<PAGE>   1
                       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, 1999
                                   ---------------------------

[ ] 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)


<TABLE>
<S>                                                            <C>
                 Nevada                                        61-1306702
      ------------------------------                         --------------
     (State or Other Jurisdiction of                         (IRS Employer
      Incorporation or Organization)                        Identification No.)
</TABLE>

              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           No   X
    ----          ---

                      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: 5,788,994

<PAGE>   2


                                     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, 1999 and 1998.       2-3

         Condensed Statements of Income (Unaudited) for the nine months and three
         Months ended September 30, 1999 and 1998.                                       4

         Condensed Statements of Cash Flows (Unaudited) for the nine months and
         three months ended September 30, 1999 and 1998.                                 5

         Notes to Condensed Financial Statements (Unaudited)                          6-13
</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 10-SB of the Registrant for its fiscal year ended December 31, 1998.

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>
<S>                                                                       <C>
b)  MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS                    14-18
</TABLE>

                                    PART II
                               OTHER INFORMATION

<TABLE>
<S>                                                                          <C>
ITEM 1.  LEGAL PROCEEDINGS                                                   18
ITEM 2.  CHANGES IN SECURITIES                                               18
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                     18
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                 18
ITEM 5.  OTHER INFORMATION                                                   18
ITEM 6.  EXHIBITS AND REPORTS OF FORM 8-K                                    18
</TABLE>


                                       1
<PAGE>   3

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

<TABLE>
<CAPTION>
                                 SEPTEMBER 30, SEPTEMBER 30,
                                    1999          1998
                                 ------------  -----------
<S>                              <C>         <C>
ASSETS
CURRENT ASSETS:
Cash                              $   78,022   $   88,274
Accounts Receivable:
   Managed Limited Partnerships      775,196      186,351
   Trade and Other                    92,855      251,927
Advances to Related Parties          299,900    1,637,485
                                  ----------   ----------

         TOTAL CURRENT ASSETS      1,245,973    2,164,037

PROPERTY AND EQUIPMENT, NET        2,895,964      514,787

OTHER ASSETS, NET                     74,860       27,708
                                  ----------   ----------

TOTAL ASSETS                      $4,216,797   $2,706,532
                                  ==========   ==========
</TABLE>


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


                                       2
<PAGE>   4


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

<TABLE>
<CAPTION>
                                                       SEPTEMBER 30,   SEPTEMBER 30,
                                                            1999           1998
                                                       ------------    -----------
<S>                                                    <C>            <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts Payable and Accrued Liabilities                $   109,261    $    53,308
Current Portion Long Term Debt                               39,500             --
                                                        -----------    -----------
         TOTAL CURRENT LIABILITIES                          148,761         53,308

LONG TERM DEBT                                              517,739             --
DEFERRED INCOME TAX LIABILITY                               250,913         40,207
                                                        -----------    -----------
         TOTAL LIABILITIES                                  917,413         93,515

COMMITMENTS AND CONTINGENCIES                                    --             --

STOCKHOLDERS' EQUITY:
Preferred Stock, $0.001 par value; 5,000,000
    shares authorized; 551,850 and 632,070 shares
    issued and outstanding at September 30, 1999
    and 1998, respectively                                      552            632
Common Stock, $0.005 par value; 20,000,000
    shares authorized; 5,788,994 and 4,526,600 shares
    issued and outstanding at September 30, 1999
    and 1998, respectively                                   28,945         22,633
Additional Paid-In Capital                                3,618,202      2,824,770
Accumulated Deficit                                        (348,315)      (235,018)
                                                        -----------    -----------
         TOTAL STOCKHOLDERS' EQUITY                       3,299,384      2,613,017
                                                        -----------    -----------

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY                                    $ 4,216,797    $ 2,706,532
                                                        ===========    ===========
</TABLE>


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


                                       3
<PAGE>   5


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

<TABLE>
<CAPTION>
                                          9 MONTHS ENDED               3 MONTHS ENDED
                                           SEPTEMBER 30,                SEPTEMBER 30,
OPERATING REVENUES:                    1999          1998            1999          1998
-------------------                 -----------   -----------    -----------   ------------
<S>                                 <C>           <C>            <C>            <C>
Turnkey Contract Sales              $ 4,122,379   $ 1,581,181    $ 1,113,979    $        --
Management Fees                         186,198        88,675         70,523             --
Reimbursed Costs                        105,715        50,672         40,300             --
Drilling Services Sales                 474,002            --        179,350             --
Oil and Gas Sales                        44,690        25,202         30,500         20,330
                                    -----------   -----------    -----------    -----------
         Total Operating Revenues     4,932,984     1,745,730      1,434,652         20,330

OPERATING COSTS AND
    OTHER EXPENSES:
Turnkey Contract Costs                3,319,500     1,332,075        902,500             --
Drilling Services Costs                 488,783            --        197,671             --
Lease Operating Costs                    32,482        21,998         25,000         20,000
Depreciation, Depletion
   and Amortization                      71,253            96         51,000             43
Marketing Costs                         281,488        48,600         35,161             --
General and Administrative Costs        187,468       206,050        105,507         73,383
                                    -----------   -----------    -----------    -----------
         Total Operating Costs        4,380,974     1,608,819      1,316,839         93,426
                                    -----------   -----------    -----------    -----------

OPERATING INCOME                        552,010       136,911        117,813        (73,096)

OTHER INCOME (EXPENSE):
Gain on Sale of Oil & Gas Leases             --        50,000             --         50,000
Interest Income (Expense)                13,689        42,459         (6,847)        38,424
                                    -----------   -----------    -----------    -----------
         Total Other Income              13,689        92,459         (6,847)        88,424
                                    -----------   -----------    -----------    -----------
INCOME BEFORE TAXES                     565,699       229,370        110,966         15,328
Income Tax Provision                    186,681        75,692         42,400         (5,644)
                                    -----------   -----------    -----------    -----------
NET INCOME                          $   379,018   $   153,678    $    68,566    $    20,972
                                    ===========   ===========    ===========    ===========
EARNINGS  PER
COMMON SHARE:
     Basic                          $      0.03   $     (0.04)   $      0.00    $     (0.03)
     Diluted                        $      0.03   $     (0.04)   $      0.00    $     (0.03)
                                    -----------   -----------    -----------    -----------
     Weighted Average Common
         Shares Outstanding           5,302,393     2,348,200      5,302,393      2,348,200
                                    -----------   -----------    -----------    -----------
</TABLE>

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


                                       4
<PAGE>   6

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


<TABLE>
<CAPTION>
                                                          9 MONTHS ENDED               3 MONTHS ENDED
                                                           SEPTEMBER 30,                SEPTEMBER 30,
                                                       1999           1998            1999          1998
                                                    -----------    -----------    -----------   ------------
<S>                                                <C>            <C>            <C>            <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
     Net Income (Loss)                              $   379,018    $   153,678    $    68,566    $    20,972
     Adjustments to Reconcile Net Income to
     Net Cash Flows from Operating Activities:
       Depreciation, Depletion and Amortization          71,253             96         51,000             43
       Increase (Decrease) in Deferred Taxes            186,681         75,692         42,400         (5,644)
       (Decrease) in Drilling Advances                 (284,074)            --             --             --
       Decrease (Increase) in Accounts Receivable      (528,126)      (215,520)      (601,660)       125,385
       Increase (Decrease) in Accounts Payable
            and Accrued Liabilities                      24,309          4,279         20,493         32,520
                                                    -----------    -----------    -----------    -----------
NET CASH PROVIDED (USED) BY
   OPERATING ACTIVITIES                                (150,939)        18,225       (419,201)       173,276
CASH FLOWS FROM
 INVESTING ACTIVITIES:
     Decrease (Increase) in Advances to Affiliate     1,168,016     (1,336,025)       (41,140)    (1,174,187)
     Decrease (Increase)  in Other Assets                71,696        (16,742)        16,823         (5,159)
     Purchase of Drilling Equipment                  (2,101,484)            --        (12,000)            --
     Sale of Oil and Gas Properties                          --        250,000             --        250,000
     Purchase of Oil and Gas Properties                (325,665)      (107,244)       (31,073)        (7,339)
                                                    -----------    -----------    -----------    -----------
NET CASH PROVIDED (USED)
   BY INVESTING ACTIVITIES                           (1,187,437)    (1,210,011)       (67,390)      (936,685)
CASH FLOWS FROM
FINANCING ACTIVITIES:
     Additions to Notes Payable                         587,603             --             --             --
     Payments of Notes Payable                         (181,039)        (4,000)       (40,039)            --
     Issuance of Preferred Stock                        738,036      1,008,712        523,111        657,442
     Exercise of Stock Warrants                          12,500        140,000         12,500        140,000
     Retirement of Common Stock                         (15,000)            --             --             --
     Payments of Preferred Stock Dividends             (226,579)      (252,032)       (73,672)      (100,720)
                                                    -----------    -----------    -----------    -----------
NET CASH PROVIDED (USED)
    BY FINANCING ACTIVITIES                             915,521        892,680        421,900        696,722
                                                    -----------    -----------    -----------    -----------
NET INCREASE (DECREASE) IN CASH                        (422,855)      (299,106)       (64,691)       (66,687)
CASH AT BEGINNING OF PERIOD                             500,877        387,380        142,713        154,961
                                                    -----------    -----------    -----------    -----------
CASH AT END OF PERIOD                               $    78,022    $    88,274    $    78,022    $    88,274
                                                    ===========    ===========    ===========    ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash Paid for Interest                         $    13,414    $        --    $     8,352    $        --
                                                    ===========    ===========    ===========    ===========
     Cash Paid for Income Taxes                     $        --    $        --    $        --    $        --
                                                    ===========    ===========    ===========    ===========
</TABLE>

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

                                       5
<PAGE>   7

                            BLUE RIDGE ENERGY, INC.
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  (UNAUDITED)
                             SEPTEMBER 30, 1999 AND 1998


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 (See Note 4).

The Company is engaged in the exploration and development of oil and gas leases
located primarily in Texas and Kentucky through one or more of the following
activities: (i) acquisition of oil and gas leases, (ii) investment in
partnerships sponsored by itself or affiliates; (iii) purchase of producing oil
and gas properties, and (iv) acquisition of oil and gas companies which own
properties and/or production. Wells drilled by the Company include both
exploratory and development wells.

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.

Use of Estimates

The preparation of financial statements 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.

Drilling Operations

The Company follows the completed contract method of accounting for turnkey
drilling arrangements. Under this method, all drilling advances, direct costs,
and appropriate portions of indirect costs related to contracts in progress are
recognized as revenues and expenses in the period the contracts are
substantially complete. This accounting method has been utilized by the Company
based on the short term nature of the drilling contracts, i.e. 4-5 days.

Working Interests

Revenues from working interests the Company owns are recognized when the
natural gas and oil are produced.

Managed Limited Partnerships

The Company sponsors privately offered 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

                                       6
<PAGE>   8

                            BLUE RIDGE ENERGY, INC.
                         NOTES TO FINANCIAL STATEMENTS

gas leases. The Company receives direct compensation, reimbursement of costs and
expenses, and revenues related to turnkey drilling contracts. Additionally, the
Company earns a carried working interest to the tanks and pays only its pro rata
share of well operating costs, while the partnerships pay 100% of the costs of
this carried working interest.


Property and Equipment

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

<TABLE>
               <S>                                    <C>
                                                      Lives (years)
                                                      ------------
                Machinery and Equipment                     10
                Autos and Trucks                             5
                Furniture and Fixtures                      10
</TABLE>

The Company follows the successful efforts method of accounting for oil and gas
properties, using the lease as its accumulation center for capitalized costs.
Under the successful efforts method of accounting, costs which relate directly
to the discovery of oil and gas reserves and all development costs are
capitalized.

Exploration costs which do not result directly in the discovery of oil and gas
reserves are charged to expense as incurred. The capitalized costs, consisting
of lease and well equipment, lease acquisition costs and intangible development
costs are depreciated, depleted and amortized on the unit-of-production method,
based on estimates of recoverable proved developed oil and gas reserves of each
respective lease.

The costs of acquiring undeveloped properties are capitalized as incurred and
carried until the property is capitalized as a producing oil and gas property,
or is surrendered or otherwise disposed of, at which time the full amount is
charged to operations. Maintenance and repairs are charged against operations
as incurred. Renewals and betterments which extend the life or improve existing
properties are capitalized.

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.

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

                                       7
<PAGE>   9

                            BLUE RIDGE ENERGY, INC.
                         NOTES TO FINANCIAL STATEMENTS


for the 9 months and 3 months ended September 30, 1999 and 1998:

<TABLE>
<CAPTION>
                                             9 Months     3 Months
Basic EPS computation --                       1999         1999
                                            ---------    ---------
<S>                                         <C>          <C>
Net Income                                  $ 379,018    $  68,566
Less: Preferred Stock Dividends              (226,579)     (73,672)
                                            ---------    ---------
Earnings Available to Common Stockholders   $ 152,439    $  (5,106)
                                            =========    =========
</TABLE>

<TABLE>
<CAPTION>
      Dates                                         Shares          Fraction       Weighted
   Outstanding                                    Outstanding       of Period    Average Shares
   -----------                                    -----------       ---------    --------------
<S>                                               <C>               <C>           <C>
January 1 - September 30                          5,171,578           100.0%       5,171,578
Common Stock Repurchased February 1                  (5,000)           88.8%          (4,440)
Series B Preferred Converted April 1 - June 30       53,120            50.0%          26,560
Stock Warrants Exercised July 31                    250,000            22.2%          55,500
Series C Preferred Converted July 31 - Sept 30      319,296           16.66%          53,195
                                                  ---------                        ---------
                                                  5,219,698
     Weighted Average Shares                                                       5,302,393
                                                                                   =========
</TABLE>

<TABLE>
<CAPTION>
                                                                            9 Months             3 Months
                                                                              1999                 1999
                                                                           ----------          ------------
<S>                                                                        <C>                 <C>
Basic EPS                                                                  $     0.03          $       0.00
                                                                           ----------          ------------
</TABLE>

<TABLE>
<CAPTION>
                                                                             9 Months            3 Months
Basic EPS computation --                                                       1998                1998
                                                                           ------------        ------------
<S>                                                                        <C>                 <C>
     Net Income                                                            $   153,678         $     20,972
     Less: Preferred Stock Dividends                                          (252,032)            (100,720)
                                                                           -----------         ------------
     Earnings Available to Common Stockholders                             $   (98,354)        $    (79,748)
                                                                           ===========         ============
</TABLE>

<TABLE>
<CAPTION>
      Dates                                               Shares          Fraction            Weighted
   Outstanding                                          Outstanding       of Period         Average Shares
   -----------                                          -----------       ---------         --------------
<S>                                                     <C>               <C>                 <C>
January 1 - March 31                                     1,726,600          100.0%              1,726,600
Stock Warrants Exercised July 31                         2,800,000           22.2%                621,600
                                                        ----------                              ---------

     Weighted Average Shares                                                                    2,348,200
                                                                                                =========
</TABLE>

<TABLE>
<S>                                                                       <C>                  <C>
                                                                           9 Months             3 Months
                                                                             1999                 1999
                                                                          ----------           ----------
Basic EPS                                                                 $   (0.04)           $    (0.03)
                                                                          ----------           ----------
</TABLE>


                                       8
<PAGE>   10

                            BLUE RIDGE ENERGY, INC.
                         NOTES TO FINANCIAL STATEMENTS

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)
in the recognition of certain income and expense items for financial reporting
and tax reporting purposes.

Cash Equivalents

For purposes of reporting cash flows, cash includes cash on hand and cash on
deposit.

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 $4,122,379 and
$1,581,181 during the nine months ended September 30, 1999 and 1998,
respectively. The Company receives a management fee from 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 and syndication fees
earned during the 9 months ended September 30, 1999 and 1998 amounted to
$186,198 and $88,675, respectively.

In connection with the sponsorship of oil and gas partnerships, the Company is
reimbursed by the partnerships for certain operating and overhead costs
incurred on their behalf, including filing fees, legal fees, accounting fees,
printing costs and other miscellaneous expenses. These reimbursements totaled
$105,715 and $50,672 during the 9 months ended September 30, 1999 and 1998,
respectively.

Included in the Company's financial statements are contributions made to the
various Company sponsored oil and gas partnerships, less the applicable loss
generated by these partnerships relative to the Company's percentage ownership.
The Company has allocated, on a pro-rata basis the amounts associated with
these investments to the appropriate asset, liability, income and expense
accounts.

3.       RELATED PARTY TRANSACTIONS

Stock Transactions

The Company was organized in November, 1994, as a Nevada corporation under the
name of Gem Source, Incorporated (Gem Source). In 1995, Gem Source sold
1,633,000 shares for $0.001 per share under Rule 504, an exemption under
Regulation D from full registration with the SEC.

Blue Ridge Group, Inc. (BRG) acquired control of Gem Source in March, 1996 when
BRG acquired 1,000,000 shares of restricted stock at $0.10 a share. In May
1996, the 2,633,000 outstanding common shares were the subject of a 5 to 1
reverse split and the name of the Company was changed from Gem Source,
Incorporated to Blue Ridge Energy, Inc. In June 1996, BRG acquired another
1,000,000 of restricted common stock from the company treasury for $0.05 a
share, or $50,000.


                                       9
<PAGE>   11
                            BLUE RIDGE ENERGY, INC.
                         NOTES TO FINANCIAL STATEMENTS


As of September 30, 1999, there are 5,788,994 shares of common stock issued and
outstanding. A total of 3,132,575 shares are held by BRG and the remainder of
2,656,419 shares are held by approximately 500 shareholders, 40 of which are
original stockholders of the Company.

Advances from Related Parties

During 1998, the Company agreed with Blue Ridge Group, Inc. to acquire and
develop oil and gas properties and drilling equipment in the Appalachian Basin
of Kentucky. In order to facilitate the acquisition of these properties the
Company advanced approximately $1,300,000, bearing interest at 12% per annum,
to Blue Ridge Group, Inc. As of September 30, 1999 approximately $98,989 in
interest had been earned under this arrangement and the entire balance had been
repaid via the drilling of 10 gas wells and the purchase of drilling equipment.

Additionally, Blue Ridge Group, Inc. provides various management,
administrative, accounting and geological services for the Company at a rate of
$20,000 per month. Blue Ridge Energy also reimbursed Blue Ridge Group for
direct costs paid on its behalf. As of September 30, 1999 and 1998,
approximately $0 was due and payable to Blue Ridge Group under this
arrangement.

4.       PROPERTY AND EQUIPMENT

Property and equipment, stated at cost, consisted of the following at September
30, 1999 and 1998:

<TABLE>
<CAPTION>
                                                  1999              1998
                                               -----------       ------------
<S>                                           <C>                <C>
         Oil and Gas Properties                $   883,381       $    514,620
         Drilling Rig and Equipment              2,101,484                ---
         Furniture and Fixtures                        364                364
                                               -----------       ------------
                                                 2,985,229            514,984
         Less Accumulated Depreciation              89,265                197
                                               -----------       ------------
                                               $ 2,895,964       $    514,787
                                               ===========       ============
</TABLE>

Depreciation expense was $71,253 and $96 during the 9 months ended September
30, 1999 and 1998, respectively.

During the first quarter of 1999 the Company consummated the purchase of an
Ingersoll Rand drilling rig and its ancillary equipment for approximately $1.35
million of which approximately $600 thousand was provided by long term debt. In
June, 1999 the Company consummated the purchase of another Ingersoll Rand
drilling rig from Blue Ridge Group for approximately $750 thousand.

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 June 30, 2000,
whichever comes first.


                                      10
<PAGE>   12
                            BLUE RIDGE ENERGY, INC.
                         NOTES TO FINANCIAL STATEMENTS


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
limited to $1 million per occurrence. 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, 1999, 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

The Company was organized in November, 1994, as a Nevada corporation under the
name of Gem Source, Incorporated (Gem Source) with an initial issuance of
1,000,000 shares of Common Stock with a par value of $0.001 per share. In 1995,
Gem Source had an offering of 1,633,000 shares under Rule 504, an exemption
under Regulation D from full registration with the SEC to bring the total
outstanding shares of common stock to 2,633,000.

Blue Ridge Group, Inc. (BRG) acquired control of Gem Source in March, 1996,
when BRG acquired 1,000,000 shares of restricted stock at $0.10 a share. In May
1996, the 2,633,000 outstanding common shares were the subject of a 5 to 1
reverse split resulting in outstanding shares of 526,600 with a par value of
$0.005 per share. The name of the Company was also changed from Gem Source to
Blue Ridge Energy, Inc. Additionally, in June 1996, BRG acquired another
1,000,000 of restricted common stock from the Company treasury for $0.05 a
share, or $50,000 and options to purchase an additional 2,000,000 shares of
restricted common stock at $0.05 per share. During February 1998, the Company
granted warrants to BRG to purchase an additional 5,000,000 shares of
restricted common stock at $0.05 per share.

During 1997, the Company's majority shareholder, Blue Ridge Group, Inc.,
exercised options to purchase 200,000 shares of the Company's common stock at
$0.05 per share or $10,000. Subsequently, Blue Ridge Group, Inc.
distributed these shares of stock to investors in one of its partnerships.

During 1998, the Company's majority shareholder, Blue Ridge Group, Inc.
exercised options to purchase 2,800,000 shares of the Company's common stock at
$0.05 per share, or $140,000. Subsequently, Blue Ridge Group, Inc. distributed
889,425 of these shares to investors in several of its partnerships.


                                      11
<PAGE>   13

                            BLUE RIDGE ENERGY, INC.
                         NOTES TO FINANCIAL STATEMENTS


During 1998, the Company authorized the issuance of 1,000,000 shares of Common
Stock Warrants ("Warrants") in conjunction with the sale of the Company's
Series D Preferred Stock. One Warrant will be issued with each share of Series
D Preferred Stock sold and will be exercisable to purchase Blue Ridge Energy,
Inc. Common Stock at $1.00 per share between May 31, 1998 and May 31, 2003.

As of September 30, 1999, there were 533,712 Series D Warrants issued and
outstanding, none of which had been exercised.

Series A Preferred Stock

During May 1996, the Company authorized the issuance and sale of 300,000 shares
of Series A Preferred Stock ("Series A Stock") which has a par value of $0.001
per share, at $3.00 per share. The Series A Stock bears a 12% per annum
dividend payable monthly. Each share of the Series A Stock was converted
automatically into one (1) share of Common Stock effective September 30, 1998.

In the event of any liquidation, dissolution or winding up of the Company
either voluntary or involuntary, the holders of Series A 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
$3.00 per share plus all unpaid dividends on such share of each share of Series
A Stock then held by the shareholder.

In a Confidential Private Placement Memorandum dated July 25, 1996, the Company
offered 300,000 shares of Series A Stock in exchange for partnership interests
in Target Leasing, Ltd. I. The value assigned to the properties acquired of
$154,810 in addition to net proceeds received of $122,881 resulted in total
consideration received of $277,691. At June 30, 1999 and 1998 there were -0-
and 297,746 shares of Series A Stock issued and outstanding, respectively.

Series B Preferred Stock

During 1996, the Company authorized the issuance and sale of 300,000 shares of
Series B Preferred Stock ("Series B Stock") which has a par value of $0.001 per
share, at $3.00 per share. The Series B Stock bears a 12% per annum dividend
payable monthly. Each share of the Series B Stock was converted automatically
into two (2) shares of Common Stock effective 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 holders of Series B 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, but subordinate
to the liquidation preference of the Series A Stock, the amount of $3.00 per
share plus all unpaid dividends on such share of each share of Series B Stock
then held by the shareholder.

At September 30, 1999 and 1998 there were -0- and 202,374 shares of Series B
Stock issued and outstanding, respectively.

Series C Preferred Stock

During 1997, the Company authorized the issuance and sale of 400,00 shares of
Series C Preferred Stock ("Series C Stock") which has a par value of $0.001 per
share at $6.00 per share. The Series C Stock bears


                                      12
<PAGE>   14
                            BLUE RIDGE ENERGY, INC.
                         NOTES TO FINANCIAL STATEMENTS


a 12% per annum dividend payable monthly. Each share of the Series C Stock
shall be converted automatically into two (2) shares of Common Stock effective
when a 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 holders of Series C 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, but subordinate
to the liquidation preference of the Series A Stock and the Series B Stock, the
amount of $6.00 per share plus all unpaid dividends on such share of each share
of Series C Stock then held by the shareholder.

At September 30, 1999 and 1998, there were 18,138 and 169,450, shares of Series
C Stock issued and outstanding, respectively.

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. In addition, the Company will issue one Common Stock Warrant
exercisable to purchase one share of the Company's Common Stock for $1.00 with
each share of Series D Stock sold. Each share of the Series D Stock shall be
converted automatically into one (1) share of Common Stock effective when a
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 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, but subordinate
to the liquidation preference of the Series A Stock, the Series B Stock and the
Series C 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, 1999, there were 533,712 shares of Series D Stock issued and
outstanding. The total amount received from the sale of this stock was
$2,668,560 less expenses paid of $851,654.


                                      13
<PAGE>   15
           ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS

FINANCIAL OVERVIEW:

         Blue Ridge Energy, Inc. ("Blue Ridge") is an oil and gas exploration
company incorporated in the state of Nevada with its home office in the
Commonwealth of Kentucky and presently conducting operations in Texas and
Kentucky. During March of 1996, Blue Ridge Group, Inc. ("Group") acquired a
majority interest in the Common Stock of Blue Ridge with the express intent to
develop it into a successful oil and gas exploration and development company.
Blue Ridge's Common Stock is traded "over-the-counter" with "BREY" as its stock
symbol.

         Blue Ridge is engaged in the exploration and development of oil and
gas leases located primarily in Texas and Kentucky through one or more of the
following activities: (i) acquisition of oil and gas leases, (ii) investment in
partnerships sponsored by itself or affiliates; (iii) purchase of producing oil
and gas properties, (iv) providing drilling services and (v) acquisition of oil
and gas companies which own properties and/or production. Wells drilled and
developed by Blue Ridge include both exploratory and development wells located
primarily in Texas and Kentucky. 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, a
provider of drilling services and as an independent producer of oil and gas.

         Since the middle of 1996, Blue Ridge has sponsored and invested in the
private placement of ten (10) Limited Partnerships with subscriptions of
approximately $12 million. Through these Limited Partnerships Blue Ridge has
participated in and developed forty-one (41) oil and gas wells of which ten
(10) are producing oil wells; twelve (12) are producing gas wells; three (3)
are dry holes and sixteen (16) are in progress.

         Blue Ridge has also directly participated in the acquisition and
development of oil and gas leases with mixed results over the past three years.
Due to a drastic downturn in oil prices at the end of 1997 and the beginning of
1998, Blue Ridge did not develop some of its acreage and the leases lapsed.
This, combined with reductions in the valuation of some of Blue Ridge's other
oil properties per its reserve reports caused Blue Ridge to record impairment
losses on it oil and gas properties totaling $540 thousand during 1997 and
1998.

         During the latter half of 1998, Blue Ridge entered into an agreement
with its majority shareholder, Blue Ridge Group, Inc., to acquire and develop
interests in up to twenty-five oil and gas wells in the Appalachian Basin of
Kentucky. Historically, development of wells in this area has averaged an 85%
to 90% success rate with four to five year payouts. At September 30, 1999,
eleven wells in this program had been drilled, all of which are expected to be
completed as commercial gas producers.

         During 1998, management determined the Company could substantially
increase its profitability by operating its own drilling rigs. Accordingly, in
the first quarter of 1999, the Company consummated the purchase of an Ingersoll
Rand drilling rig and its ancillary equipment for approximately $1.35 million of
which $600 thousand was provided by long-term debt. In June, 1999 the Company
purchased another Ingersoll Rand drilling rig, from Blue Ridge Group Inc., for
$750 thousand.

         The Company has operated these rigs at an approximate break even level
during the second and third quarters of 1999. This was due to anticipated start
up costs in the Appalachian Basin of Kentucky. Presently, the Company has
drilling commitments that should maintain these rigs at a fully operational
basis through the end of 1999 and early 2000. Management anticipates that the
Company should realize substantial operating profits from its drilling
operations during the remainder of 1999.

         By September 30, 1999, Blue Ridge had total assets of $4.2 million,
total liabilities of $917 thousand and shareholders' equity of $3.3 million.
Blue Ridge's net income increased to $379 thousand during the first nine months
of 1999 as compared to $154 thousand for the same period in 1998, Earnings per


                                      14
<PAGE>   16
     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS


common share, which take into account cash dividends paid on preferred stock
increased to $0.03 per share during the first nine months of 1999 as compared
to $0.00 during the same period in 1998. All per share data in this report has
been adjusted to give effect to applicable stock issues and conversions.

INCOME STATEMENT REVIEW:

Nine months ended September 30, 1999 and 1998:

         Blue Ridge's net income increased to $379 thousand during the first
nine months of 1999 as compared to $154 thousand for the same period in 1998,
Earnings per common share, which take into account cash dividends paid on
preferred stock increased to $0.03 per share during the first nine months of
1999 as compared to $0.00 during the same period in 1998.

Operating Revenues:

         Operating revenues totaled $4.9 million during the nine months ended
September 30, 1999, a 182.6% increase from the $1.7 million recorded during the
nine months ended September 30, 1998, This increase was primarily related to an
increased activity level in Blue Ridge's sponsorship of Limited Partnerships
for the drilling and development of oil and gas properties during 1999. As a
result of this activity, Blue Ridge generated $4.4 million in turnkey contract
sales and related fee income during the first nine months of 1999 as compared
to $1.7 million during the first nine months of 1998, an increase of 156.6%. An
additional $475 thousand in revenues were generated by the two drilling rigs
purchased during 1999.

Direct Operating Costs:

         Direct operating costs totaled $3.8 million during the nine months
ended September 30, 1999, a 183.6% increase from the $1.4 million experienced
during the same period in 1998. The changes in direct operating costs are
directly and proportionally related to the changes in operating revenues
previously discussed.

Other Operating Expenses:

         Other Operating Expenses increased 112.1% to $540 thousand during the
first nine months of 1999 from the $254 thousand experienced during this period
in 1998. This increase was primarily caused by an increase in marketing costs
related to the increased activity level in sponsoring Limited Partnerships as
previously discussed of 479% to $281 thousand in 1999 as compared to 1998.
General and administrative costs decreased 9.0% to $187 thousand during the
first nine months of 1999 as compared to $206 thousand during the same period
in 1998 despite the increased activity levels. This reduction was accomplished
by improved efficiencies resulting in fewer of these costs being associated
with corporate activities and more being directly associated with operating
activities. Depreciation and amortization expense increased from almost nothing
in 1998 to $71 thousand in 1999 due to depreciation expenses associated with
the two drilling rigs acquired in 1999.


                                      15
<PAGE>   17

     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS

Other Income (Expense):

         Other Income (Expense) decreased 85.2% to $14 thousand in 1999 from
$92 thousand due to the lack of oil and gas lease sales in 1999 and reductions
in interest income as funds were utilized for the purchase of two drilling rigs
and development of oil and gas properties.

Three months ended September 30, 1999 and 1998:

         Blue Ridge's net income increased to $69 thousand during the third
quarter of 1999 as compared to $21 thousand for the same period in 1998,
Earnings per common share, which take into account cash dividends paid on
preferred stock increased to $(0.00) per share during the third quarter of 1999
as compared to $(0.03) during the same period in 1998.

Operating Revenues:

         Operating revenues totaled $1.4 million during the three months ended
September 30, 1999as compared to the $20 thousand recorded during the three
months ended September 30, 1998, This increase was primarily related to an
increased activity level in Blue Ridge's sponsorship of Limited Partnerships
for the drilling and development of oil and gas properties during 1999 as
previously discussed and an additional $179 thousand in revenues generated by
the two drilling rigs purchased during 1999.

Direct Operating Costs:

         Direct operating costs totaled $1.1 million during the three months
ended September 30, 1999, as compared to the $20 thousand experienced during
the same period in 1998. The changes in direct operating costs are directly and
proportionally related to the changes in operating revenues previously
discussed.

Other Operating Expenses:

         Other Operating Expenses increased 161.0% to $192 thousand during the
third quarter of 1999 from the $73 thousand experienced during this period in
1998 for the same reasons as discussed for the nine month periods.

Other Income (Expense):

         Other Income (Expense) decreased 107.7% to $(7) thousand in the third
quarter of 1999 from $88 thousand due to the lack of oil and gas lease sales in
1999 and reductions in interest income as funds were utilized for the purchase
of two drilling rigs and development of oil and gas properties.

BALANCE SHEET REVIEW:

Assets:

         Blue Ridge's current assets decreased 42.4% to $1.2 million at
September 30, 1999 from $2.2 million at September 30, 1998. This decrease was
primarily caused by the expenditure of funds for the purchase of


                                      16
<PAGE>   18

     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS


two drilling rigs and the development of oil and gas properties during 1999.
The funds used for these capital expenditures were provided by (1) a $1.2
million reduction in advances to affiliates, (2) a $587 thousand increase in
long-term debt and (3) $738 thousand in preferred stock sales. Blue Ridge's
operations were the primary source of the 101% increase to $767 thousand in
accounts receivable from oil and gas operations as well as the slight change in
cash.

         Property and equipment increased 463% to $2.9 million at September 30,
1999 as compared to $515 thousand at September 30, 1998 due to the purchase of
two drilling rigs and development of oil and gas properties as previously
discussed.

Liabilities:

         Blue Ridge's current liabilities increased 181% to $149 thousand at
September 30, 1999 from $53 thousand at September 30, 1999 as a natural result
of Blue Ridge's increased operations.

         Effective January 1, 1996, Blue Ridge adopted provisions of the
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" which requires the use of the "liability method" under which deferred
tax assets and liabilities are recognized for their estimated future tax
consequences. At September 30, 1999 and 1998 Blue Ridge had recognized deferred
income tax liabilities of $251 thousand and $40 thousand, respectively as a
result of this methodology.

         During 1999, Blue Ridge incurred $587 thousand of long-term debt
associated with the purchase of the two drilling rigs previously discussed.

Stockholders' Equity:

         Total capital invested in Blue Ridge for Common and Preferred Stock
increased 28.1% to $3.6 million at September 30, 1999 from $2.8 million at
September 30, 1998, primarily as a result of the purchases of Preferred Stock
by investors as previously discussed. Approximately, 642 thousand shares of
Preferred Stock were converted into 983 thousand shares of Common Stock during
1998 and 1999 and Blue Ridge's majority shareholder, Blue Ridge Group, Inc.
exercised options to purchase approximately 3.1 million shares of Common Stock
for $152,500.

         Despite recording net income of $379 thousand, Blue Ridge's retained
earnings declined 48% to an accumulated deficit of $348 thousand at September
30, 1999 from an accumulated deficit of $235 thousand at September 30, 1998 as
the result of impairment losses taken during the fourth quarter of 1998, as
previously discussed and the payment of approximately $525 thousand of cash
dividends to Blue Ridge's Preferred Shareholders during 1998 and 1999.

CAPITAL RESOURCES AND LIQUIDITY:

         Both Blue Ridge's current ratio (current assets/current liabilities)
and quick ratio (quick assets/quick liabilities) are the same, due to the quick
nature of Blue Ridge's current assets and liabilities. As a result of Blue
Ridge's equipment purchases and increased operating functions, at September 30,
1999 the current and quick ratios were 8.38 to 1, a decrease of 79.5% from
40.59 to 1 at September 30, 1998. Management


                                      17
<PAGE>   19

     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS


intends to maintain Blue Ridge's liquidity at levels designed to maximize Blue
Ridge's flexibility in taking advantage of profitable opportunities as they
arise while minimizing its cost of having adequate funds available for
conducting its operations.

         During the two periods ended September 30, 1999 and 1998 Blue Ridge
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 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.

                                    PART II
                               OTHER INFORMATION

         ITEM 1.  LEGAL PROCEEDINGS

            There are no legal proceedings pending against Blue Ridge Energy,
            Inc.

         ITEM 2.  CHANGES IN SECURITIES

            During the third quarter of 1999, the Company issued 127,500 shares
            of Series D Preferred Stock for a net consideration of $523,111
            (net of brokerage commissions and legal expenses of approximately
            $114,000). These Preferred Securities were sold to 25 accredited
            investors using Regulation D, Rule 506 as an exemption from
            registration. See the notes to the accompanying condensed financial
            statements for a description of the terms of conversion or exercise
            of the securities and warrants.

         ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

            Not Applicable

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

            None

         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, 1999.

                                   SIGNATURES

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


                                        BLUE RIDGE ENERGY, INC.

Date        11/10/99                    By     /s/ J. THOMAS COOK, JR.
     -----------------------------          --------------------------------
                                                   J. Thomas Cook, Jr.
                                            Sr. Vice President-Finance & CFO


                                      18
<PAGE>   20
                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
NUMBER          DESCRIPTION
-------         -----------
<S>             <C>
  27            Financial Data Schedule
</TABLE>