revenues totaled $3.5 million during the nine months ended
September 30, 2001 as compared to the $3.9 million recorded during the nine
months ended September 30, 2000, despite an increase in sales for drilling
services. This decrease was the net result of a $669 thousand decrease in
turnkey contract sales and a $332 thousand increase in drilling service sales.

    Direct Operating Costs:
    ----------------------

    Direct operating costs totaled $2.8 million during the nine months ended
September 30, 2001, as compared to the $2.9 million experienced during the same
period in 2000. The decrease of $518 thousand in turnkey contract costs was
offset by a $500 thousand increase in drilling service costs.

    Other Operating Expenses:
    ------------------------

    Marketing expenses increased to $225 thousand during the first nine months
of 2001 from the $12 thousand experienced during this period in 2000 due to
preparations for increased activity in sponsoring Limited Partnerships. General
and Administrative expenses increased 49% to $812 thousand during the first nine
months of 2001 as compared to $544 thousand during the same period in 2000,
primarily as a result of additional staffing and administrative needs required
by the anticipated increased activity levels previously discussed.

     Other Income (Expense):
     ----------------------

     Other Income (Expense) during the first nine months of 2001 remained
essentially the same as was experienced during the same period in 2000.


THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000:

    BR Energy's net income decreased to $74 thousand during the third quarter of
2001 as compared to income of $45 thousand for the same period in 2000, Earnings
per common share, which take into account cash dividends paid on preferred stock
were $(0.01) per share during the third quarter of 2001 as compared to $(0.00)
during the same period in 2000.

    Operating Revenues:
    ------------------

    Operating revenues totaled $2.1 million during the three months ended
September 30, 2001 as compared to the $1.4 million recorded during the three
months ended September 30, 2000, This increase was primarily related to an
increased activity level in BR Energy's sponsorship of Limited Partnerships for
the drilling and development of oil and gas properties during 2001 which
resulted in an increase in turnkey contract sales of $586 thousand.

    Direct Operating Costs:
    ----------------------

    Direct operating costs totaled $1.6 million during the three months ended
September 30, 2001, as compared to the $1.0 million experienced during the same
period in 2000, primarily as the result of a $500 thousand increase in turnkey
contract costs.

    Other Operating Expenses:
    ------------------------


                                       18
<PAGE>
              MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS

    Marketing expenses increased to $122 thousand during the third quarter of
2001 from the $28 thousand experienced during this period in 2000 due to
preparations for increased activity anticipated in the fourth quarter of 2001 in
sponsoring Limited Partnerships. General and Administrative expenses decreased
7% to $220 thousand during the first three months of 2001 as compared to $237
thousand during the same period in 2000, primarily due to additional accounting
and legal fees associated with the filing of a registration statement during
2000 .

     Other Income (Expense):
     ----------------------

     Other Income (Expense) decreased 23% to $19 thousand during the third
quarter of 2001 as compared to the $26 thousand experienced during the same
period in 2000 due to decreased interest expense associated with debt incurred
in the purchase of drilling equipment.

BALANCE SHEET REVIEW:
---------------------

    ASSETS:
    -------

    BR Energy's current assets decreased 71% to $397 thousand at September 30,
2001 as compared to $1.4 million at December 31, 2000 primarily due to decreases
in cash and accounts receivable as work in progress was completed. Prepaid
expenses decreased to $95 thousand for the same reasons. Property and equipment
remained essentially the same at September 30, 2001 as compared to December 31,
2000.

    LIABILITIES:
    ------------

     BR Energy's current liabilities decreased 19% to $1.0 million at September
30, 2001 from $1.2 million at December 31, 2000. Accounts Payable and accrued
expenses increased $206 thousand and Advances from Related Parties increased $96
thousand. This was offset by a $560 thousand reduction in drilling advances.

    STOCKHOLDERS' EQUITY:
    ---------------------

    Total capital invested in BR Energy for Common and Preferred Stock increased
1% to $5.7 million at September 30, 2001 from $5.6 million at December 31, 2000,
primarily as a result of the exercise of warrants for the purchase of 1 million
shares of common stock by BR Group at $0.05 per share.

     BR Energy's retained earnings declined 23% to an accumulated deficit of
$2.7 million at September 30, 2001 from an accumulated deficit of $2.2 million
at December 31, 2000 as the result of its net loss of $323 thousand and the
payment of approximately $178 thousand of cash dividends to BR Energy's
Preferred Shareholders during 2001.

    CAPITAL RESOURCES AND LIQUIDITY:
    --------------------------------

    As a result of BR Energy's increased operating functions, at September 30,
2001 the current ratio was 0.39 to 1, a decrease of 64% from 1.09 to 1 at
December 31, 2000. The Company believes that internally generated funds and the
available borrowings under its existing credit sources will provide sufficient
liquidity and enable it to meet its current and forseeable working capital
requirements.

    During the two periods ended September 30, 2001 and 2000 BR Energy has
relied upon net inflows of cash from equity transactions, supplemented by net
inflows of cash generated by its operating activities to fund the purchase of
assets and its expansion. Generally speaking, management intends to finance
further growth with similar equity transactions and improved cash flow from
operations. It is also possible that further expansion will be aided through
the use of long-term debt transactions, both secured and unsecured.


                                       19
<PAGE>

                                     PART II
                                OTHER INFORMATION
                                -----------------

ITEM 1.  LEGAL PROCEEDINGS
         There are no legal proceedings pending against BR Energy, Inc.

ITEM 2.  CHANGES IN SECURITIES
         None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
         Not Applicable

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

         (A) The Company's annual meeting of stockholders was held on August
August 7, 2001.

         (B) The directors elected at the meeting were:

<TABLE>
<CAPTION>
                                                                                For        Withheld          Abstain
<S>                                                                        <C>                <C>          <C>
                  Robert D. Burr                                           5,290,944          16,783       1,839,367
                  Edward L. Stillie                                        5,291,062          16,665       1,839,367
                  James T. Cook, Jr.                                       5,291,062          16,665       1,839,367
                  Gregory B. Shea                                          5,297,697          10,030       1,839,367
                  Harry J. Peters                                          5,297,697          10,030       1,839,367
                  Russell L. Vera                                          5,290,757          16,970       1,839,367
</TABLE>

         (C) The 2001 Stock Option Plan was approved at the meeting

<TABLE>
<CAPTION>
                                                                                For       Withheld           Abstain
<S>                                                                        <C>                <C>          <C>
                                                                           5,184,137          46,258       1,879,200
</TABLE>

ITEM 5.  OTHER INFORMATION
         None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
          No reports on Form 8-K were filed during the quarter ended September
         30, 2001.

                                   SIGNATURES
                                   ----------

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.

                                     BLUE RIDGE ENERGY, INC.




Date November 13, 2001                  By /s/ James T. Cook, Jr.
     -----------------                  ---------------------------------------
                                         James T. Cook, Jr.
                                         Sr. Vice President-Finance & CFO


                                       20